2021
A P I L L A R I N O U R C O M M U N I T I E S F O R 1 5 0 Y E A R S
1871
2021
NORWOOD FINANCIAL CORPANNUAL REPORT 1
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DEAR STOCKHOLDERS,
We are pleased to share with you the Company’s performance and achievements in this Annual Report.
For the year ended December 31, 2021, net income totaled a record level of $24,915,000, an
increase of $9,835,000 from the $15,080,000 earned in the prior year. The increase reflects the benefits
derived from the acquisition of UpState New York Bancorp, Inc. (“UpState”), earnings related to the
Paycheck Protection Program (“PPP”), and a lower level of the provision for loan losses. Earnings
per share on a fully diluted basis were $3.04 compared to $2.09 for the year ended December 31, 2020.
Our earnings for 2021 resulted in a return on average assets of 1.24%, and a return on average tangible
equity of 14.49%, compared to 0.97% and 10.16%, respectively, for the year ended December 31, 2020.
We also increased our cash dividend declared in the fourth quarter of 2021 to $0.28 per share,
which represents a 7.7% increase compared to the fourth quarter of 2020. This makes 30 consecutive
years of an increase in the Company’s cash dividend, a remarkable achievement. We believe 2021
was a very successful year for the Company. I encourage you to read the Management’s Discussion
and Analysis and the Financial Statement with Footnotes for a full report on our performance.
The year’s most exciting news was the celebration of Wayne Bank’s 150-year anniversary on
November 4. We honored this impressive milestone throughout our markets with product promotions,
a custom anniversary logo, giveaways for our customers, and more. Of special note, was a congratulatory
graphic message from NASDAQ, which ran on the NASDAQ Tower in Times Square in New York
City. We will continue the celebration through November 2022. The longevity of the Company
demonstrates our commitment to serving our stockholders, customers, employees, and communities.
Last year was also the Company’s first full year with markets made up of 30 Community Offices
across two states, ten counties, and three brands: Wayne Bank, Bank of Cooperstown, and Bank of the
,,
WE ARE A COMMUNITY BANK THAT IS DEDICATED TO INVESTING
IN THE RESIDENTS, BUSINESSES, AND ORGANIZATIONS WHO
MAKE OUR COMMUNITIES A BETTER PLACE TO LIVE.”
NOVEMBER 4, 1871
Founded with the modest capital of
$25,000 as Wayne County Savings Bank
in the old Weston Building, the site of
the former Erk Hardware Building, west
of Main Street in the Keystone block.
1898
The Bank constructs a new larger
building at 717 Main Street in
Honesdale (current location).
LEWIS J. CRITELLI
President and CEO
MILESTONES THROUGH THE YEARS
1875
The Bank moves into a new
building on Main Street,
due to rapid growth.
ANNUAL REPORT
Finger Lakes. Though geographically and demographically diverse from one another, each of our
Community Offices are staffed by bankers who are accessible, knowledgeable, and committed
to helping their neighbors, local businesses, and hometown organizations grow and thrive. This
resulted in healthy growth for our deposit base and loan portfolio in 2021. Deposits now total over
$1.7 billion and loans are $1.4 billion.
As the COVID-19 pandemic continued to affect our nation throughout 2021, we remained
steadfast in our mission of supporting our customers, communities, and local businesses. We assisted
over 1,900 local businesses in obtaining PPP loans to provide emergency relief to business owners.
As an official Small Business Administration Lender, Wayne Bank supported existing customers,
as well as other businesses across our markets, with over $156 million of loans funded. We assisted
our customers in receiving loan forgiveness from the SBA with over 90% forgiven to date. We also
continued our longstanding tradition of investing in our communities, by donating to hundreds of
local schools, food banks, first responders, and neighborhood organizations. In addition, the Bank
assisted many local governments and school districts to manage their funds.
Technology remained a priority for the Bank and customers appreciated the convenience of
our free digital banking services, as usage increased significantly from the prior year. At the end of
2021, Mobile Banking users totaled almost 40,000, an 18% increase, and Mobile Deposit Capture
increased by 20% to almost 7,000 users. We also added a new service in the fourth quarter with the
launch of Zelle®. Zelle® is a fast, safe, and easy way to send and receive money in minutes with
friends, family, and businesses. Customers can easily access and register for Zelle® through Bill Pay
in our online banking and mobile banking app, and many quickly signed up.
Another exciting change occurred in the fourth quarter with the launch of Wayne Bank’s new
website at wayne.bank. The website includes a fresh, modern design with significant usability and
accessibility improvements. I encourage you to visit this redesigned site on any of your devices.
Wayne Bank is committed to investing in the communities we serve, and the decision was made to
relocate our Penn Yan, New York Community Office in the second half of 2022. Once construction is
completed, the new full-service office will feature a spacious and contemporary design with improved
parking and drive-up banking services. This will provide numerous benefits for our Penn Yan customers,
staff, and the local community, and we are excited to complete this initiative.
1924
Construction is finished, and the new Bank
is opened. This building is still where Wayne
Bank’s Main Office is located. The vault
costs $12,530 and is installed by the Herring-
Hall-Marvin Safe Company of New York
City. The vault is still in use today.
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OFFICES
2
STATES
10
COUNTIES
250+
EMPLOYEES
$2B
ASSETS
1972
“Harris” Building,
is purchased and
demolished to add a
multi-lane drive-thru
to the Main Office.
1923
The present building proves to be too
small, so a new building is constructed
on the site of the present building.
While it is being constructed, Bank
business is conducted from the Dodge
Hotel building at 913 Main Street.
1931
Wayne Bank acquires
the Waymart State
Bank in Waymart, PA
1954
Wayne Bank opens
a new Waymart
Community Office.
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THE FOUR PILLARS WAYNE BANK IS BUILT UPON
We believe in
lending money
to the local
businesses and
residents within
the communities
we serve.
We believe in
funding those
loans with
local deposits
gathered through
our Community
Offices.
We believe in
operating as
efficiently and
effectively as
we can.
We believe in
utilizing our
capital to earn
a return for our
stockholders,
customers, and
communities.
The growth and prosperity of our organization has always been due to our outstanding employees, and we
honored the dedication of those individuals who celebrated milestone years of service with Wayne Bank in 2021.
Congratulations to Gail Simpson, Roscoe Community Office Head Teller, for her remarkable 50 years of service.
Dawnette Hotaling, Senior Vice President and NY Retail Market Manager, also celebrated an impressive 40 years
of service. Adding employees celebrating twenty, fifteen, ten, and five year anniversaries, the group represents 260
years of community banking excellence.
The year’s progress provided many opportunities for employee growth and numerous employees were
promoted for their hard work and dedication. The most senior promotions included Vincent G. O’Bell to Senior
Vice President and Chief Lending Officer, Steven Daniels to Senior Vice President and Retail Lending Manager,
Jim King to Senior Vice President and Commercial Loan Officer, Michael Scaglione to Senior Vice President and
Commercial Loan Officer, and Kara Suchy to Senior Vice President and Director of Internal Audit. In addition, we
strengthened the Company with a number of strategic new hires including Michael Rollison, Senior Vice President
and Commercial Team Leader for Wayne and Pike Counties, and Paul Dunda, Senior Vice President and Senior
Operations Officer.
After twelve years in this role, I will retire this year as President and Chief Executive Officer of Norwood
Financial Corp and Wayne Bank. It has been my sincere honor and privilege to serve this Company, our Board
of Directors, stockholders, employees, customers, and communities. I am fortunate to have spent twenty-seven
remarkable years with Wayne Bank and will continue to serve as director of the Company and the Bank, following
my retirement during the first half of 2022.
1980
A second Honesdale
Community Office
opens on Willow
Avenue.
MILESTONES THROUGH THE YEARS
1996
Shohola and
Lakewood
Community
Offices open.
1999
Stroud Mall Community
Office opens.
2006
Tannersville
Community
Office opens.
1985
Hawley Community
1993
The Bank’s name is officially
Office opens.
changed from Wayne County
Bank and Trust to Wayne Bank.
Milford Community
Office opens.
1997
Wayne Bank offers Visa
Debit Cards, eliminating
the need for customers to
carry cash or write checks
when making a purchase.
2001
Teller computers are installed.
Prior to this, teller work was
done on calculators.
ANNUAL REPORT
NORWOOD FINANCIAL CORP BOARD OF DIRECTORS
William W. Davis, Jr.
William W. Davis, Jr.
Chairman of the Board
Dr. Andrew A. Forte
Dr. Andrew A. Forte
Vice Chairman
Lewis J. Critelli
Lewis J. Critelli
President and CEO
Joseph W. Adams
Joseph W. Adams
Director
Susan Campfield
Susan Campfield
Director
Jeffrey Gifford
Jeffrey Gifford
Director
Meg L. Hungerford
Meg L. Hungerford
Director
Kevin M. Lamont
Kevin M. Lamont
Director
Ralph A. Matergia, Esq.
Ralph A. Matergia, Esq.
Director
Alexandra Nolan
Alexandra Nolan
Director
Dr. Kenneth A. Phillips
Dr. Kenneth A. Phillips
Director
Russell L. Ridd,
Russell L. Ridd,
Director Emeritus
The Board of Directors is currently undertaking a process to choose my successor and I am confident that the new President
and CEO will continue to uphold the four pillars this Bank was built on: To lend money to the local businesses and residents
within the communities we serve; To fund those loans with local deposits gathered through our Community Offices; to operate as
efficiently and effectively as we can; and to utilize our capital to earn a return for our stockholders, customers, and communities.
We truly appreciate the support and confidence of our stockholders. We thank you for your ownership interest in Norwood as
we continue to work to enhance shareholder value. Please keep us in mind for all your financial needs.
2016
Wayne Bank acquires
Delaware Bancshares,
Inc. with 12 Community
Offices in Delaware and
Sullivan Counties, NY.
2011
Wayne Bank acquires
North Penn Bancorp,
Inc. and with it, the
Central Scranton, Clarks
Summit, and Effort
Community Offices.
2013
Wayne Bank launches
branded mobile app for
smart phones and tablets.
LEWIS J. CRITELLI
President and CEO
NOVEMBER 4,2021
Wayne Bank celebrates 150 years
of serving our communities.
2020
Wayne Bank acquires UpState New York
Bancorp, Inc., including the Bank of the
Finger Lakes and Bank of Cooperstown
brands. As units of Wayne Bank, these brands
add Community Office locations in Geneva,
Penn Yan, Cooperstown, and Oneonta, NY.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
_____________________
(Mark One):
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-28364
_____________________
NORWOOD FINANCIAL CORP
(Exact Name of Registrant as Specified in its Charter)
_____________________
Pennsylvania
(State or Other Jurisdiction of
Incorporation or Organization)
717 Main Street, Honesdale, Pennsylvania
(Address of Principal Executive Offices)
23-2828306
(I.R.S. Employer
Identification No.)
18431
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (570) 253-1455
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.10 par value
Trading
Symbol(s)
NWFL
Securities registered pursuant to Section 12(g) of the Act: None
_____________________
Name of Each Exchange
on Which Registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒ NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ YES ☒ NO
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ☒ YES ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). ☒ YES ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of the registrant’s Common Stock
as of June 30, 2021, $26.00 per share, was $194.7 million based on 7,488,147 shares of Common Stock held by non-affiliates on that date. Solely for
purposes of this calculation, shares held by directors, executive officers and greater than 10% stockholders are treated as shares held by affiliates.
As of March 1, 2022, there were 8,203,073 shares outstanding of the registrant’s Common Stock.
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
☐
☒
1.
Portions of the definitive Proxy Statement for the 2022 Annual Meeting of Stockholders. (Part III)
DOCUMENTS INCORPORATED BY REFERENCE
NORWOOD FINANCIAL CORP
ANNUAL REPORT ON FORM 10-K
Table of Contents
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosure about Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions and Director Independence.
Principal Accounting Fees and Services.
23
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9
Item 9A.
Item 9B.
Item 9C.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
SIGNATURES
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Forward Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words such as
“estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking
statements include, but are not limited to:
•
•
•
•
statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to
significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these
forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to
change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of the Annual
Report on Form 10-K.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the COVID-19 pandemic may continue to adversely impact the local and national economy and our business and results of
operations may continue to be adversely affected;
general economic conditions, either nationally or in our market areas, that are worse than expected;
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the
allowance for loan losses;
our ability to access cost-effective funding;
fluctuations in real estate values and both residential and commercial real estate market conditions;
demand for loans and deposits in our market area;
our ability to implement changes in our business strategies;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields, or reduce the fair value of financial
instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments
on loans we have made and make whether held in portfolio or sold in the secondary markets;
adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees
and capital requirements;
changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board;
our ability to manage market risk, credit risk and operational risk in the current economic conditions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or
may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time
frames and any goodwill charges related thereto;
changes in consumer demand, borrowing and savings habits
the ability of third-party providers to perform their obligations to us;
the ability of the U.S. Government to manage federal debt limits;
cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to
obtain unauthorized access to confidential information and destroy data or disable our systems;
technological changes that may be more difficult or expensive than expected;
changes in the financial condition, results of operations or future prospects of issuers of securities that we own; and
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing products and
services described elsewhere in this Annual Report on Form 10-K.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by
these forward-looking statements.
1
The COVID-19 Pandemic.
The COVID-19 pandemic is continuing to have an adverse impact on the Company, its customers and the communities it
serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the business of the
Company, its customers, employees and third-party service providers. The extent of such impact will depend on future developments,
which are highly uncertain, including whether the pandemic can be controlled and abated. Additionally, the responses of various
governmental and nongovernmental authorities to curtail business and consumer activities in an effort to mitigate the pandemic will
have material long-term effects on the Company and its customers which are difficult to quantify in the near-term or long-term.
As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company is
subject to certain risks, any of which could have a material, adverse effect on the business, financial condition, liquidity, and results of
operations of the Company. These risks include, among others,(i) risks to the capital markets that may impact the value or performance
of the Company’s investment securities portfolio, as well as limit our access to the capital markets and wholesale funding sources; (ii)
effects on key employees, including operational or management personnel and those charged with preparing, monitoring and evaluating
the companies’ financial reporting and internal controls; (iii) declines in demand for loans and other banking services and products, as
well as a decline in the credit quality of our loan portfolio, owing to the effects of COVID-19 in the markets served by the Company;
(iv) collateral for loans, especially real estate, may continue to decline in value, which could cause loan losses to increase; (v) the net
worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments; (vi) the allowance for credit losses
may increase if borrowers experience financial difficulties, which will adversely affect net income; (vii) if the economy is unable to
substantially reopen or reopen in an efficient manner, and high levels of unemployment continue for an extended period of time, loan
delinquencies, problem assets, and foreclosures may increase, resulting in increased loan losses and reduced interest income; (viii) in
certain states in which we do business temporary bans on evictions and foreclosures have been enacted through executive orders, and
may continue indefinitely, resulting in our inability to take timely possession of real estate assets collateralizing loans, which may
increase our loan losses; (ix) as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on
assets may decline to a greater extent than the decline in cost of interest-bearing liabilities, reducing net interest margin and spread and
reducing net income; (x) cyber security risks are increased as the result of an increase in the number of employees working remotely
and an increase in the number of our clients banking electronically; (xi) declines in demand resulting from adverse impacts of the disease
on businesses deemed to be “non-essential” by governments in the markets served by the Company; and (xii) increasing or protracted
volatility in the price of the Company’s common stock, which may also impair our goodwill or other intangible assets.
As a participating lender in the SBA Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from
our customers or other parties regarding our processing of loans for the PPP which could have a significant adverse impact on our
business, financial position, results of operations, and prospects. The COVID-19 pandemic and its impact on the economy have led to
actions including the enactment of the Coronavirus Aid, Relief and Economic Security Act, including the establishment of the PPP
administered by the Small Business Administration (“SBA”). Under the PPP, small businesses and other entities and individuals can
apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous
limitations and eligibility criteria. We are participating as a lender in the PPP. Since the initiation of the PPP, several banks have been
subject to litigation or threatened litigation regarding the process and procedures that such banks used in processing applications for the
PPP. We may be exposed to the risk of litigation, from both clients and non-clients that approached us regarding PPP loans. If any such
litigation is filed or threatened against us and is not resolved in a manner favorable to us, it may result in significant cost or adversely
affect our reputation. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a
material adverse impact on our business, financial position, results of operations and prospects.
Item 1. Business.
General
Norwood Financial Corp (the “Company”), a Pennsylvania corporation, was incorporated in 1995 to become the holding
company for Wayne Bank (the “Bank”). The Company is a registered bank holding company subject to regulation and supervision by
the Board of Governors of the Federal Reserve System (“Federal Reserve”). As of December 31, 2021, the Company had total
consolidated assets of $2.069 billion, consolidated deposits of $1.757 billion, and consolidated stockholders’ equity of $205.3 million.
The Company’s ratio of average equity to average assets was 10.04%, 10.70%, and 10.86% for fiscal years 2021, 2020 and 2019,
respectively.
Wayne Bank is a Pennsylvania chartered bank and trust company headquartered in Honesdale, Pennsylvania. The Bank was
originally chartered on February 17, 1870, as Wayne County Savings Bank and changed its name to Wayne County Bank and Trust in
December 1943. In September 1993, the Bank adopted the name Wayne Bank. The Bank’s deposits are currently insured to applicable
limits by the Federal Deposit Insurance Corporation (“FDIC”) and the Bank is a member of the Federal Home Loan Bank (“FHLB”) of
Pittsburgh. The Bank is regulated and examined by the Pennsylvania Department of Banking and Securities (“Department”) and the
FDIC. The Bank is an independent community bank with fourteen offices in Northeastern Pennsylvania and sixteen offices in Delaware,
Sullivan, Ontario, Otsego and Yates Counties, New York.
2
The Bank offers a wide variety of personal and business credit services and trust and investment products and real estate
settlement services to the consumers, businesses, nonprofit organizations, and municipalities in each of the communities that the Bank
serves. The Bank primarily serves the northeastern Pennsylvania counties of Wayne, Pike, Monroe, Lackawanna and Luzerne and, to a
much lesser extent, Susquehanna County in addition to the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates. In
addition, the Bank operates automated teller machines at twenty-nine branch facilities plus one machine at an off-site location and one
machine at the former Narrowsburg Office location.
The Company’s main office is located at 717 Main Street, Honesdale, Pennsylvania and its main telephone number is (570)
253-1455. The Company maintains a website at wayne.bank. Information on our website should not be treated as part of this Annual
Report on Form 10-K. The Company makes copies of its SEC filings available free of charge as soon as reasonably practicable after
they are filed, through a link on its website to the SEC’s website.
Completed Acquisitions
UpState New York Bancorp, Inc. On July 7, 2020, the Company completed the acquisition of UpState New York Bancorp,
Inc. (“UpState”), and its wholly owned subsidiary, USNY Bank (“USNY Bank”). The acquisition was completed when UpState was
merged with and into the Company, with the Company as the surviving corporation of the merger and USNY Bank was merged with
and into Wayne Bank, with Wayne Bank as the surviving entity. At the time of completion of the acquisition, USNY Bank conducted
its business from two Bank of the Finger Lakes offices in Geneva and Penn Yan, New York, and two Bank of Cooperstown offices in
Cooperstown and Oneonta, New York.
In the merger, shareholders of UpState elected to receive for each share of UpState common stock they owned, either 0.9390
shares of the Company’s common stock or $33.33 in cash, or a combination of both. All shareholder elections were subject to the
allocation and proration procedures set forth in the Merger Agreement which were intended to ensure that 90% of the shares of UpState
would be exchanged for the Company’s common stock and 10% of the shares of UpState would be exchanged for cash. In addition,
under the terms of the Merger Agreement, UpState shareholders received an additional $0.67 per share in cash for each share of UpState
common stock held. In the aggregate, the merger consideration paid to UpState shareholders consisted of approximately $8,845,198 in
cash and 1,865,738 shares of the Company’s common stock.
The senior management of the Company and Wayne Bank remained the same following the completion of the Merger. UpState
directors Jeffrey S. Gifford and Alexandra K. Nolan have been appointed to the boards of directors of the Company and Wayne Bank.
In addition, the remaining former directors of UpState were invited to join a regional advisory board. UpState President and CEO R.
Michael Briggs entered into a consulting agreement with Wayne Bank. The Company has retained the brand names of USNY Bank’s
two units, Bank of the Finger Lakes and Bank of Cooperstown, and has also retained USNY Bank’s administration center in Geneva,
New York. Scott D. White, unit President of Bank of Cooperstown, and Jeffrey E. Franklin, unit President of Bank of the Finger Lakes,
will also remain in place as executives of their units.
Delaware Bancshares, Inc. On July 31, 2016, the Company completed the acquisition of Delaware Bancshares, Inc.
(“Delaware”) and its wholly owned subsidiary, The National Bank of Delaware County (“NBDC”). At the time of acquisition, Delaware
had approximately $375.6 million in assets and 12 banking offices in Delaware and Sullivan Counties, New York. Pursuant to the terms
of the Agreement and Plan of Merger, dated March 10, 2016, by and among the Company, Wayne Bank, Delaware and NBDC (the
“Delaware Agreement”), Delaware was merged with and into the Company, with the Company as the surviving corporation of the
merger (the “Merger”) and NBDC was merged with and into Wayne Bank immediately thereafter. At the effective time of the Merger,
each outstanding share of the common stock of Delaware was converted, at the election of the holder but subject to the limitations and
allocation and proration provisions set forth in the Delaware Agreement, into either $16.68 in cash or 0.6221 of a share of the Company’s
common stock, par value $0.10 per share (the “Common Stock”). In the aggregate, the merger consideration paid to Delaware
shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of the Common Stock.
Competition
The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift
institutions, credit unions, and multi-state regional banks in the Company’s market area of Wayne, Pike, Monroe, Lackawanna and
Luzerne Counties, Pennsylvania and Delaware, Sullivan, Ontario, Otsego and Yates Counties, New York as well as from on-line banks.
Based on data compiled by the FDIC as of June 30, 2021 (the latest date for which such data is available), the Bank had the third largest
share of FDIC-insured deposits in Wayne County with approximately 22.3%, the second largest share in Pike County with 18.1%,
seventh largest share in Monroe County with 3.6%, the eleventh largest share in Lackawanna County with 1.0% and the eighteenth
largest share in Luzerne County with 0.2%.. At June 30, 2021, the Bank had the largest share of FDIC-insured deposits in Delaware
County, New York, with 30.5% and the sixth largest share in Sullivan County, New York, with 7.5%. The Bank’s market share in
Ontario, Otsego and Yates Counties were 4.3%, 16.4% and 11.7%, respectively. This data does not reflect deposits held by credit unions
with which the Bank also competes. Deposit competition also includes a number of insurance products sold by local agents and
3
investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition varies depending
upon market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions,
multi-state regional banks, and mortgage bankers.
Personnel
As of December 31, 2021, the Bank had 263 full-time and three part-time employees. None of the Bank’s employees are
represented by a collective bargaining group.
Trust Activities
The Bank operates a Wealth Management/Trust Department which provides estate planning, investment management and
financial planning to customers for which it is generally compensated based on a percentage of assets under management. As of
December 31, 2021, the Bank had $196.0 million of assets under management compared to $168.1 million as of December 31, 2020.
The increase reflects new business generated during 2021, as well as stock market performance which can affect the value of a customer’s
investment portfolio.
Subsidiary Activities
The Bank, a Pennsylvania chartered bank, is the only wholly owned subsidiary of the Company. Norwood Investment Corp.
(“NIC”), a Pennsylvania corporation incorporated in 1996 and a Pennsylvania licensed insurance agency, is a wholly owned subsidiary
of the Bank. NIC’s business is annuity and mutual fund sales and discount brokerage activities primarily to customers of the Bank. The
annuities, mutual funds and other investment products are not insured by the FDIC or any other government agency. They are not
deposits, obligations of or guaranteed by any bank. Until February 16, 2018, securities were offered through Invest Financial, a registered
broker/dealer. Effective February 16, 2018, the broker/dealer relationship transitioned to LPL Financial LLC (“LPL”) as a result of the
sale of Invest to LPL in 2017. LPL is a registered broker/dealer and a member of FINRA and the SIPC. NIC generated gross revenues
for the Company of $127,000 and $122,000 in 2021 and 2020, respectively, which is included in Other Income.
WCB Realty Corp., a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank whose principal asset is
the administrative offices of the Company, which also includes the Main Office of the Bank.
WTRO Properties Inc., a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank established to hold
title to certain real estate upon which the Bank has foreclosed. As of December 31, 2021 and 2020, the outstanding balance of foreclosed
properties on which WTRO held title totaled $1,742,000 and $965,000, respectively.
Regulation
Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank. The description
does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Regulation of the Company
General. The Company, as a bank holding company registered under the Bank Holding Company Act of 1956, as amended
(“BHCA”), is subject to regulation and supervision by the Federal Reserve. The Company is required to file periodic reports of its
operations with, and is subject to examination by, the Federal Reserve. This regulation and oversight is generally intended to ensure that
the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the
financial health of its subsidiary bank.
Under the BHCA, the Company generally must obtain the prior approval of the Federal Reserve before it may acquire control
of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of
the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank
or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such
shares.
Federal statutes impose restrictions on the ability of a bank holding company and its nonbank subsidiaries to obtain extensions
of credit from its subsidiary bank, on the subsidiary bank’s investments in the stock or securities of the holding company, and on the
subsidiary bank’s taking of the holding company’s stock or securities as collateral for loans to any borrower. A bank holding company
and its subsidiaries are also prevented from engaging in certain tying arrangements in connection with any extension of credit, lease or
sale of property, or furnishing of services by the subsidiary bank.
4
Source of Strength Doctrine. Under the Bank Holding Company Act, a bank holding company is required to serve as a source
of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. Under
this source of strength doctrine, a bank holding company should stand ready to use available resources to provide adequate capital to its
subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity
to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a
source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking
practice or a violation of the Federal Reserve regulations, or both.
Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHCA.
Under the BHCA and the Federal Reserve’s bank holding company regulations, a bank holding company generally may only engage in,
or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other
subsidiaries authorized under the BHCA and (2) any business activity the Federal Reserve has determined to be so closely related to
banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on
those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of
banking as to be a proper incident thereto.
In addition to the above authority, bank holding companies that qualify and elect to be treated as “financial holding companies”
may engage in a broad range of additional activities that are (i) financial in nature or incidental to such financial activities or (ii)
complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the
financial system generally. These activities include securities underwriting and dealing, insurance agency and underwriting, and making
merchant banking investments. The Company has not made an election to be deemed a financial holding company.
Regulatory Capital Requirements. The Federal Reserve has adopted regulatory capital rules pursuant to which it assesses the
adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The
Federal Reserve’s capital rules are similar to those imposed on the Bank by the FDIC. See “Regulation of the Bank-Regulatory Capital
Requirements.” The Federal Reserve’s Small Bank Holding Company Policy Statement, however, exempts from the regulatory capital
requirements bank holding companies with less than $3.0 billion in consolidated assets that are not engaged in significant non-banking
or off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC. As long as
their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less
than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications.
Regulation of the Bank
General. As a Pennsylvania chartered, FDIC-insured commercial bank which is not a member of the Federal Reserve System,
the Bank is subject to extensive regulation and examination by the Department and by the FDIC, which insures its deposits to the
maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate, among other things, the
scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited
funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Bank generally have been
promulgated to protect depositors and not for the purpose of protecting stockholders. This regulatory structure also gives the federal and
state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
Any change in such regulation, whether by the Department, the FDIC or the United States Congress, could have a material impact on
the Company, the Bank and their operations.
Pennsylvania Banking Law. The Pennsylvania Banking Code (“Banking Code”) contains detailed provisions governing the
organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as corporate powers, savings
and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and
administrative discretion to the Department so that the supervision and regulation of state-chartered banks may be flexible and readily
responsive to changes in economic conditions and in savings and lending practices.
The Federal Deposit Insurance Act (“FDIA”), however, prohibits state-chartered banks from making new investments, loans,
or becoming involved in activities as principal and equity investments which are not permitted for national banks unless (1) the FDIC
determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all
applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is
significantly restricted by the FDIA.
Interstate Banking. As a result of the acquisition of UpState and Delaware, Wayne Bank now operates branches in
Pennsylvania and New York. Under the federal Riegle-Neal Interstate Banking and Branching Efficiency Act (the “Riegle-Neal Act”),
an insured state bank that establishes a branch in another state may conduct any activity at such branch that is permissible under the
laws of its home state to the extent that such activity is permissible either for a bank chartered by the host state or for a branch of an out-
5
of-state national bank in the host state. The laws of the host state, including laws regarding community reinvestment, consumer
protection, fair lending and branching within the host state, apply to any branch of an out-of-state bank to the same extent as such laws
apply to a branch of an out-of-state national bank. The Riegle-Neal Act prohibits out-of-state banks from using their interstate branches
primarily for purposes of deposit production. If a federal banking regulator reasonably determines from available information that an
out-of-state bank’s level of lending in a host state is less than half the loan-to-deposit ratio for all banks in the host state, the regulator
may order the closure of the out-of-state branches or prohibit the opening of new branches in the host state unless the out-of-state bank
has an acceptable plan or can give reasonable assurances that it will reasonably help meet the credit needs of the communities served in
the host state.
Federal Deposit Insurance. The Bank’s deposits are insured to applicable limits by the FDIC. The general maximum deposit
insurance amount is $250,000.
The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based
assessment system, banks that are deemed to be less risky pay lower assessments. Assessment rates for small institutions (those with
less than $10 billion in assets) are based on an institution’s weighted average CAMELS component ratings and certain financial ratios
and are applied to the institution’s assessment base, which equals its average total assets minus its average tangible equity. Current
deposit insurance assessment rates (which are subject to certain adjustments) range from 3 to 16 basis points for institutions with
CAMELS composite ratings of 1 or 2, 6 to 30 basis points for those with a CAMELS composite score of 3, and 16 to 30 basis points for
those with CAMELS composite scores of 4 or 5.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the
operating expenses and results of operations of the Bank. We cannot predict what the FDIC assessment rates will be in the future.
Regulatory Capital Requirements. The FDIC has promulgated capital adequacy rules for state-chartered banks that, like the
Bank, are not members of the Federal Reserve System. Effective January 1, 2015, the capital adequacy rules were substantially revised
to conform to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often
referred to as “Basel III”. The revised capital rules apply to all depository institutions as well as to all top-tier bank and savings and
loan holding companies that are not subject to the Federal Reserve Board’s Small Bank Holding Company Policy Statement.
Under the FDIC’s capital rules, banks are required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital
leverage ratio equal to at least 4% of total adjusted assets; (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets;
(3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets; and (4) a total capital ratio equal to 8% of total risk-weighted assets.
Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest
and, unless the bank has made an “opt-out” election, accumulated other comprehensive income, net of goodwill and certain other
intangible assets. Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and
grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include
allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain
grandfathered capital instruments. An institution’s risk-based capital requirements are measured against risk-weighted assets, which
equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by
an assigned risk weight. Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans,
and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial
real estate facilities that finance the acquisition, development or construction of real property.
In addition to the above minimum requirements, the capital rules require banks and covered financial institution holding
companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based
capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent
limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of
discretionary bonuses to senior executive management. The capital buffer requirement effectively raises the minimum required risk-
based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in
basis.
In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also
qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) enacted in 2018, directed the federal
banking agencies to develop a community bank leverage ratio of tangible capital to average total consolidated assets of between 8% and
10% as an alternative to the current leverage and risk-based capital rules for qualifying community banks and satisfying any other
leverage or capital requirements to which they are subject. Qualifying community banks meeting the community bank leverage ratio
would also be deemed well-capitalized for purposes of the prompt corrective action rules. A qualifying community bank is a depository
institution or holding company with total consolidated assets of less than $10 billion that is not excluded from qualification by the federal
6
banking regulators based on the institution’s risk profile. Under the final rule issued by the federal banking agencies, a qualifying
community bank may opt in to the community bank leverage ratio framework if its community bank leverage ratio exceeds 9%. The
Bank has not elected to opt into the community bank leverage ratio framework.
The Bank is also subject to minimum capital requirements imposed by the Department on Pennsylvania-chartered depository
institutions. Under the Department’s capital requirements, a Pennsylvania bank or savings bank must maintain a minimum leverage
ratio of Tier 1 capital (as defined under the FDIC’s capital regulations) to total assets of 4%. In addition, the Department has the
supervisory discretion to require higher leverage ratio for any institutions based on the institution’s substandard performance in any of
a number of areas. The Bank was in compliance with both the FDIC and the Pennsylvania capital requirements in effect as of
December 31, 2021.
Prompt Corrective Regulatory Action. Under applicable federal statutes, the federal bank regulatory agencies are required to
take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements. For these purposes,
the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. Under the FDIC’s prompt corrective action regulations, an institution is deemed to be “well capitalized” if
it has a Total Risk-Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 8.0% or greater, a Common Equity
Tier 1 risk-based capital ratio of 6.5% or better and a leverage ratio of 5.0% or greater.
An institution is “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based
Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An
institution is “undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less
than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be
“significantly undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less
than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be
“critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%
The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions
that fail to meet the above capital requirements. In particular, the FDIC may require any state non-member bank that is not “adequately
capitalized” to take certain action to increase its capital ratios. If the non-member bank’s capital is significantly below the minimum
required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank’s activities may be restricted.
At December 31, 2021, the Bank qualified as “well capitalized” under the prompt corrective action rules.
Affiliate Transaction Restrictions. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates,
including their bank holding companies. In particular, loans by a subsidiary bank and its parent company or the nonbank subsidiaries of
the bank holding company are limited to 10% of a bank subsidiary’s capital and surplus and, with respect to such parent company and
all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary’s capital and surplus. Further, loans and other extensions
of credit generally are required to be secured by eligible collateral in specified amounts. Transactions with non-affiliates may be treated
as transactions with an affiliate to the extent that proceeds from the transaction are used to benefit the affiliate. Federal law also requires
that all transactions between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.
Loans to One Borrower. Under Pennsylvania law, commercial banks have, subject to certain exemptions, lending limits to one
borrower in an amount equal to 15% of the institution’s capital accounts. An institution’s capital account includes the aggregate of all
capital, surplus, undivided profits, capital securities and general reserves for loan losses. Pursuant to the national bank parity provisions
of the Pennsylvania Banking Code, the Bank may also lend up to the maximum amounts permissible for national banks, which are
allowed to make loans to one borrower of up to 25% of capital and surplus in certain circumstances. As of December 31, 2021, the
Bank’s loans-to-one-borrower limitation was $28.6 million and the Bank was in compliance with such limitation.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 11 regional FHLBs.
Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited
by member institutions and proceeds from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain restricted stock in the FHLB of Pittsburgh in an amount equal to
the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of
each year or 5% of the Bank’s outstanding advances from the FHLB. At December 31, 2021, the Bank was in compliance with this
requirement.
Restrictions on Dividends. The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out
of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital.
7
The Bank has not declared or paid any dividends which cause the Bank’s retained earnings to be reduced below the amount required.
Finally, dividends may not be declared or paid if the Bank is in default in payment of any assessment due the FDIC.
The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which
expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding
company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent
with the holding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would
be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In addition, the Federal
Reserve’s guidance states that a bank holding company should consult with its regional Federal Reserve Bank in advance of declaring
or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse
change to the organization’s capital structure. Finally, under the federal prompt corrective action regulations, the Federal Reserve may
prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as
“undercapitalized.”
Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties.
The Bank operates from its main office located at 717 Main Street, Honesdale, Pennsylvania and twenty-nine additional branch
offices in Northeastern Pennsylvania and upstate New York. The Bank’s total investment in office property and equipment is
$35.9 million with a net book value of $17.3 million as of December 31, 2021. The Bank currently operates automated teller machines
at all but one of its community office facilities, as well as one off-site ATM. The Bank leases eight of its locations.
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries are involved in any other pending legal proceedings, other than routine legal matters
occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial
to the consolidated financial condition or results of operations of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a)
Market Information
STOCK LISTING
Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. As of December 31, 2021,
there were approximately 1,400 registered stockholders based on the records of our transfer agent.
The following firms are known to make a market in the Company’s stock:
Boenning & Scattergood, Inc.
West Conshohocken, PA 19428
800-883-1212
Janney Montgomery Scott, LLC
Scranton, PA 18503
800-638-4417
RBC Capital Markets
Philadelphia, PA 19103
888-848-4677
Stifel Nicolaus
St,. Louis, MO 63102
314-342-2000
8
The following table sets forth the price range and cash dividends declared per share regarding common stock for the periods
indicated:
Year 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Closing Price Range
High
Low
Cash dividend
Declared per
share
$
$
28.96 $
27.07
26.31
27.60
39.03 $
26.59
29.57
29.25
$
23.75
24.75
24.64
25.42
$
24.37
21.65
23.24
22.88
0.26
0.26
0.26
0.28
0.25
0.25
0.25
0.26
The book value of the common stock was $25.24 per share as of December 31, 2021 compared to $23.72 per share as of
December 31, 2020. As of December 31, 2021, the closing stock price was $25.99 per share, compared to $26.17 as of December 31,
2020.
TRANSFER AGENT
Computershare provides Transfer Agent services for the Company. Stockholders who may have questions regarding their
stock ownership should contact the Transfer Agent at 800-662-7232, by regular mail at P.O. Box 50500, Louisville, KY 40233-5000,
or by overnight delivery at 462 South 4th Street Suite 1600, Louisville, KY 40202.
DIVIDEND CALENDAR
Dividends on the Company’s 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 the Company’s
common stock. Participants in the Plan may also elect to make cash contributions to purchase additional shares of common stock.
Stockholders of the Company may contact the transfer agent for additional information.
(b)
(c)
Use of Proceeds. Not applicable.
Issuer Purchases of Equity Securities. Set forth below is information regarding the Company’s stock repurchases
during the fourth quarter of the fiscal year ended December 31, 2021.
Issuer Purchases of Equity Securities
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced
Plans or
Programs *
17,959
—
420
18,379
Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased
Under the Plans
or Programs
478,134
478,134
477,714
477,714
Total Number of
Shares (or Units)
purchased
Average Price
Paid Per Share
(or Unit)
$
17,959
—
420
18,379
$
9
25.50
—
26.00
25.51
October 1 – 31, 2021
November 1 – 30, 2021
December 1 – 31, 2021
Total
*
On March 19, 2008, the Company announced its intention to repurchase up to 5% of its outstanding common stock
(approximately 226,050 split-adjusted shares) in the open market. On November 10, 2011, the Company announced that it had increased
the number of shares which may be repurchased under its open-market program to 5% of its currently outstanding shares, or
approximately 270,600 split-adjusted shares. On March 30, 2021, the Company announced that it had increased the number of shares
which may be repurchased under its open-market program to 5% of its currently outstanding shares, or approximately 400,000 split-
adjusted shares.
Item 6. Selected Financial Data.
For the years ended December 31,
Net interest income
Provision for loan losses
2021
$65,313
4,200
2020
$50,476
5,450
2019
$38,606
1,250
2018
2017
$36,839
1,725
$34,908
2,200
Other income
Net realized gains on sales of loans and securities
8,056
269
7,182
598
6,355
423
6,837
228
6,496
415
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
38,578
30,860
5,945
24,915
$3.05
$3.04
$1.06
34.75%
1.24%
12.35%
34,440
18,366
3,286
15,080
$2.09
$2.09
$1.01
48.33%
0.97%
9.06%
27,311
16,823
2,608
14,215
$2.27
$2.25
$0.97
42.73%
1.18%
10.83%
25,975
16,204
2,553
13,651
$2.19
$2.17
$0.90
41.10%
1.19%
11.71%
24,870
14,749
6,551
8,198
$1.32
$1.31
$0.87
65.91%
0.73%
7.04%
2,068,504
1,354,931
16,442
1,756,793
205,262
195,958
1,851,864
1,410,732
13,150
1,535,385
194,785
168,085
1,230,610
924,581
8,509
957,529
137,428
170,685
1,184,559
850,182
8,452
946,780
122,285
151,224
1,132,916
764,092
7,634
929,384
115,739
157,838
Book value per share*
$25.24
$23.72
$21.67
$19.43
$18.61
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
12.49%
13.66%
1.21%
0.12%
11.65%
12.62%
0.93%
0.24%
13.08%
13.98%
0.92%
0.19%
13.04%
14.00%
0.99%
0.19%
13.16%
14.11%
1.00%
0.37%
* Per share information has been restated to reflect the 50% stock dividend declared in 2017.
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
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 the Company and the Bank, as of December 31, 2021 and 2020, and
10
for the years ended December 31, 2021 and 2020. This section should be read in conjunction with the consolidated financial statements
and related footnotes.
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, 2021 and 2020 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.
In connection with the acquisition of Delaware 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. In connection with the
acquisition of UpState.in July 2020, we recorded goodwill in the amount of $17.9 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.
FINANCIAL CONDITION
TOTAL ASSETS
Total assets as of December 31, 2021 were $2.069 billion compared to $1.852 billion as of year-end 2020, an increase of
$216.6 million. The increase in assets was primarily attributable to the $221.4 million increase in total deposits.
LOANS RECEIVABLE
As of December 31, 2021, loans receivable totaled $1.355 billion compared to $1.411 billion as of year-end 2020, a decrease
of $55.8 million due primarily to a $78.8 million decrease in PPP loans resulting from loan forgiveness. Commercial real estate loans
grew $49.6 million, while residential mortgage loans increased $9.9 million during the year.
The Bank’s loan products include loans for personal and business use. Personal lending includes mortgage lending to finance
principal residences and, to a lesser extent, second home dwellings. The Bank’s loan products include fixed-rate mortgage products with
terms up to 30 years which may be sold in the secondary market through the Federal National Mortgage Association (“Fannie Mae”) or
the FHLB, or held in the Bank’s portfolio to the extent consistent with our asset/liability management strategies. Fixed-rate home equity
loans are originated on terms up to 180 months. Home equity lines of credit tied to the prime rate are also offered. The Bank also offers
indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in
Northeast Pennsylvania and the Southern Tier of New York. At December 31, 2021, there were $141.7 million of indirect loans in the
portfolio. In connection with the acquisition of UpState in 2020, the Company acquired approximately $413.5 million in loans, including
$37.3 million in residential real estate loans, $289.0 million in commercial real estate loans, $92.0 million in commercial, financial and
agricultural loans, and $2.3 million in consumer loans. As of December 31, 2021, the approximate outstanding balance of these acquired
loans was $287.1 million. In connection with the acquisition of Delaware, the Company acquired approximately $116.7 million in
loans, including $68.7 million in residential real estate loans, $22.5 million in commercial real estate loans, $13.6 million in commercial,
11
financial and agricultural loans, $6.5 million in consumer loans and $5.4 in construction loans. As of December 31, 2021, the
approximate outstanding balance of these acquired loans was $37.6 million.
Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and
rate structures. Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured
lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate
or adjustable at set intervals. Also included in commercial loans are municipal finance lending in which the Bank has been active in
recent years. Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue
producing projects such as sewer authorities and educational units. At December 31, 2021, the Bank had approximately $135.7 million
in loans on commercial rentals, as well as $116.3 million of loans outstanding on residential rentals, which are its largest lending
concentrations.
As a qualified Small Business Administration (“SBA”) lender, the Bank originated $156.3 million of PPP loans in total,
including loans originated by USNY Bank prior to the acquisition date.
The Bank’s construction lending has primarily involved lending for commercial construction projects and for single-family
residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial
and single-family projects, loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage
of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on
the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent
financing after the construction period, as a commercial mortgage.
The Bank also, from time to time, originates loans secured by undeveloped land. Land loans granted to individuals have a term
of up to five years. Land loans granted to developers may have an interest only period during development. The substantial majority of
land loans have a loan-to-value ratio not exceeding 75%. The Bank has limited its exposure to land loans but may expand its lending on
raw land, as market conditions allow, to qualified borrowers experienced in the development and sale of raw land.
Loans involving construction financing and loans on raw land have a higher level of risk than loans for the purchase of existing
homes since collateral values, land values, development costs and construction costs can only be estimated at the time the loan is
approved. The Bank has sought to minimize its risk in construction lending and in lending for the purchase of raw land by offering such
financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous
experience in such projects. The Bank also limits construction lending and loans on raw land to its market area, with which management
is familiar.
Adjustable-rate loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other
risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for payment
default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward
adjustment of the contractual interest rate may also be limited by the maximum periodic interest rate adjustment permitted in certain
adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest
rates. These risks have not had an adverse effect on the Bank.
The Bank’s adjustable-rate loan portfolio includes approximately $14.8 million in loan participations indexed to the London
Interbank Offered Rate (“LIBOR”) which is expected to be phased out by June 30, 2023. The Bank anticipates that the terms of LIBOR-
based loans, which have not matured prior to the phase-out of LIBOR will be negotiated to incorporate a to-be-determined substitute
reference rate. The Bank must rely on the lead bank to renegotiate the terms of loans in which the Bank has a participation. There can
be no assurance that the lead bank will be able to successfully renegotiate the loans in which the Bank has participations or that the
substitute reference rate will perform as satisfactorily as LIBOR.
Consumer lending, including indirect financing, provides benefits to the Bank’s asset/liability management program by
reducing the Bank’s exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks
compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that
depreciate rapidly.
Commercial lending including real-estate related loans entail significant additional risks when compared with residential real
estate and consumer lending. For example, commercial loans typically involve larger loan balances to single borrowers or groups of
related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these
risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse
space. In periods of decreasing cash flows, the commercial borrower may permit a lapse in general maintenance of the property causing
the value of the underlying collateral to deteriorate. The liquidation of commercial property is often more costly and may involve more
time to sell than residential real estate. The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and
12
by obtaining the personal guaranties of the principals. In addition, a majority of the Bank’s commercial real estate portfolio is owner-
occupied property.
Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending. The
repayment of unsecured commercial business loans is wholly dependent on the success of the borrower’s business, while secured
commercial business loans may be secured by collateral that may not be readily marketable in the event of default. Municipal financing
includes lending to local taxing authorities and revenue-producing projects. Such loans may constitute the general obligation of the
taxing authority or may rely on a specific revenue source which is responsible for the repayment of the debt. General obligations are
considered to carry a lower level of risk than other loan types since they are backed by the full faith and credit of the taxing authority.
Revenue obligations are backed solely by revenues generated by the project financed and repayment may be affected by the success of
the project.
Due to the type and nature of the collateral, consumer lending generally involves more credit risk when compared with
residential real estate lending. Consumer lending collections are typically dependent on the borrower’s continuing financial stability,
and thus, are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed
collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining
deficiency is usually turned over to a collection agency.
There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to
us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis. We seek to mitigate these risks
by only dealing with dealers with whom we have a long-standing relationship.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) prohibits lenders from making
residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to
repay the mortgage loan according to its terms. A borrower may recover statutory damages equal to all finance charges and fees paid
within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time. As
authorized by the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) has adopted regulations defining “qualified
mortgages” that are presumed to comply with the Dodd-Frank Act’s ability-to-repay rules. Under the CFPB regulations, qualified
mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments, or term greater
than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower’s income and assets are
verified and documented; and (iv) the borrower’s debt-to-income ratio generally may not exceed 43%. Qualified mortgages are
conclusively presumed to comply with the ability-to-pay rule unless the mortgage is a “higher cost” mortgage, in which case the
presumption is rebuttable. Under the EGRRCPA, enacted in 2018, residential mortgages originated for portfolio by insured depository
institutions, like the Bank, with less than $10 billion in total consolidated assets will be treated as qualified mortgages; provided that the
mortgage terms do not include interest-only payments or negative amortization, total points and fees do not exceed 3% of the loan
amount, prepayment penalties are not in excess of those permitted for qualified mortgages under Regulation Z and the lender has
considered and documented the debt, income and financial resources of the borrower.
The Bank has established various lending limits for its officers and also maintains an Officer Loan Committee to approve
higher loan amounts. The Officer Loan Committee is comprised of the President and Chief Executive Officer, Chief Lending Officer
and other Bank officers. The Officer Loan Committee has the authority to approve all loans up to set limits based on the type of loan
and the collateral. Requests in excess of these limits must be submitted to the Directors’ Loan Committee or Board of Directors for
approval. Additionally, the President and Chief Executive Officer, and the Chief Lending Officer and other officers have the authority
to approve secured and unsecured loans up to amounts approved by the Board of Directors and maintained in the Bank’s Loan Policy.
Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the Officer Loan Committee for
approval.
Hazard insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required,
when applicable.
Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms
and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral,
and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property
serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan.
13
The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2021.
Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated schedule
of repayments and no stated maturity and overdrafts are reported as due in one year or less.
One Year After One to
or Less
Five Years
After Five
Years
Through 15
years
After
15 years
Total
(dollars in thousands)
Real Estate:
Residential
Commercial
Agricultural
Construction
Commercial loans
Other agricultural loans
Consumer loans
Total
$
49,550
55,376
1,003
2,483
81,996
10,390
59,202
$ 260,000
$
$
119,830
192,647
1,420
807
77,427
10,700
79,960
482,791
$
$
75,898
327,434
16,475
8,036
25,943
13,848
7,183
474,817
Loans with fixed rates
Loans with floating rates
Total
$
46,765
136,262
$ 183,027
$
$
192,717
362,582
555,299
$
$
345,033
69,722
414,755
$
$
$
$
27,762
53,267
43,027
10,664
665
2,992
55
138,432
199,759
3,200
202,959
$
$
$
$
273,040
628,724
61,925
21,990
186,031
37,930
146,400
1,356,040
784,274
571,766
1,356,040
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses totaled $16,442,000 as of December 31, 2021 and represented 1.21% of total loans receivable
compared to $13,150,000 and 0.93% of total loans as of year-end 2020. Net charge-offs for 2021 totaled $908,000 and represented
0.07% of average loans compared to $809,000 and 0.07% of average loans in 2020.
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 also 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 conditions, trends in delinquencies, internal risk rating classifications, total loan growth in the portfolio and fluctuations in
large balance credits. During 2020, the Company added qualitative factors for COVID-19 related industries and for loans which have
received deferral of payment due to COVID-19 factors. 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 $10.8 million of junior
lien home equity loans. For 2021, there were $13,000 of charge-offs for this portfolio, with recoveries of $13,000 in 2021.
As of December 31, 2021, the Company considered its concentration of credit risk profile to be acceptable. The highest
concentrations are in commercial rentals and the residential rentals categories.
During 2020, the Company recognized an increase in its adversely classified loans due primarily to loan balances acquired
from UpState. The loans were accounted for in accordance with ASC 310-30, and were appropriately recorded at fair value after
recording a specific loan fair value adjustment of $6,937,000. The Company assesses a loss factor against the classified loans, which is
based on prior experience. Classified loans that are considered impaired are measured on a loan-by-loan basis. The Company values
such loans by either the present value of expected cash flows, the loan’s obtainable market price or the fair value of collateral if the loan
is collateral dependent.
At December 31, 2021, the recorded investment in impaired loans, not requiring an allowance for loan losses, was $157,000
(net of charge-offs against the allowance for loan losses of $0). The recorded investment in impaired loans, requiring an allowance for
loan losses, was $1,517,000, (net of charge-offs against the allowance for loan losses of $0) . At December 31, 2020, the recorded
14
investment in impaired loans not requiring an allowance for loan losses, was $2,662,000 (net of charge-offs of $652,000). The recorded
investment in impaired loans, requiring an allowance for loan losses, was $0.
As a result of its analysis, after applying these factors, management considers the allowance as of December 31, 2021, adequate.
However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses that might be incurred
in the future.
The following table sets forth information with respect to the Bank’s allowance for loan losses as of December 31, 2021 and 2020:
As of December 31,
Total loans receivable, net of deferred fees
Allowance balance at beginning of period
Net (charge-offs) recoveries:
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
Total
Provision Expense
Allowance balance at end of period
Average loans receivable:
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
$
$
$
$
2021
2020
(dollars in thousands)
$
1,354,931
1,410,732
13,150
$
8,509
57
(433)
—
—
(124)
(27)
(381)
(908)
$
$
4,200
16,442
264,305
595,854
64,295
21,793
247,953
40,215
152,478
(35)
(413)
—
—
37
(11)
(387)
(809)
5,450
13,150
241,961
511,592
26,935
18,268
206,164
16,645
156,208
Total average loans outstanding
$
1,386,893
$
1,177,773
Net (charge-offs) recoveries as a percent of average loans outstanding
Real Estate-Residential
Real Estate-Commercial
Real Estate-Agricultural
Real Estate-Construction
Commercial loans
Other agricultural loans
Consumer
Total net charge-offs
0.02 %
(0.07)
-
-
(0.05)
(0.07)
(0.25)
(0.01) %
(0.08)
-
-
0.02
(0.07)
(0.25)
(0.07) %
(0.07) %
15
Credit Quality Ratios:
As a percent of year-end loans, net of unearned income:
Allowance for loan losses
Nonaccrual loans
Nonperforming loans
Allowance for loan losses to nonaccrual loans
Allowance for loan losses to nonperforming loans
1.21%
0.05%
0.05%
2557.08%
2240.05%
0.93%
0.24%
0.24%
387.79%
387.79%
The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans
in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of
the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan.
2021
2020
As of December 31,
Real estate – residential
Real estate – commercial
Real estate – agricultural
Real estate – construction
Commercial
Other agricultural loans
Consumer
Total
Amount
2,175
10,878
—
133
1,490
—
1,766
16,442
$
$
% of
Loans
to Total
Loans
% of
Loans
to Total
Loans
Amount
(dollars in thousands)
$
20.1 %
46.4
4.6
1.6
13.7
2.8
10.8
100 %
$
1,960
8,004
—
150
1,360
—
1,676
13,150
18.6 %
41.0
4.7
1.5
20.1
2.9
11.2
100 %
As a result of the acquisition of UpState, the Company added $107.3 million of agricultural loans to the loan portfolio. These
loans are included in the outstanding balance information, but do not require an allocation of the allowance for loan losses since they
were recorded at fair value in accordance with ASC 310-20 and ASC 310-30.
Additional information about the allowance for loan losses at December 31, 2021 is presented under “Item 1. Business” of this
Annual Report on Form 10-K, as well as in Note 2 and Note 4 to the audited consolidated financial statements.
NON-PERFORMING ASSETS
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, 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.
As of December 31, 2021, non-performing loans totaled $734,000 and represented 0.05% of total loans compared to $3,391,000
or 0.24% as of December 31, 2020. The decrease in the level of non-performing loans reflects upgrades to accrual status on several
loans acquired from UpState, as well as payments received on other non-performing credits. Additionally, one loan with a carrying
value of $1,487,000 as of December 31, 2020 was transferred to Foreclosed Real Estate Owned during 2021.
Foreclosed real estate owned totaled $1,742,000 as of December 31, 2021 and $965,000 as of December 31, 2020. During
2021, property with a carrying value of $255,000 was disposed of through a sale. The Company did not recorded a gain from the sale
of the property. Additionally, one loan with a carrying value of $1,032,000 was transferred to Foreclosed Real Estate Owned during
2021.
SECURITIES
The securities portfolio consists of U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities issued by
government sponsored entities and municipal obligations. The Company classifies its investments into two categories: held to maturity
16
(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, 2021, 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, 2021, $406.8 million of securities were so classified and carried at their fair value, with unrealized losses,
net of tax, of $1,453,000 included in accumulated other comprehensive income as a component of stockholders’ equity. The Company
considers its investment portfolio a source of earnings and liquidity. Investment securities may also be pledged to secure public deposits
and customer repurchase agreements.
As of December 31, 2021, the average life of the portfolio was 5.6 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. Purchases for the year
totaled $268.2 million, while maturities and principal reductions totaled $68.2 million and proceeds from sales were $11.4 million. The
purchases were funded principally by cash flow generated from the portfolio and excess overnight liquidity.
The following table sets forth certain information regarding securities not carried at fair value through earnings, weighted
average yields, and maturities of the Company’s securities portfolio as of December 31, 2021 and 2020. Yields on tax-exempt securities
are stated on a fully taxable equivalent basis using a Federal tax rate of 21%. Actual maturities may differ from contractual maturities
as certain instruments have call features which allow prepayment of obligations. Maturity on the mortgage-backed securities is based
upon contractual terms, the average life may differ as a result of changes in cash flow.
One Year or Less
Carrying Average
Value
Yield
After One
Through Five
Years
Carrying Average
Yield
Value
After Five
Through Ten
Years
Carrying Average
Yield
Value
Total Investment
After Ten Years
Carrying Average
Yield
Value
Securities
Carrying Average
Yield
Value
$
U.S. Treasury securities
U.S. Government agencies
State and political
subdivision
Corporate obligations
Mortgage-backed
securities-government
sponsored entities
—
—
— % $ 1,060
—
—
1.01 % $ 18,291
16,011
—
1.19 % $
1.51
—
— % $ 19,351
16,011
1.18 %
1.51
(dollars in thousands)
583
—
1.93
—
10,427
—
3.14
—
20,601
—
2.25
—
114,256
—
2.33
—
145,867
—
2.38
—
—
—
2,665
2.40
4,110
1.96
218,778
1.39
225,553
1.41
Total Investment Securities
$
583
1.93 %
$ 14,152
2.84 %
$ 59,013
1.70 %
333,034
$
1.71 %
$
406,782
1.75 %
The portfolio had no adjustable-rate instruments as of December 31, 2021 and 2020. 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, 2021, the portfolio did not contain any step-up bonds. The mortgage-backed securities portfolio
includes pass-through bonds and collateralized mortgage obligations (CMO’s) issued by 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, 2021, the Company held 140 investment securities in a loss position,
which had a combined unrealized loss of $4.8 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 not
that it will not have to sell the securities before recovery of their cost basis. No impairment charges were recognized in 2021 or 2020.
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 16 of Notes to the Consolidated Financial Statements).
Approximately $406.8 million, which represents 19.7% of total assets at December 31, 2021, 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 and
interest rate derivatives. The Company uses valuation methodologies involving market-based or market-derived information,
17
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 ended December 31, 2021 and 2020.
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, 2021 and 2020 was $500,000
and $476,000, respectively.
DEPOSITS
The Bank provides a full range of deposit products to its retail and business customers. These include interest-bearing and
noninterest bearing transaction accounts, statement savings and money market accounts. Certificate of deposit terms range up to five
years for retail instruments. As of December 31, 2021, the Bank has $992,000 of brokered deposits obtained through internet listing
services, and no broker deposits which were secured through Cede & Co. All of these brokered deposits were acquired from UpState.
The Bank has no current brokered deposits through its participation in the Certificate of Deposit Account Registry Service (“CDARS”).
The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts which are typically
priced on a competitive bid basis. Other services the Bank offers its customers include cash management, direct deposit, Remote Deposit
Capture, mobile deposit capture, PopMoney® mobile payments and Automated Clearing House (ACH) activity. The Bank operates
thirty-one automated teller machines and is affiliated with the MoneyPass® ATM network. Internet banking including bill-pay is offered
through the website at www.waynebank.com. Other services, such as eStatements and mobile banking are available online.
The following table sets forth information regarding deposit categories of the Company.
Years Ended December 31,
2021
Average
2020
Average
Balance
Rate Paid
Balance
Rate Paid
Noninterest-bearing demand
Interest-bearing demand
Money Market
Savings
Time
$
423,404
180,080
295,626
265,981
517,087
(dollars in thousands)
— %
$
0.11
0.23
0.06
0.71
297,175
123,172
185,214
200,042
457,844
— %
0.13
0.28
0.06
1.27
Total
$
1,682,178
$
1,263,447
As of December 31, 2021 and 2020, the total of uninsured deposits of the Company was $235,515,000 and $177,596,000,
respectively. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit
of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution
and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state
deposit insurance regime.
As of December 31, 2021, the total of U.S. time deposits in excess of the Federal Deposit Insurance Corporation insurance
limits were $257,238,000.
18
The following table indicates the amount of time deposits that are uninsured by time remaining until maturity as of December 31, 2021:
Three months or less
Over 3 through 6 months
Over 6 months through 12 months
Over 12 months
Amount
(in thousands)
65,401
55,639
109,607
26,591
257,238
$
$
Total deposits as of December 31, 2021, were $1.757 billion, an increase of $221.4 million from December 31, 2020. Deposit
growth included $145.4 million in non-maturity interest-bearing deposits, and $81.1 million in non-interest bearing demand deposits.
The large increases recorded in 2021 reflect the cash inflow from economic stimulus related to the Covid-19 pandemic. Time deposits
decreased $5.1 million.
Time deposits over $250,000, 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 $257.2 million as of December 31, 2021,
compared to $205.4 million at year-end 2020. 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.
As of December 31, 2021, non-interest bearing demand deposits totaled $440.7 million compared to $359.6 million at year-
end 2020. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings,
totaled $60.8 million at year end 2021 compared to $63.3 million as of December 31, 2020. These balances represent commercial and
municipal customers’ funds invested in overnight securities. The Company considers these accounts as a source of core funding.
RESULTS OF OPERATIONS
SUMMARY
Net income for the Company for the year ended December 31, 2021 was $24,915,000, which was $9,835,000 higher than the
$15,080,000 earned in 2020. Earnings per share on a fully diluted basis were $3.04 for 2021 compared to $2.09 in 2020. The return on
average assets for the year was 1.24% with a return on average equity of 12.35%, compared to 0.97% and 9.06%, respectively, in 2020.
Net interest income increased $14,837,000, which offset a $4,138,000 increase in other expenses. The variances reflect the full-year
effect of the results of the acquisition of UpState.
Net interest income (fully taxable equivalent, or fte) totaled $66,100,000, which was an increase of $14,741,000 from the 2020
total. Average loans outstanding increased $209.1 million in 2021, which resulted in an increase in interest income (fte) of $11.1 million.
Total average securities increased $120.0 million in 2021 as proceeds from deposit growth and overnight liquidity were used to fund
new purchases, resulting in a $1.2 million increase in interest income (fte) on securities. Average interest-bearing deposits increased
$292.5 million, but decreasing interest rates on certificates of deposit resulted in a $1.9 reduction in interest expense. The cost of
borrowed funds decreased $369,000 compared to the prior year due primarily to a lower cost of borrowings. The resulting net interest
spread (fte) increased three basis points to 3.39% in 2021 as a 29 basis point reduction in the yield earned was offset by a 32 basis point
decrease in the cost of funds. All variances include the full-year impact from the acquisition of UpState.
Loans receivable decreased $55.8 million from the prior year-end, due primarily to a $78.8 million decrease in PPP loans
resulting from loan forgiveness. Loan growth included a $49.6 million increase in commercial real estate loans. Retail loans decreased
$5.2 million in 2021 due to a $4.4 million decrease in real estate loans secured by farmland and a $4.7 million decrease in indirect auto
and marine financing. Residential mortgage loans and construction loans increased $10.9 million, net. Total non-performing loans
decreased from $3,391,000, or 0.24% of total loans at the end of 2020, to $734,000, or 0.05% of total loans on December 31, 2021. Net
charge-offs totaled $908,000 in 2021, which was an increase from the $809,000 recorded in 2020. Based on management’s analysis,
the Company determined that it would be appropriate to allocate $4,200,000 to the allowance for loan losses in 2021, which resulted in
an increase in the ratio of the allowance for loan losses to total loans outstanding of 1.21% at December 31, 2021 compared to 0.93% at
December 31, 2020. The allowance for loan losses represented 2,240% of total non-performing loans on December 31, 2021 compared
to 388% as of December 31, 2020.
19
Total other income for the year ended December 31, 2021 totaled $8,325,000 compared to $7,780,000 in the prior year, an
increase of $545,000. Gains on the sale of loans and investment securities decreased $329,000 in the aggregate, while service charges
and fees increased $578,000. All other items of other income increased $296,000, net. The increase reflects the full-year of benefits
derived from the acquisition of UpState.
Other expenses were $38,578,000 in 2021 compared to $34,440,000 for the similar period in 2020, an increase of $4,138,000.
Salaries and benefits costs increased $3,487,000 in 2021, while occupancy and equipment costs rose $674,000. All other operating
expenses decreased $23,000, net. The increases reflect the full-year cost of operating four new community offices acquired from
UpState. Income tax expense for the year totaled $5,945,000, which was an increase of $2,659,000 from the prior year. The effective
tax rate in 2021 was 19.3% compared to 17.9% in 2020.
The following table sets forth changes in net income (in thousands):
Net income 2020
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
Professional fees
Merger related expenses
Other expenses
Income tax expense
Net income 2021
NET INTEREST INCOME
$
$
15,080
14,837
1,250
(329)
874
(3,487)
(674)
(520)
2,049
(1,506)
(2,659)
24,915
Net interest income is the most significant source of revenue for the Company and represented 88.7% of total revenue for the
year ended December 31, 2021. Net interest income (fte) totaled $66,100,000 for the year ended December 31, 2021 compared to
$51,359,000 for 2020, an increase of $14,741,000. The resulting fte net interest spread and net interest margin were 3.39% and 3.50%,
respectively, in 2021 compared to 3.36% and 3.55%, respectively, in 2020.
Interest income (fte) for the year ended December 31, 2021 totaled $71,857,000 compared to $59,338,000 in 2020. The fte
yield on average earning assets was 3.81%, decreasing 29 basis points from the 4.10% reported last year. The tax-equivalent yield on
total loans increased 10 basis points to 4.73% in 2021, while average loans outstanding increased $209.1 million, resulting in an increase
in interest income (fte) from loans of $11.1 million. The yield on securities decreased 48 basis points in 2021 due primarily to lower
yields on new purchases. Average securities outstanding increased $120.0 million as cash flow from deposit growth was utilized to
fund new purchases, and interest income (fte) from the portfolio increased $1.2 million.
Interest expense was $5,757,000 in 2021 which resulted in an average cost of interest-bearing liabilities of 0.42% compared
to total interest expense of $7,979,000 in 2020 with an average cost of 0.74%. Total interest-bearing deposits cost was 0.38% in 2021,
which was a decrease of 30 basis points over the prior year. The decrease in cost was due primarily to time certificates of deposit that
repriced to current market rates upon maturity, resulting in a decrease in the interest rate paid from 1.27% in 2020 to 0.71% in 2021.
Borrowing costs also decreased in 2021, reflecting the lower interest rate environment.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $4,200,000 in 2021 compared to $5,450,000 in 2020. The decreased provision for loan losses
recorded in 2021 reflects the improvement in the economic factor and other qualitative factors that are utilized to establish a subjective
assessment of the adequacy of the allowance for loan losses. Qualitative factors specific to the pandemic that were developed in 2020
required a $2.3 million allocation to the required allowance for loan losses at December 31, 2021. Additionally, the qualitative factor
related to large balance loans added $1.4 million to the allowance in 2021 due to growth in this category of loans and an increase in the
factor.
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 also 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 conditions, trends in delinquencies, internal risk rating classifications, total loan growth in the portfolio and fluctuations in
20
large balance credits. 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.
OTHER INCOME
Total other income was $8,325,000 for the year ended December 31, 2021 compared to $7,780,000 in 2020, an increase of
$545,000. Service charges and fees increased $572,000 in 2021, while gains on the sale of loans and investment securities decreased
$329,000 in the aggregate. All other items of other income increased $302,000, net.
Other Income (dollars in thousands)
For the year ended December 31
Service charges on deposit accounts
ATM Fees
Overdraft Fees
Safe deposit box rental
Loan related service fees
Debit card
Fiduciary activities
Commissions on mutual funds & annuities
Earnings on and proceeds from bank-owned life insurance
Other income
Net realized gains on sales of securities
Gains on sales of loans
Total
OTHER EXPENSES
2021
2020
398 $
443
1,029
100
1,368
2,228
748
127
941
674
8,056
92
177
8,325 $
377
457
985
102
1,416
1,656
682
122
845
540
7,182
71
527
7,780
$
$
Other expenses totaled $38,578,000 for the year ended December 31, 2021 compared to $34,440,000 in the prior year. The
$4,138,000 increase in other expenses reflects the additional costs related to the operations of the four new community offices acquired
from UpState. Salaries and employee benefits costs increased $3,487,000 in 2021, while occupancy and equipment costs increased
$674,000. All other operating expenses decreased $23,000, net. The Company’s efficiency ratio, which measures total other expenses
as a percentage of net interest income (fte) plus other income, was 51.8% in 2021 compared to 58.2% in 2020.
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
21
2021
2020
$
$
12,944 $
7,664
3,533
1,289
2,415
681
473
1,582
993
443
1,122
115
123
—
5,201
38,578 $
10,903
6,218
3,128
1,020
2,457
399
385
1,062
983
555
997
53
114
2,049
4,117
34,440
INCOME TAXES
Income tax expense for the year ended December 31, 2021 totaled $5,945,000, which resulted in an effective tax rate of 19.3%,
compared to $3,286,000 and 17.9% for 2020. The higher effective tax rate reflects the increase in taxable income.
CAPITAL AND DIVIDENDS
Total stockholders’ equity as of December 31, 2021, was $205.3 million, compared to $194.8 million as of December 31, 2020.
Earnings retention net of an $8.7 million reduction resulting from cash dividends declared, contributed to the increase. Fluctuations in
interest rates impacted the fair value of the Company’s Available-for Sale securities, and contributed to $5.4 million decrease in capital
as a reduction in accumulated other comprehensive income. As of December 31, 2021 the Company had a leverage capital ratio of
8.51%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 12.49%, and a total risk-based capital
ratio of 13.66%, compared to 8.71%, 11.65% and 12.62%, respectively, at December 31, 2020.
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 a marginal tax rate of 21%. 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.
The following table reconciles net interest income to net interest income on a tax-equivalent basis:
(dollars in thousands)
Net interest income
Tax-equivalent basis adjustment
using a 21% marginal tax rate
Net interest income on a fully
taxable equivalent basis
Years ended December 31,
2021
2020
65,313 $
50,476
787
883
66,100
51,359
$
$
22
CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES
(Tax-Equivalent Basis, dollars in thousands)
Year Ended December 31
ASSETS
Interest-earning assets:
Interest-bearing deposits with
banks
Securities available for sale:
Taxable
Tax-exempt
Total securities available for
sale
Loans receivable (3)(4)
Total interest-earning assets
Noninterest earning assets:
Cash and due from banks
Allowance for loan losses
Other assets
Total noninterest earning assets
$
TOTAL ASSETS
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
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits
Other liabilities
Total noninterest-bearing
liabilities
Stockholders’ equity
Average
Balance
(2)
2021
Interest
(1)
Average
Rate
Average
Balance
(2)
2020
Interest
(1)
Average
Rate
$
175,854
$
266
0.15 %
$
65,812
$
72
0.11 %
261,912
61,610
323,522
1,386,893
1,886,269
23,828
(15,263)
114,210
122,775
2,009,044
475,706
265,981
517,087
1,258,774
73,810
36,196
1,368,780
423,404
15,179
438,583
201,681
4,055
1,889
5,944
65,647
71,857
1.55
3.06
1.84
4.73
3.81
894
169
3,694
4,757
284
716
5,757
0.19
0.06
0.71
0.38
0.38
1.98
0.42
$
$
150,019
53,502
203,521
1,177,773
1,447,106
18,693
(10,388)
100,144
108,449
1,555,555
308,386
200,042
457,844
966,272
57,014
50,286
1,073,572
297,175
18,381
315,556
166,427
2,915
1,800
4,715
54,551
59,338
1.94
3.37
2.32
4.63
4.10
683
112
5,815
6,610
325
1,044
7,979
0.22
0.06
1.27
0.68
0.57
2.08
0.74
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY $
2,009,044
$
1,555,555
Net Interest Income/spread
(tax equivalent basis)
Tax-equivalent basis adjustment
Net Interest Income
Net interest margin
(tax equivalent basis)
66,100
(787)
65,313
$
3.39 %
3.50 %
51,359
(883)
50,476
$
3.36 %
3.55 %
(1)
(2)
(3)
(4)
Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.
Average balances have been calculated based on daily balances.
Loan balances include non-accrual loans and are net of unearned income.
Loan yields include the effect of amortization of purchased credit marks and deferred fees net of costs.
23
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)
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
Increase/(Decrease)
2021 compared to 2020
Variance due to
Rate
Net
Volume
$
135 $
59 $
194
2,002
267
2,269
9,731
12,135
344
57
468
869
76
(291)
654
(862)
(178)
(1,040)
1,365
384
(133)
—
(2,589)
(2,722)
(117)
(37)
(2,876)
1,140
89
1,229
11,096
12,519
211
57
(2,121)
(1,853)
(41)
(328)
(2,222)
Net interest income (tax-equivalent basis)
$
11,481 $
3,260 $
14,741
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.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
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, 2021, 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 10% 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, 2021, the Bank had a positive 90-day interest sensitivity gap of $175.1 million or 8.5% of total assets. The
significant level of asset sensitivity reflects the increase in overnight liquidity on hand. 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 period. 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.
24
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.
The following table displays interest-sensitivity as of December 31, 2021 (dollars 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, 2020
Interest sensitivity gap
Cumulative gap
RSA/RSL-cumulative
$
$
$
$
$
3 Months
Or Less
3-12
Months
1-3 Years
Over
3 Years
Total
$
185,162
18,545
219,825
$
446
42,753
231,723
$
—
85,136
398,844
$
—
260,348
504,539
185,608
406,782
1,354,931
423,532 $
274,922 $
483,980 $
764,887 $
1,947,321
119,877 $
112,425
16,130
122,589 $
293,906
28,586
324,937 $
101,899
46,104
220,036 $
20,472
—
787,439
528,702
90,820
248,432 $
445,081 $
472,940 $
240,508 $
1,406,961
175,100 $
175,100
170.5 %
(170,159) $
4,941
100.7 %
11,040 $
15,981
101.4 %
524,379 $
540,360
138.4 %
106,233 $
106,233
145.5 %
26,320 $
132,553
122.0 %
649 $
133,202
112.4 %
314,776 $
447,978
135.0 %
540,360
447,978
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. 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, 2021, the Company had cash and cash equivalents of $206.7 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 $406.8 million, which could be used for liquidity needs. This totals $613.5 million and represents 29.7% of total
assets compared to $338.3 million and 18.3% of total assets as of December 31, 2020. The Company also monitors other liquidity
measures for compliance with Company policy guidelines. Based upon these measures, the Company believes its liquidity position is
adequate.
25
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 credit under all
lines was $190.0 million, with $0 outstanding at December 31, 2021 and $0 million outstanding at December 31, 2020. The maximum
borrowing capacity from FHLB at December 31, 2021 was $607.1 million. As of December 31, 2021, the Company had $30.0 million
in term borrowings from the FHLB, compared to $42.5 million at December 31, 2020. Outstanding Letters of Credit to secure public
funds totaled $127.9 million and $100.0 million at December 31, 2021 and 2020, respectively.
Item 8. Financial Statements and Supplementary Data.
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, 2021. 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, 2021, 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.
/s/ Lewis J. Critelli
Lewis J. Critelli
President and
Chief Executive Officer
/s/ William S. Lance
William S. Lance
Executive Vice President and
Chief Financial Officer
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Norwood Financial Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Norwood Financial Corp. and subsidiaries (the “Company”)
as of December 31, 2021 and 2020; the related consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements
(collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements; and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses (ALL) – Qualitative Factors
Description of the Matter
The Company’s loan portfolio totaled $1.35 billion as of December 31, 2021, and the associated ALL was $16.4 million. As
discussed in Note 4 to the consolidated financial statements, determining the amount of the ALL requires significant judgment
about the collectability of loans, which includes an assessment of quantitative factors such as historical loss experience within
each risk category of loans and testing of certain commercial loans for impairment. Management applies additional qualitative
27
adjustments to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are not reflected in the
historical loss experience. Qualitative adjustments are made based upon changes in lending policies and practices, economic
conditions, changes in the loan portfolio mix, trends in loan delinquencies and classified loans, collateral values, and
concentrations of credit risk for the commercial loan portfolios.
Auditing the Company’s ALL involved a high degree of subjectivity due to the judgment involved in management’s determination
of commercial loan credit risk ratings and identification and measurement of qualitative factor adjustments included in the
estimate of the allowance for loan losses.
How We Addressed the Matter in Our Audit
We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to
the ALL. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which
included, among others, management’s review and approval controls designed to assess the need and level of qualitative
adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.
To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all
relevant risks were reflected in the ALL and the need to consider qualitative adjustments, including the potential effect of COVID-
19 on the adjustments
Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data
and inputs utilized in management’s estimate. We evaluated the inputs and data to the Company’s historical loan performance
data and third-party macroeconomic data. Furthermore, we analyzed the changes in the components of the qualitative reserves
relative to changes in external market factors, the Company’s loan portfolio, and asset quality trends, which included the
evaluation of management’s ability to capture and assess relevant data from both external sources and internal reports on loan
customers affected by the COVID-19 pandemic and the supporting documentation for substantiating revisions to qualitative
factors.
We also utilized internal credit review specialists to perform procedures on a sample of commercial loans to test the Company’s
credit risk ratings by comparing key attributes used in the determination of the credit risk rating to supporting documentation such
as borrowers’ financial statements, underlying collateral, financial health of the guarantor, and loan payment history.
We have served as the Company’s auditor since 2009.
Cranberry Township, Pennsylvania
March 11, 2022
28
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 2021: $16,442; 2020: $13,150)
Regulatory stock, at cost
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable
Foreclosed real estate owned
Goodwill
Other intangibles
Other assets
December 31,
2021
2020
(In Thousands, Except Share
and Per Share Data)
$
21,073 $
185,608
19,445
92,248
206,681
111,693
406,782
1,338,489
3,927
17,289
40,038
5,889
1,742
29,266
407
17,994
226,586
1,397,582
3,981
17,814
39,608
6,232
965
29,290
530
17,583
Total Assets
$
2,068,504 $
1,851,864
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-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
Preferred stock, no par value, authorized: 5,000,000 shares, issued: none
Common stock, $0.10 par value,
authorized: 20,000,000 shares
issued: 2021: 8,266,751 shares; 2020: 8,236,331 shares
Surplus
Retained earnings
Treasury stock at cost: 2021: 65,328 shares; 2020: 10,263 shares
Accumulated other comprehensive (loss) income
Total Stockholders' Equity
$
440,652 $
196,786
309,439
281,214
528,702
359,559
149,692
259,974
232,329
533,831
1,756,793
1,535,385
60,822
29,998
1,203
14,426
63,303
42,459
1,601
14,331
1,863,242
1,657,079
—
—
827
96,443
110,015
(1,767)
(256)
824
95,388
93,796
(342)
5,119
205,262
194,785
Total Liabilities and Stockholders' Equity
$
2,068,504 $
1,851,864
See notes to consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF INCOME
INTEREST INCOME
Loans receivable, including fees
Securities
Taxable
Tax exempt
Interest-bearing deposits with banks
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.
30
Years Ended December 31,
2021
2020
(In Thousands, Except Share
and Per Share Data)
$
65,257 $
54,046
4,055
1,492
266
71,070
4,757
284
716
5,757
65,313
4,200
61,113
5,693
748
92
177
941
674
8,325
20,608
3,533
1,289
2,415
681
473
1,582
993
1,122
115
123
—
5,644
38,578
30,860
5,945
24,915 $
3.05 $
3.04 $
$
$
$
2,915
1,422
72
58,455
6,610
325
1,044
7,979
50,476
5,450
45,026
5,115
682
71
527
845
540
7,780
17,121
3,128
1,020
2,457
399
385
1,062
983
997
53
114
2,049
4,672
34,440
18,366
3,286
15,080
2.09
2.09
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
NET INCOME
Other comprehensive (loss) income:
Unrealized gain on pension liability
Tax Effect
Investment securities available for sale:
Unrealized holding (loss) gains
Tax Effect
Reclassification of gains from sale of securities
Tax Effect
Other comprehensive (loss) income
Years Ended December 31,
2021
2020
$
24,915
$
15,080
220
(46)
(6,931)
1,455
(92)
19
(5,375)
241
(51)
4,809
(1,011)
(71)
15
3,932
COMPREHENSIVE INCOME
$
19,540
$
19,012
See notes to consolidated financial statements.
31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2021 and 2020
(In Thousands, Except Share and Per Share Data)
Common Stock
Shares
Amount
Surplus
Retained
Earnings Shares
Treasury Stock
Amount
Accumulated
Other
Comprehensive
Income (Loss) Total
BALANCE -
DECEMBER 31, 2019
Net Income
Other comprehensive
income
Cash dividends
declared ($1.01 per
share)
Acquisition of treasury
stock
Acquisition of UpState
New York Bancorp,
Inc.
Stock options exercised
Sale of treasury stock
for ESOP
Compensation expense
related to
stock options
Restricted stock awards
BALANCE -
DECEMBER 31, 2020
Net Income
Other comprehensive
loss
Cash dividends
declared ($1.06 per
share)
Acquisition of treasury
stock
Stock options exercised
Sale of treasury stock
for ESOP
Compensation expense
related to
stock options
Restricted stock awards
BALANCE -
DECEMBER 31, 2021
(Dollars in Thousands, Except per Share Data)
6,340,563 $
—
634 $
—
49,471 $
—
86,536
15,080
12,007 $
—
$
(400)
—
1,187
—
$ 137,428
15,080
—
—
—
—
—
—
3,932
3,932
—
—
—
(7,820)
—
—
—
—
—
—
3,243
(108)
1,865,738
15,530
186
2
45,151
266
—
—
—
—
—
(36)
—
(4,987)
166
—
14,500
—
2
204
332
—
—
—
—
—
—
—
—
—
—
—
—
(7,820)
(108)
45,337
268
130
204
334
8,236,331
—
824
—
95,388
—
93,796
24,915
10,263
—
(342)
—
5,119
—
194,785
24,915
—
—
—
—
—
—
(5,375)
(5,375)
—
—
—
(8,696)
—
—
—
22,420
—
2
—
392
—
—
56,162
—
(1,440)
—
—
—
(5)
—
(4,997)
135
—
8,000
—
1
214
454
—
—
3,900
—
(120)
—
—
—
—
—
—
(8,696)
(1,440)
394
130
214
335
8,266,751 $
827 $
96,443 $ 110,015
65,328 $
(1,767)
$
(256)
$ 205,262
See notes to consolidated financial statements.
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2021
2020
(In Thousands)
$
24,915 $
15,080
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 loans
Mortgage loans originated for sale
Proceeds from sale of loans originated for sale
Compensation expense related to stock options
Compensation expense related to restricted stock
Decrease (increase) in accrued interest receivable
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
Purchase of regulatory stock
Redemption of regulatory stock
Net decrease (increase) in loans
Proceeds from bank-owned life insurance
Purchase of premises and equipment
Proceeds from sales of foreclosed real estate owned
Proceeds from sales of bank premises and fixed assets
Acquisition, net of cash and cash equivalents acquired
Net Cash Used for Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits
Net (decrease) increase in short-term borrowings
Repayments of other borrowings
Proceeds from other borrowings
Stock options exercised
Sale of treasury stock for ESOP
Acquisition of treasury stock
Cash dividends paid
Net Cash Provided by Financing Activities
Net Increase in Cash and Cash Equivalents
CASH AND CASH EQUIVALENTS - BEGINNING
CASH AND CASH EQUIVALENTS - ENDING
See notes to consolidated financial statements.
4,200
1,481
123
(383)
1,529
(92)
(941)
108
(177)
(8,616)
8,793
214
335
343
(398)
(2,236)
29,198
11,366
68,218
(268,242)
(4,201)
4,255
57,938
511
(1,258)
291
158
—
(130,964)
221,151
(2,481)
(12,461)
—
394
130
(1,440)
(8,539)
196,754
94,988
5,450
1,322
114
850
1,246
(71)
(845)
128
(527)
(12,312)
12,839
204
332
(1,087)
(1,006)
(7,920)
13,797
24,497
58,876
(82,351)
(4,001)
7,326
(80,770)
—
(749)
612
10
15,193
(61,357)
163,743
1,047
(23,979)
10,000
268
130
(108)
(7,263)
143,838
96,278
15,415
111,693
$
111,693
206,681 $
33
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
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
Years Ended December 31,
2021
2020
(In Thousands)
$
$
$
$
6,155 $
5,330 $
1,740 $
2,296 $
8,810
2,793
592
2,139
Merger with UpState New York Bancorp, Inc.
Noncash assets acquired:
Securities available-for-sale
Regulatory stock
Loans
Premises and equipment, net
Accrued interest receivable
Deferred tax assets
Other assets
Liabilities assumed:
Time deposits
Deposits other than time deposits
Accrued interest payable
Other liabilities
Net Noncash Assets Acquired
Cash Acquired
See notes to consolidated financial statements
$
$
$
$
13,948
2,487
413,535
5,529
1,426
1,495
376
438,796
204,440
206,919
175
6,496
418,030
20,766
24,037
34
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 headquartered 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.
Revenue Recognition
Under ASC Topic 606, management determined that the primary sources of revenue emanating from interest and dividend
income on loans and investments along with noninterest revenue resulting from investment securities gains, loans servicing, gains on
loans sold and earnings on bank-owned life insurance are not within the scope of this Topic.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year
ended December 31:
(dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts
ATM Fees
Overdraft Fees
Safe deposit box rental
Loan related service fees
Debit card
Fiduciary activities
Commissions on mutual funds & annuities
Other income
Noninterest Income (in-scope of Topic 606)
Out-of-scope of Topic 606:
Net realized gains on sales of securities
Loan servicing fees
Gain on sales of loans
Earnings on and proceeds from bank-owned life insurance
Noninterest Income (out-of-scope of Topic 606)
Total Noninterest Income
2021
2020
$
$
398 $
443
1,029
100
1,238
2,228
748
127
674
6,985
92
130
177
941
1,340
8,325 $
377
457
985
102
1,288
1,656
682
122
540
6,209
71
128
527
845
1,571
7,780
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. and WTRO Properties. All significant
intercompany accounts and transactions have been eliminated in consolidation. The year ended December 31, 2020 includes the
acquisition of UpState New York Bancorp, Inc. effective July 7, 2020.
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.
35
Significant Group Concentrations of Credit Risk
Most of the Company’s activities are with customers located within its markets in Northeastern Pennsylvania and the New
York Counties of Delaware, Sullivan, Ontario, Otsego and Yates. 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, Luzerne and Monroe Counties, Pennsylvania and Delaware,
Sullivan, Ontario, Otsego and Yates 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 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 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, 2021.
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.
36
The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past
due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing.
A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed
on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is
charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or
reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Troubled Debt Restructurings
A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower
because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest
rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new
obligations with similar risk.
Loans Acquired
Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is
probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded
at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. Loans are evaluated
individually to determine if there is evidence of deterioration of credit quality since origination. The difference between the
undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income
on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted
cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a
valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through
adjustment of the yield on the loan over its remaining estimated life. Decreases in expected cash flows are recognized immediately as
impairment. Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.
For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses
expected over the life of the loan are a component of the initial fair value. Loans may be aggregated and accounted for as a pool of
loans if the loans being aggregated have common risk characteristics. Subsequent to the purchase date, the methods utilized to estimate
the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan
losses only when the required allowance exceeds any remaining credit discounts. The remaining differences between the purchase price
and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.
Mortgage Servicing Rights
Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial
assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the
period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment
based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available,
or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the
extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2021 and 2020,
respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2021 and 2020, were $289,000 and
$337,000, 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.
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.
37
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:
Buildings and improvements
Furniture and equipment
Leases
Years
10 - 40
3 - 10
The Company applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than
12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12
months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset
or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet
recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the
effect on the statement of cash flows, differs depending on the lease classification. See Note 8 for related disclosures.
Transfers of Financial Assets
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.
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.
38
Goodwill
In connection with three acquisitions the Company recorded goodwill in the amount of $29.3 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, 2021 and 2020.
Other Intangible Assets
At December 31, 2021, the Company had other intangible assets of $407,000, which is net of accumulated amortization of
$1,347,000. These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten
years. At December 31, 2020, the Company had other intangible assets of $530,000, which was net of accumulated amortization of
$1,224,000. Amortization expense related to other intangible assets was $123,000 and $114,000 for the years ended December 31, 2021
and 2020, respectively.
As of December 31, 2021, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Income Taxes
$
$
101
85
69
54
38
60
407
Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts
and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when
these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets
and 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, 2021 or 2020, 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.
39
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 participants.
The Company provides pension benefits to eligible employees. The Company’s funding policy is to contribute at least the
minimum required contributions annually.
Interest Rate Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.
The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources,
and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative
financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and
uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used
to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected
cash payments.
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.
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.
40
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 Community Office 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.
Reclassification of Comparative Amounts
Certain comparative amounts for the prior year have been reclassified to conform to current-year classifications. Such
reclassifications had no material effect on net income or stockholders’ equity.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on
Financial Instruments, 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 affected 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. 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. This Update is effective for SEC filers that are eligible to be smaller reporting
companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning
of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time
adjustment or the overall impact of the new guidance on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent
measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of
goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and
liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of
assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform
its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Update is effective for smaller reporting
companies and all other entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This
Update is not expected to have a significant impact on the Company’s financial statements.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit
Losses, which, in addition to addressing other matters, ASU 2018-19 clarifies that receivables arising from operating leases are not
within the scope of Subtopic 326-20. The effective date and transition requirements for ASU 2018-19 are the same as those in ASU
2016-13. This Update is not expected to have a significant impact on the Company’s financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses,
Derivatives, and Hedging (Topic 815); and Financial Instruments (Topic 825), which affects a variety of topics in the Codification and
applies to all reporting entities within the scope of the affected accounting guidance. ASU 2019-04 makes clarifying amendments to
41
certain financial instrument standards. For entities that have not yet adopted ASU 2016-13, the effective dates for the amendments
related to ASU 2016-13 are the same as the effective dates in ASU 2016-13. For entities that have adopted ASU 2016-13, the
amendments related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. For entities that have not yet adopted ASU 2017-12 as of April 25, 2019, the effective dates for the amendments to
Topic 815 are the same as the effective dates in ASU 2017-12. For entities that have adopted ASU 2017-12 as of April 25, 2019, the
effective date is as of the beginning of the first annual period beginning after April 25, 2019. The amendments related to ASU 2016-01
are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company
qualifies as a smaller reporting company and does not expect to early adopt these ASUs.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to
irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit
losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new
credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-
by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair
value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a
cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that
financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the
ASU is effective when they implement the credit losses standard. For entities that already have adopted the credit losses standard, the
ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company
qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.
In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 944, Financial Services – Insurance, for public
business entities that are SEC filers, except for smaller reporting companies, to fiscal years beginning after December 15, 2021, and
interim periods within those fiscal years, and for all other entities, including smaller reporting companies, to fiscal years beginning after
December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company qualifies as a smaller
reporting company and does not expect to early adopt ASU 2016-13.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit
Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update
clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an
accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the
prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends
the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. For
entities that have not yet adopted ASU 2016-13 as of November 26, 2019, the effective dates for ASU 2019-11 are the same as the
effective dates and transition requirements in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-11 is effective for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller
reporting company and does not expect to early adopt these ASUs.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to
improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016.
The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make
the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to
significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities
that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both
interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should
be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted
before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance
are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU
2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after
December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. This
Update is not expected to have a significant impact on the Company’s financial statements
In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance
on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR
and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to
apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain
criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a
42
previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying
hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election
to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments
in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index
replacement and the adoption of the ASU will have a material impact on the Company’s financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary
guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to
new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and
exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible
for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect
to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent
to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent
to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this
update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to
existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships
existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end
of the hedging relationship. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s
financial position or results of operations.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair value of securities were as follows:
AVAILABLE FOR SALE:
U.S. Treasury securities
U.S. Government agencies
States and political subdivisions
Mortgage-backed securities-
government sponsored entities
Total debt securities
AVAILABLE FOR SALE:
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-
government sponsored entities
Total debt securities
Amortized
Cost
December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
$
$
$
$
19,550 $
16,251
145,107
227,712
408,620 $
6 $
24
2,155
766
2,951 $
(205) $
(264)
(1,395)
(2,925)
(4,789) $
19,351
16,011
145,867
225,553
406,782
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
3,998 $
70,672
3,019
143,712
221,401 $
— $
2,419
13
2,809
5,241 $
(29) $
—
—
(27)
(56) $
3,969
73,091
3,032
146,494
226,586
43
The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by security type and
length of time that individual securities have been in a continuous unrealized loss position (in thousands):
U.S. Treasury securities
U.S. Government agencies
States and political
subdivisions
Mortgage-backed securities-
government sponsored
entities
Less than 12 Months
December 31, 2021
12 Months or More
Total
$
Fair Value
18,361
7,912
Unrealized
Losses
$
(205)
(109)
Fair Value
—
$
3,843
Unrealized
Losses
$
—
(155)
Fair Value
18,361
$
11,755
$
Unrealized
Losses
(205)
(264)
74,658
(1,395)
—
—
74,658
(1,395)
170,647
271,578
$
$
(2,856)
(4,565)
$
2,919
6,762
$
(69)
(224)
$
173,566
278,340
$
(2,925)
(4,789)
U.S. Government agencies $
Mortgage-backed securities-
government sponsored
entities
Less than 12 Months
December 31, 2020
12 Months or More
Fair Value
3,969
Unrealized
Losses
(29)
Fair Value
—
$
Unrealized
Losses
Fair Value
3,969
$
—
4,980
8,949
$
$
(27)
(56)
$
—
—
$
—
—
$
4,980
8,949
$
$
Total
Unrealized
Losses
$
$
(29)
(27)
(56)
The Company has 137 debt securities in the less than twelve month category and 3 debt securities in the twelve months or
more category as of December 31, 2021. 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 2021. 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, 2021 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.
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
Amortized
Cost
Fair
Value
(In Thousands)
1,086
$
11,268
54,965
113,589
180,908
227,712
408,620
$
1,093
11,488
54,392
114,256
181,229
225,553
406,782
$
$
Gross realized gains and gross realized losses on sales of securities available for sale were $92,000 and $0, respectively, in
2021, compared to $71,000 and $0, respectively, in 2020. The proceeds from the sales of securities totaled $11,366,000 and $24,497,000
for the years ended December 31, 2021 and 2020, respectively.
Securities with a carrying value of $339,769,000 and $199,361,000 at December 31, 2021 and 2020, respectively, were pledged
to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.
44
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Set forth below is selected data relating to the composition of the loan portfolio (in thousands):
Real Estate:
Residential
Commercial
Agricultural
Construction
Commercial loans
Other agricultural loans
Consumer loans to individuals
Total loans
Deferred fees, net
Total loans receivable
Allowance for loan losses
Net loans receivable
December 31, 2021
December 31, 2020
$
273,040
628,724
61,925
21,990
186,031
37,930
146,400
1,356,040
(1,109)
1,354,931
(16,442)
1,338,489
$
$
20.1 %
46.4
4.6
1.6
13.7
2.8
10.8
100.0 %
263,127
579,104
66,334
21,005
283,741
40,929
158,049
1,412,289
18.6 %
41.0
4.7
1.5
20.1
2.9
11.2
100.0 %
(1,557)
1,410,732
(13,150)
1,397,582
$
During 2021 and 2020, the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the
United States Small Business Administration (“SBA”). The PPP provides loans to small businesses who were affected by economic
conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and
certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of
December 31, 2021 and 2020, the Company had outstanding principal balances of $15,209,000 and $95,043,000, respectively, in PPP
loans. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds
are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as
long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by
the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan category.
In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $2.9 million and
$2.3 million in fees associated with the processing of these loans in 2021 and 2020, respectively. Upon funding of the loans, these fees
were deferred and are amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2.
As a result of the acquisition of UpState, the Company added $15,410,000 of loans that were accounted for in accordance
with ASC 310-30. Based on a review of the loans acquired by the Company’s senior lending management, which included an analysis
of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $6,937,000. For
loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction
of the specific reserve and will not impact the allowance for loan losses until actual losses exceed the allotted reserves. For loans
acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the
allowance for loan loss adequacy calculation.
Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended
December 31:
(In thousands)
Balance at beginning of period
Additions
Accretion
Reclassification and other
Balance at end of period
$
$
2021
2020
1,365
—
(880)
1,399
1,884
$
$
—
1,724
(353)
(6)
1,365
45
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-
30 (in thousands):
Outstanding Balance
Carrying Amount
December 31,
2021
December 31,
2020
$
$
12,862 $
15,570
8,304 $
9,281
Loans acquired with credit deterioration of $15,410,000 and accounted for in accordance with ASC 310-30 were individually
evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan were then discounted to
present value using a risk-adjusted market rate. The table below presents the components of the purchase accounting adjustments:
(In Thousands)
Contractually required principal and interest
Non-accretable discount
Expected cash flows
Accretable discount
Estimated fair value
July 7, 2020
15,410
(5,213)
10,197
(1,724)
8,473
$
$
There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality.
As of December 31, 2021, for loans that were acquired prior to 2020 with or without specific evidence of deterioration in credit quality,
adjustments to the allowance for loan losses have been accounted for through the allowance for loan loss adequacy calculation.
The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early
identification of potential impaired loans. The system takes into consideration, among other things, delinquency status, size of loans,
type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified
losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current
information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan
agreement. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation
purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected
future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if
the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part
of a larger relationship that is impaired, or are classified as a troubled debt restructuring.
The following tables show the amount of loans in each category that were individually and collectively evaluated for
impairment at the dates indicated:
Real Estate Loans
Residential Commercial Agricultural Construction Loans
Agricultural Loans
Total
Commercial Other
Consumer
(In thousands)
$
December 31, 2021
Individually
evaluated for
impairment
Loans acquired with
deteriorated credit
quality
Collectively
evaluated for
impairment
Total Loans
— $
1,658 $
— $
— $
16 $
— $
— $
1,674
784
3,285
1,918
—
198
2,119
—
8,304
272,256
$ 273,040 $
623,781
628,724 $
60,007
61,925 $
21,990
21,990 $
185,817
186,031 $
1,346,062
146,400
35,811
37,930 $ 146,400 $ 1,356,040
46
Real Estate Loans
Residential Commercial Agricultural Construction Loans
Agricultural Loans
Total
Commercial Other
Consumer
(In thousands)
— $
2,582 $
— $
— $
80 $
— $
— $
2,662
591
3,995
2,043
194
246
2,212
—
9,281
$
December 31, 2020
Individually
evaluated for
impairment
Loans acquired with
deteriorated credit
quality
Collectively
evaluated for
impairment
Total Loans
262,536
$ 263,127 $
572,527
579,104 $
64,291
66,334 $
20,811
21,005 $
283,415
283,741 $
38,717
1,400,346
158,049
40,929 $ 158,049 $ 1,412,289
The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated
allowance amount, if applicable.
December 31, 2021
With no related allowance recorded:
Real Estate Loans
Commercial
Commercial loans
Subtotal
With an allowance recorded:
Real Estate Loans
Commercial
Subtotal
Total:
Real Estate Loans
Commercial
Commercial loans
Total Impaired Loans
Recorded
Investment
Unpaid Principal
Principal
Balance
(In thousands)
Associated
Allowance
$
$
$
141 $
16
157
141 $
16
157
1,517
1,517
1,517
1,517
1,658 $
16
1,674 $
1,658 $
16
1,674 $
—
—
—
272
272
272
—
272
47
December 31, 2020
With no related allowance recorded:
Real Estate Loans
Commercial
Commercial loans
Subtotal
With an allowance recorded:
Real Estate Loans
Commercial
Subtotal
Total:
Real Estate Loans
Residential
Commercial
Commercial loans
Total Impaired Loans
Recorded
Investment
Unpaid
Principal
Balance
(In thousands)
Associated
Allowance
$
$
$
2,582 $
80
2,662
3,234 $
80
3,314
—
—
—
—
2,582 $
80
2,662 $
3,234 $
80
3,314 $
—
—
—
—
—
—
—
—
—
14
—
14
The following information for impaired loans is presented for the years ended December 31, 2021 and 2020:
Total:
Real Estate Loans
Commercial
Commercial loans
Total Loans
Average Recorded
Investment
Interest Income
Recognized
2021
2020
2021
2020
(In thousands)
$
$
2,358 $
18
2,376 $
2,105 $
16
2,121 $
157 $
7
164 $
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, 2021, there were no troubled debt restructured loans. During 2021, there were no new
loan relationships identified as troubled debt restructurings. During 2021, there were no charge-offs on loans classified as troubled debt
restructurings.
As of December 31, 2020, troubled debt restructured loans totaled $75,000 and did not require a specific reserve. During 2020,
there were no new loan relationships identified as troubled debt restructurings. During 2020, there was a charge-off in the amount of
$20,000 on loans classified as troubled debt restructurings.
On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach
for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current
accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term
modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other
delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual
payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that
short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are
not TDRs.
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, 2021 and 2020, foreclosed real estate owned
totaled $1,742,000 and $965,000, respectively. As of December 31, 2021, included within foreclosed real estate owned are two
commercial properties that were received via a deed in lieu. As of December 31, 2021, the Company has initiated formal foreclosure
proceedings on five consumer residential mortgage loans with an outstanding balance of $532,000.
48
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. Loans greater than 90 days past due are considered Substandard unless
full payment is expected. 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 $1,500,000 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.
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, 2021 and December 31,
2020 (in thousands):
December 31, 2021
Commercial real estate
loans
$
Real estate - agricultural
Commercial loans
Other agricultural loans
Total
$
December 31, 2020
Commercial real estate
$
Real estate - agricultural
Commercial loans
Other agricultural loans
Total
$
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
618,541 $
60,193
185,729
35,573
900,036 $
5,146 $
—
199
210
5,555 $
4,765 $
1,732
103
2,147
8,747 $
— $
—
—
—
— $
272 $
—
—
—
272 $
628,724
61,925
186,031
37,930
914,610
Pass
Special
Mention
Substandard
Doubtful
Loss
Total
566,418 $
58,322
282,915
35,772
943,427 $
6,346 $
5,111
437
2,786
14,680 $
6,340 $
2,901
389
2,371
12,001 $
— $
—
—
—
- $
— $
—
—
—
- $
579,104
66,334
283,741
40,929
970,108
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, 2021
and December 31, 2020 (in thousands):
December 31, 2021
Residential real estate loans
Construction
Consumer loans to individuals
Total
Performing
Nonperforming
Total
$
$
272,571 $
21,990
146,345
440,906 $
469 $
—
55
524 $
273,040
21,990
146,400
441,430
49
December 31, 2020
Residential real estate loans
Construction
Consumer loans to individuals
Total
Performing
Nonperforming
Total
$
$
262,556 $
21,005
157,864
441,425 $
571 $
—
185
756 $
263,127
21,005
158,049
442,181
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, 2021 and December 31, 2020 (in
thousands):
31-60
Days Past
Due
61-90
Days Past
Due
Current
Greater than
90 Days Past
Due and still
accruing
Non-
Accrual
Total Past Due
and Non-
Accrual
Purchased
Credit
Impaired
Loans
Total Loans
December 31,
2021
Real Estate
loans
$
Residential
Commercial
Agricultural
Construction
271,622 $
625,336
59,982
21,990
155 $
—
25
—
10 $
—
—
—
— $
—
—
—
469 $
103
—
—
185,801
3
13
91
16
35,811
—
—
—
—
634 $
103
25
—
32
—
784 $
3,285
1,918
-
198
273,040
628,724
61,925
21,990
186,031
2,119
37,930
145,986
$ 1,346,528 $
248
431 $
111
134 $
—
91 $
55
643 $
414
1,208 $
-
146,400
8,304 $ 1,356,040
31-60
Days Past
Due
61-90
Days Past
Due
Current
Greater than
90 Days Past
Due and still
accruing
Non-
Accrual
Total Past Due
and Non-
Accrual
Purchased
Credit
Impaired
Loans
Total Loans
$
Residential
Commercial
Agricultural
Construction
261,406 $
573,376
63,615
20,811
355 $
59
—
—
204 $
—
—
—
— $
—
—
—
571 $
1,674
676
—
1,130 $
1,733
676
—
282,374
1,009
90
—
22
1,121
591 $
3,995
2,043
194
246
263,127
579,104
66,334
21,005
283,741
38,454
—
—
—
263
263
2,212
40,929
157,538
$ 1,397,574 $
233
1,656 $
93
387 $
—
— $
185
3,391 $
511
5,434 $
-
158,049
9,281 $ 1,412,289
50
Commercial
loans
Other
agricultural
loans
Consumer
loans
Total
December 31,
2020
Real Estate
loans
Commercial
loans
Other
agricultural
loans
Consumer
loans
Total
The following table presents the allowance for loan losses by the classes of the loan portfolio:
$
(In thousands)
Beginning balance,
December 31, 2020
Charge Offs
Recoveries
Provision for loan losses
Ending balance,
December 31, 2021
Ending balance
individually evaluated
for impairment
Ending balance
collectively evaluated
for impairment
$
$
$
$
(In thousands)
Beginning balance,
December 31, 2019
Charge Offs
Recoveries
Provision for loan losses
Ending balance,
December 31, 2020
Ending balance
individually evaluated
for impairment
Ending balance
collectively evaluated
for impairment
$
$
$
Residential
Real Estate
Commercial
Real Estate
Construction
Commercial
Consumer
Total
$
1,960
(17)
74
158
$
8,004
(452)
19
3,307
$
150
—
—
(17)
$
1,360
(200)
49
281
$
1,676
(480)
99
471
13,150
(1,149)
241
4,200
2,175
$
10,878
$
133
$
1,490
$
1,766
$
16,442
—
$
272
$
—
$
—
$
—
$
272
2,175
$
10,606
$
133
$
1,490
$
1,766
$
16,170
Residential
Real Estate
Commercial
Real Estate
Construction
Commercial
Consumer
Total
$
1,552
(41)
6
443
$
4,687
(452)
39
3,730
$
95
—
—
55
$
949
(18)
44
385
$
1,226
(431)
44
837
8,509
(942)
133
5,450
1,960
$
8,004
$
150
$
1,360
$
1,676
$
13,150
—
$
—
$
—
$
—
$
—
$
—
1,960
$
8,004
$
150
$
1,360
$
1,676
$
13,150
During the period ended December 31, 2021, the allowance for loan losses increased from $13,150,000 to $16,442,000. This
$3,292,000 increase in the required allowance was due primarily to a $1.5 million increase in the qualitative factor related to loan growth
and a $1.4 million increase due to an increase in the qualitative factor related to large balance loans.
During the period ended December 31, 2020, the allowance for loan losses increased from $8,509,000 to $13,150,000. This
$4,641,000 increase in the required allowance was due primarily to a $2.3 million increase in the qualitative factor related to economic
conditions and a $2.2 million increase due to new qualitative factors directly related to the COVID-19 pandemic.
Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the
loans was $35,000 and $286,000 for 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Company considered its concentration of credit risk to be acceptable. As of
December 31, 2021, the highest concentrations are in commercial rentals and the residential rentals category, with loans outstanding of
$135.7 million, or 10.0% of bank capital, to commercial rentals, and $116.3 million, or 8.6% of bank capital to residential rentals. There
were no charge-offs on loans within these concentrations for the years ended December 31, 2021 and 2020, respectively.
During 2021, the Company sold residential mortgage loans totaling $8,616,000. During 2020, the Company sold residential
mortgage loans totaling $12,312,000. Gross realized gains and gross realized losses on sales of residential mortgage loans were $177,000
and $0, respectively, in 2021 and $527,000 and $0, respectively, in 2020. The proceeds from the sales of residential mortgage loans
totaled $8,793,000 and $12,839,000 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and
2020, the outstanding value of loans serviced for others totaled $65.4 million and $72.5 million, respectively.
51
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
$
2021
2020
(In Thousands)
3,879 $
21,846
10,183
35,908
(18,619)
3,878
21,545
9,717
35,140
(17,326)
$
17,289 $
17,814
Depreciation expense totaled $1,481,000 and $1,322,000 for the years ended December 31, 2021 and 2020, respectively.
NOTE 6 - DEPOSITS
Aggregate time deposits in denominations greater than $250,000 were $257,238,000 and $205,376,000 at December 31, 2021
and 2020, respectively.
At December 31, 2021, the scheduled maturities of time deposits are as follows (in thousands):
2022
2023
2024
2025
2026
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
$
$
406,331
70,921
30,978
10,533
9,939
528,702
2021
2020
(In Thousands)
60,822 $
—
60,822 $
63,303
—
63,303
$
$
The outstanding balances and related information of short-term borrowings are summarized as follows:
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
Years Ended December 31,
2020
2021
(Dollars In Thousands)
$
73,810
57,014
0.39 %
90,409
$
0.34 %
0.55 %
69,294
0.43 %
$
$
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 $66,353,000 and $65,162,000 at December 31, 2021 and $63,462,000 and $64,429,000 at
December 31, 2020, respectively, were pledged as collateral for these agreements. The securities underlying the agreements were under
the Company’s control.
52
The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized as follows (in
thousands):
Overnight and
continuous
As of December 31, 2021
Remaining Contractual Maturity of the Agreements
Greater than 90
days
30-90 days
Up to 30 days
Total
Repurchase Agreements:
Mortgage-backed securities -
government sponsored entities
Total liability recognized for
repurchase agreements
Repurchase Agreements:
Mortgage-backed securities -
government sponsored entities
Total liability recognized for
repurchase agreements
$
65,162 $
— $
— $
— $
65,162
As of December 31, 2020
Overnight and
continuous
Remaining Contractual Maturity of the Agreements
Greater than 90
days
30-90 days
Up to 30 days
60,822
Total
$
64,429 $
— $
— $
— $
64,429
63,303
The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $150,000,000,
which renews annually in June. At December 31, 2021, there were no borrowings outstanding on this line. There were no borrowings
outstanding on this line of credit at December 31, 2020. The Company has a line of credit commitment available from Atlantic
Community Bankers Bank for $7,000,000, which expires on June 30, 2022. There were no borrowings under this line of credit at
December 31, 2021 and 2020. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31,
2021. There were no borrowings under this line of credit at December 31, 2021 and December 31, 2020. 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, 2021 and
December 31, 2020.
Other borrowings consisted of the following at December 31, 2021 and 2020:
Amortizing fixed rate borrowing due March 2022 at 1.75%
Amortizing fixed rate borrowing due August 2022 at 1.94%
Amortizing fixed rate borrowing due October 2022 at 1.88%
Amortizing fixed rate borrowing due October 2023 at 3.24%
Amortizing fixed rate borrowing due December 2023 at 3.22%
Fixed rate term borrowing due December 2023 at 1.95%
Amortizing fixed rate borrowing due December 2023 at 1.73%
Amortizing fixed rate borrowing due April 2024 at 0.91%
2021
2020
(In Thousands)
$
$
227 $
1,364
1,386
3,856
2,097
10,000
5,190
5,878
29,998 $
1,126
3,376
3,021
5,865
3,096
10,000
7,616
8,359
42,459
Contractual maturities and scheduled cash flows of other borrowings at December 31, 2021 are as follows (in thousands):
2022
2023
2024
$
$
2,977
21,143
5,878
29,998
The Bank’s maximum borrowing capacity with the FHLB was $607,092,000 of which $29,998,000 was outstanding in the
form of advances and $127,850,000 was outstanding in the form of letters of credit at December 31, 2021. Advances from the FHLB
are secured by qualifying assets of the Bank.
53
NOTE 8 – OPERATING LEASES
The Company leases eight office locations under operating leases. Several assumptions and judgments were made when
applying the requirements of Topic 842 to the Company’s existing lease commitments, including the allocation of consideration in the
contracts between lease and nonlease components, determination of the lease term, and determination of the discount rate used in
calculating the present value of the lease payments.
The Company has elected to account for the variable nonlease components, such as common area maintenance charges,
utilities, real estate taxes, and insurance, separately from the lease component. Such variable nonlease components are reported in net
occupancy expense on the Consolidated Statements of Income when paid. These variable nonlease components were excluded from
the calculation of the present value of the remaining lease payments, therefore, they are not included in other assets and other
liabilities on the Consolidated Balance Sheets. The lease cost associated with the operating leases for the year ending December 31,
2021 and 2020, amounted to $587,000 and $571,000 respectively. The right-of-use asset associated with operating leases amounted to
$4,511,000 and $4,938,000 at December 31, 2021 and 2020, respectively. The lease liability associated with operating leases
amounted to $4,577,000 and $4,984,000 at December 31, 2021 and 2020, respectively.
Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the
Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when
determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable
certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate
utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh
advance rate corresponding to the remaining maturity of the lease. The following table presents the weighted-average remaining lease
term and discount rate for the leases outstanding at December 31, 2021.
Weighted-average remaining term
Weighted-average discount rate
Operating
11.5 years
2.95%
The following table presents the undiscounted cash flows due related to operating leases as of December 31, 2021, along with
a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:
Undiscounted cash flows due (in thousands)
2022
2023
2024
2025
2026
2027 and thereafter
Total undiscounted cash flows
Discount on cash flows
Total lease liabilities
Operating
546
535
543
561
504
2,815
5,504
(927)
4,577
$
$
Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months
or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of December 31, 2021, the Company
had no leases that had a term of twelve months or less.
NOTE 9 – 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 of 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 $1,135,000 and $1,049,000 for the
years ended December 31, 2021 and 2020, respectively.
54
The Company has several non-qualified supplemental executive retirement plans for the benefit of certain executive officers
and former officers. At December 31, 2021 and 2020, other liabilities include $3,481,000 and $3,529,000 accrued under the Plan.
Compensation expense includes approximately $364,000 and $495,000 relating to the supplemental executive retirement plan for 2021
and 2020, 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, 2021 and 2020, the cash value of these policies was $40,038,000 and
$39,608,000, respectively.
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 $153,000 and
$86,000 for the years ended December 31, 2021 and 2020, respectively.
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 2021 and 2020 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 $1,630,000 and $1,477,000 at December 31, 2021 and 2020, respectively.
Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans. These plans
allowed directors to defer director fees and provide a benefit payment for a period of five years to fifteen years. The Company expensed
$0 and $2,000 under these plans in 2021 and 2020, respectively. At December 31, 2021 and 2020, the liability under these plans was
$5,000 and $82,000, respectively.
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, 2021 and 2020, the Company’s Plan was 116.6% and 94.2% 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 $17,000 in 2021 and $24,000 in 2020. During the plan years ending December 31, 2021 and 2020, the Company made
contributions of $17,000 and $24,000, 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 at least the minimum required contribution annually. Pension cost
is computed using the projected unit credit actuarial cost method. Effective December 31, 2012, the Delaware Plan was closed to new
participants and accrued benefits were frozen.
The following table sets forth the projected benefit obligation and change in plan assets for the Delaware Plan at December 31:
(in Thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Benefits paid
Fair value of assets at end of year
Funded status at end of year
2021
2020
$
$
$
$
$
(8,065)
(51)
(206)
177
523
(7,622) $
$
7,744
474
(527)
7,691
69 $
(7,515)
(58)
(257)
(767)
532
(8,065)
6,853
1,416
(525)
7,744
(321)
The Delaware Plan paid $523,000 and $532,000 in benefit payments in 2021 and 2020, respectively. Estimated benefit
payments under the Delaware Plan are expected to be approximately $460,000, $445,000, $437,000, $441,000 and $431,000 for the
55
next five years. Payments are expected to be approximately $2,055,000 in total for the five-year period ending December 31, 2031.
The Company was not required to make any contributions to the Delaware Plan in 2021 or 2020. The increase in the projected discount
rate from 2.63% to 2.93% decreased the projected benefit obligation for the year ended December 31, 2021 by approximately $280,000.
The accumulated benefit obligation for the Delaware Plan was $7,622,000 and $8,065,000 at December 31, 2021 and 2020,
respectively.
The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended
December 31 (in thousands):
Transition asset
Prior service credit
Gain
Total
Net pension cost (income) included the following components (in thousands):
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 (income)
2021
2020
$
—
—
220
220 $
2021
2020
$
51
206
(394)
(34)
(171) $
—
—
241
241
58
257
(395)
(20)
(100)
$
$
$
$
The weighted average assumptions used to determine the benefit obligation at December 31 are as follows:
Discount rate
2021
2020
2.93 %
2.63 %
The weighted average assumptions used to determine the net periodic pension cost at December 31 are as follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
2021
2.63 %
5.25 %
— %
2020
3.55 %
6.00 %
— %
The expected long-term return on plan assets was determined based upon expected returns on individual asset types included
in the asset portfolio.
The Delaware Plan’s weighted-average asset allocations at December 31, by asset category, are as follows:
Cash equivalents
Equity securities
Fixed income securities
Other
2021
2020
— %
35.7 %
35.0 %
29.3 %
100.0 %
— %
31.6 %
62.6 %
5.8 %
100.0 %
The New York Bankers Retirement System (“System”) overall investment strategy is to invest in a diversified portfolio while
managing the variability between the assets and projected liabilities of underfunded pension plans. In 2019, the System’s Board
Members approved a migration of substantially all of the System’s assets to one fund, Commingled Pensions Trust Fund (LDI
Diversified Balanced) of JPMorgan Chase Bank, N.A. The Fund is a group trust within the meaning of internal Revenue Service
Revenue Ruling 81-100, as amended. The growth-oriented portion of the Fund invests in a mix of asset classes that the Fund’s Trustee
believes will collectively maximize total risk-adjusted return through a combination of capital appreciation and income. This portion
of the Fund will comprise between 35% and 90% of the portfolio and will invest directly or indirectly via underlying funds in a broad
56
mix of global equity, global fixed income, real estate and cash-plus strategies. The remaining portion of the Fund, between 10% and
65% of the portfolio, is used to minimize volatility relative to a plan’s projected liabilities.
At December 31, 2021 and 2020, the System had an investment concentration of approximately 100% and 99%, respectively,
of its total portfolio in the JPMCB LDI Diversified Balanced Fund, a commingled pension trust fund. Primarily all of the assets of the
JPMCD LDI Diversified Balance Fund are valued at Net Asset Value (“NAV”). The NAV of the fund is determined at the last sales
price or official market closing price on the primary exchange on which the instrument is traded before the net asset values of the Funds
are calculated on a valuation date. In accordance with ASC Subtopic 820-10, certain investments measured at net asset value per share
(or its equivalents) are not required to be classified in the fair value hierarchy.
NOTE 10 - INCOME TAXES
The components of the provision for federal income taxes are as follows:
Current
Deferred
Years Ended December 31,
2021
2020
(In Thousands)
6,328 $
(383)
5,945 $
7,754
(4,468)
3,286
$
$
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. As of December 31, 2021, the Company had a $3,894,000 net operating loss
carryforward that will begin to expire by December 31, 2036. 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:
Tax at statutory rates
Tax exempt interest income, net of interest expense disallowance
Non-deductible merger related expenses
Earnings and proceeds on life insurance
Other
Percentage of Income
before Income Taxes
Years Ended December 31,
2020
2021
21.0 %
(1.9)
—
(0.6)
0.8
19.3 %
21.0 %
(3.7)
1.1
(1.0)
0.5
17.9 %
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:
57
2021
2020
(In Thousands)
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Core deposit intangible
Prepaid expenses
Pension liability
Foreclosed real estate valuation allowance
Net operating loss carryforward
Purchase price adjustment
Deferred loan fees
Net unrealized loss on securities
Other
Total Deferred Tax Assets
Deferred tax liabilities:
Premises and equipment
Deferred loan fees
Net unrealized gain on pension liability
Net unrealized gain on securities
Total Deferred Tax Liabilities
$
3,855 $
817
231
—
302
19
913
2,487
—
386
404
9,414
1,004
125
318
—
1,447
Net Deferred Tax Asset
$
7,967 $
2,761
758
230
20
118
17
893
2,832
60
—
747
8,436
920
—
272
1,089
2,281
6,155
The Company’s federal and state income tax returns for taxable years through 2018 have been closed for purposes of
examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
NOTE 11 - 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, 2021 and 2020,
that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2021, 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.
58
The Company’s actual capital amounts and ratios are presented in the following table:
Actual
Amount
For Capital
Adequacy
Purposes
Ratio
Amount
(Dollars in Thousands)
Ratio
To be Well
Capitalized
under Prompt
Corrective Action
Provision
Amount
Ratio
As of December 31, 2021:
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, 2020:
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)
191,469
13.66 % ≥$112,117
≥8.00 % ≥$140,146
≥10.00 %
175,027
12.49
≥84,087
≥6.00
≥112,117
≥8.00
175,027
175,027
12.49
8.51
≥63,066
≥82,243
≥4.50
≥4.00
≥91,095
≥102,804
≥6.50
≥5.00
172,103
12.62 % ≥$109,123
≥8.00 % ≥$136,404
≥10.00 %
158,953
11.65
≥81,842
≥6.00
≥109,123
≥8.00
158,953
158,953
11.65
8.71
≥61,382
≥72,994
≥4.50
≥4.00
≥88,663
≥91,243
≥6.50
≥5.00
The Bank’s ratios do not differ significantly from the Company’s ratios presented above.
The Company and the Bank are subject to regulatory capital rules which, among other things, impose a common equity Tier 1
minimum capital requirement of 4.50% of risk-weighted assets; set the minimum leverage ratio for all banking organizations at a uniform
4.00% of total assets; set the minimum Tier 1 capital to risk-based assets requirement at 6.00% of risk-weighted assets; and assign a
risk-weight of 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 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 rule also 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 2.50% of common equity Tier 1 capital to risk-weighted assets
above regulatory minimum risk-based requirements. The Company and the Bank are in compliance with their respective new capital
requirements, including the capital conservation buffer, as of December 31, 2021.
Pennsylvania banking regulations limit the ability of the Bank to pay dividends or make loans or advances to the Company.
Dividends that may be paid in any calendar year are limited to the current year's net profits, combined with the retained net profits of
the preceding two years. At December 31, 2021, dividends from the Bank available to be paid to the Company, without prior approval
of the Bank's regulatory agency, totaled $42.7 million, subject to the Bank meeting or exceeding regulatory capital requirements. The
Company's principal source of funds for dividend payments to shareholders is dividends received from the Bank.
NOTE 12 - STOCK BASED COMPENSATION
At the Annual Meeting held on April 22, 2014, the Company’s stockholders approved the Norwood Financial Corp 2014 Equity
Incentive Plan. An aggregate of 375,000 shares of authorized but unissued Common Stock of the Company were reserved for future
issuance under the Plan. This includes up to 60,000 shares for awards to outside directors. The Plan also authorized the Company to
award restricted stock to officers and outside directors, limited to 63,000 shares of restricted stock awards for officers and 12,000 shares
of restricted stock awards for outside directors. At the Annual Meeting held on April 24, 2018, the Company’s stockholders approved
an amendment to the 2014 Equity Incentive Plan to ease certain restrictions on restricted stock awards to outside directors. As a result
of this amendment, the number of shares available for restricted stock awards to officers was reduced by 300 shares to 62,700, while
the number of shares available for restricted stock awards to outside directors was increased by 20,300 to 32,300 shares. Under this
plan, the Company granted 296,966 shares, which included 191,865 options to employees, 10,400 options to directors, 62,625 shares of
restricted stock to officers and 32,075 shares of restricted stock to directors. The restricted shares vest over five years. 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
59
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, 2021, there were 78,035 shares available
for future awards under this plan, which includes 60,510 shares available for officer awards and 17,525 shares available for awards to
outside directors. Included in these totals are 75 shares available for restricted stock awards to officers and 25 shares available for
restricted stock awards to outside directors.
Total unrecognized compensation cost related to stock options was $269,000 as of December 31, 2021 and $214,000 as of
December 31, 2020. Salaries and employee benefits expense includes $214,000 and $204,000 of compensation costs related to options
for the years ended December 31, 2021 and 2020, respectively. Compensation costs related to restricted stock amounted to $335,000
and $334,000 for the years ended December 31, 2021 and 2020, respectively. The expected future compensation expense relating to
non-vested restricted stock outstanding as of December 31, 2021 and 2020 was $953,000 and $1,202,000, respectively.
A summary of the Company’s stock option activity and related information for the years ended December 31 follows:
2021
Weighted
Average
Exercise
Price
Options
Average
Intrinsic
Value
Options
2020
Weighted
Average
Exercise
Price
Average
Intrinsic
Value
$
215,970
43,500
(22,420)
(10,975)
25.73
25.80
17.59
29.48
$
199,825
33,750
(15,530)
(2,075)
24.78
26.93
17.25
16.83
226,075
$
26.37
$
520
215,970
$
25.73
$
742,738
182,575
$
26.50
$
511
182,220
$
25.51
$
742,738
Outstanding,
beginning of
year
Granted
Exercised
Forfeited
Outstanding,
end of year
Exercisable,
end of year
Exercise prices for options outstanding as of December 31, 2021 ranged from $17.93 to $36.02 per share. The weighted average
remaining contractual life is 6.4 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:
Dividend yield
Expected life
Expected volatility
Risk-free interest rate
Weighted average fair value of options granted
Years Ended December 31,
2021
2020
3.55%
10 years
34.69%
1.51%
6.49
$
3.55%
10 years
34.15%
0.91%
6.34
$
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 $394,000 in 2021. Shares issued in connection with stock option exercises are
issued from available treasury shares or from available authorized shares. During 2021, for the shares issued in connection with stock
option exercises, 22,420 shares in total, all shares were issued from available authorized shares.
60
As of December 31, 2021, outstanding stock options consist of the following:
Options
Outstanding
Average
Exercise
Price
Remaining
Life, Years
Options
Exercisable
Average
Exercise
Price
21,450 $
1,650
19,375
8,250
9,375
14,375
26,750
23,600
24,000
33,750
1,000
1,000
41,500
18.03
18.36
17.93
19.39
19.03
22.37
32.81
32.34
36.02
26.93
26.35
25.38
25.80
Total
226,075
1.0
1.0
2.0
2.9
3.9
5.0
6.0
7.0
8.0
9.0
9.3
9.5
9.9
21,450 $
1,650
19,375
8,250
9,375
14,375
26,750
23,600
24,000
33,750
—
—
—
182,575
18.03
18.36
17.93
19.39
19.03
22.37
32.81
32.34
36.02
26.93
—
—
—
A summary of the Company’s restricted stock activity and related information for the years ended December 31 is as follows:
2021
Weighted-Average
2020
Weighted-Average
Number of
Shares
Grant Date
Fair Value
Number of
Shares
Grant Date
Fair Value
Non-vested, beginning of
year
Granted
Vested
Forfeited
Non-vested at December 31
NOTE 13 - EARNINGS PER SHARE
39,135
8,000
(11,205)
(3,900)
32,030
$30.72
25.80
32.15
31.72
$26.76
36,195
14,500
(11,560)
—
39,135
$31.65
26.93
32.89
—
$30.72
The following table sets forth the computations of basic and diluted earnings per share:
Numerator, net income
Denominator:
Weighted average shares outstanding
Less: Weighted average unvested restricted shares
Denominator: Basic earnings per share
Weighted average shares outstanding, basic
Add: Dilutive effect of stock options and restricted stock
Denominator: Diluted earnings per share
Basic earnings per common share
Diluted earnings per common share
61
Years Ended December 31,
2021
2020
(In Thousands, Except Per Share
Data)
24,915 $
15,080
$
8,213
(35)
8,178
8,178
21
8,199
$
$
3.05 $
3.04 $
7,239
(36)
7,203
7,203
27
7,230
2.09
2.09
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 109,100 and 116,350 for the years ended December 31, 2021 and 2020, respectively, based on the
closing price of the Company’s common stock which was $25.99 and $26.17 as of December 31, 2021 and 2020, respectively.
NOTE 14 - 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.
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
December 31,
2021
2020
(In Thousands)
78,996 $
156,899
8,462
244,357
$
78,310
137,965
5,636
221,911
$
$
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 15 – INTEREST RATE SWAPS
The Company enters into interest rate swaps that allow our commercial loan customers to effectively convert a variable-rate
commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-
rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s
variable-rate into a fixed-rate. The Company then enters into a corresponding swap agreement with a third party in order to
economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third parties are
not designated as hedges under FASB ASC 815 and are not marked to market through earnings. As the interest rate swaps are
structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do
not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between
counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented.
At December 31, 2021, based upon the swap contract values, the company pledged cash in the amount of $350,000 as collateral for its
interest rate swaps with a third-party financial institution which had a fair value $235,000.
62
Summary information regarding these derivatives is presented below:
(Amounts in thousands)
Notional Amount,
December 31,
2021
2020
Interest Rate Paid
Interest Rate Received
Fair Value
December 31,
2021
2020
Customer interest rate
swap
Maturing November, 2030 $
Maturing December, 2030
6,873 $
4,553
7,222 1 month LIBOR + Margin
4,800 1 month LIBOR + Margin
Fixed
Fixed
$
144 $
91
165
111
Total
$ 11,426 $ 12,022
$
235 $
276
Third party interest rate
swap
Maturing November, 2030 $
Maturing December, 2030
6,873 $
4,553
7,222
4,800
Fixed
Fixed
1 month LIBOR + Margin $
1 month LIBOR + Margin
144 $
91
165
111
Total
$ 11,426 $ 12,022
$
235 $
276
The following table presents the fair values of derivative instruments in the Consolidated Balance Sheet.
December 31, 2021
Interest rate derivatives
December 31, 2020
Interest rate derivatives
Assets
Balance Sheet Location
(Amounts in thousands)
Liabilities
Fair Value
Balance Sheet Location
Fair Value
Other assets
$
235
Other liabilities
$
235
Other assets
276
Other liabilities
276
NOTE 16 – FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In
accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at
fair value on either a recurring or non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented
in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets
and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis”. There are three levels of inputs that
may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access
as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
63
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
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, 2021 and 2020 are as follows (in thousands):
Description
December 31, 2021
ASSETS
U.S. Treasury securities
U.S. Government agencies
States and political subdivisions
Mortgage-backed securities-government
sponsored entities
Interest rate derivatives
Interest rate derivatives
LIABILITIES
December 31, 2020
ASSETS
U.S. Government agencies
States and political subdivisions
Corporate obligations
Mortgage-backed securities-government
sponsored entities
Interest rate derivatives
Interest rate derivatives
LIABILITIES
Securities:
Fair Value Measurement Reporting Date using
Total
Level 1
Level 2
Level 3
$
$
$
19,351
16,011
145,867
225,553
235
235
$
3,969
73,091
3,032
146,494
276
276
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
19,351
16,011
145,867
225,553
235
235
$
3,969
73,091
3,032
146,494
276
276
—
—
—
—
—
—
—
—
—
—
—
—
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.
Interest Rate Swaps:
The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap
curve, the basis for the underlying interest rate. To price interest rate swaps, cash flows are first projected for each payment date using
the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap. These swap cash flows are then
discounted to time zero using LIBOR zero-coupon interest rates. The sum of the present value of both legs is the fair market value of
the interest rate swap. These valuations have been derived from our third party vendor’s proprietary models rather than actual market
quotations. The proprietary models are based upon financial principles and assumptions that we believe to be reasonable.
64
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
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, 2021 and 2020 are as follows (in thousands):
Description
December 31, 2021
Impaired Loans
Foreclosed real estate
December 31, 2020
Impaired Loans
Foreclosed real estate
Fair Value Measurement Reporting Date using
Total
Level 1
Level 2
Level 3
1,402
1,742
$
$
—
—
$
—
—
1,402
1,742
2,662
965
$
$
—
—
$
—
—
2,662
965
$
$
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, 2021, the fair value investment in impaired loans totaled $1,402,000, which included three loan
relationships with a carrying value of $157,000 that did not require a valuation allowance since either the estimated realizable value of
the collateral or the discounted cash flows exceeded the recorded investment in the loan. As of December 31, 2021, the Company has
recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $0 over the life of the loans. As
of December 31, 2021, the fair value investment in impaired loans included one loan relationships with a carrying value of $1,517,000
that required a valuation allowance of $272,000 since the estimated realizable value of the collateral did not support the recorded
investment in the loan. As of December 31, 2021, the Company has recognized charge-offs against the allowance for loan losses on
this impaired loan in the amount of $0 over the life of the loan.
As of December 31, 2020, the fair value investment in impaired loans totaled $2,662,000, which included six loan relationships
that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows
exceeded the recorded investment in the loan. As of December 31, 2020, the Company has recognized charge-offs against the allowance
for loan losses on these impaired loans in the amount of $652,000 over the life of the loans. There were no loan relationships which
required a valuation allowance.
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.
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:
(dollars in thousands)
December 31, 2021
Impaired loans
Foreclosed real estate owned
Quantitative Information about Level 3 Fair Value Measurements
Range
(Weighted
Average)
Valuation
Techniques
Unobservable Input
Fair Value
Estimate
$
$
1,402
Appraisal of
collateral(1)
Appraisal
adjustments(2)
0%-10.0%
(1.12%)
1,742
Appraisal of
collateral(1)
Liquidation
Expenses(2)
7.00%
(7.00%)
65
(dollars in thousands)
December 31, 2020
Impaired loans
Foreclosed real estate owned
Quantitative Information about Level 3 Fair Value Measurements
Range
(Weighted
Average)
Valuation
Techniques
Unobservable Input
Fair Value
Estimate
$
$
2,662
Appraisal of
collateral(1)
Appraisal
adjustments(2)
0%-10.59%
(9.75%)
Appraisal of
collateral(1)
965
Liquidation
Expenses(2)
7.00%
(7.00%)
(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.
Assets and Liabilities Not Required to be Measured or Reported at Fair Value
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 estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as
follows at December 31, 2021 and December 31, 2020. (In thousands):
Financial assets:
Cash and cash equivalents (1) $
Loans receivable, net
Mortgage servicing rights
Regulatory stock (1)
Bank owned life insurance (1)
Accrued interest receivable (1)
Financial liabilities:
Deposits
Short-term borrowings (1)
Other borrowings
Accrued interest payable (1)
Off-balance sheet financial
instruments:
Commitments to extend credit
and
outstanding letters of credit
Fair Value Measurements at December 31, 2021
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
$
206,681
1,338,489
289
3,927
40,038
5,889
$
206,681
1,389,870
500
3,927
40,038
5,889
$
206,681
—
—
3,927
40,038
5,889
1,756,793
60,822
29,998
1,203
1,759,722
60,822
30,221
1,203
1,228,091
60,822
—
1,203
$
—
—
—
—
—
—
—
—
—
—
—
1,389,870
500
—
—
—
531,631
—
30,221
—
—
—
—
—
—
66
Financial assets:
Cash and cash equivalents (1) $
Loans receivable, net
Mortgage servicing rights
Regulatory stock (1)
Bank owned life insurance (1)
Accrued interest receivable (1)
Financial liabilities:
Deposits
Short-term borrowings (1)
Other borrowings
Accrued interest payable (1)
Off-balance sheet financial
instruments:
Commitments to extend credit
and
outstanding letters of credit
Fair Value Measurements at December 31, 2020
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
$
111,693
1,397,582
337
3,981
39,608
6,232
$
111,693
1,493,480
476
3,981
39,608
6,232
$
111,693
—
—
3,981
39,608
6,232
1,535,385
63,303
42,459
1,601
1,540,661
63,303
43,452
1,601
1,001,554
63,303
—
1,601
$
—
—
—
—
—
—
—
—
—
—
—
1,493,480
476
—
—
—
539,107
—
43,452
—
—
—
—
—
—
(1) This financial instrument is carried at cost, which approximates the fair value of the instrument.
NOTE 17 – 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, 2021 and 2022:
Balance as of December 31, 2020
Other comprehensive income (loss) before reclassification
Amount reclassified from accumulated other comprehensive loss
Total other comprehensive income
Balance as of December 31, 2021
Unrealized gains
on available for
sale securities (a)
$
4,096
(5,476)
(73)
(5,549)
(1,453)
$
Unrealized gain
on pension
liability (a)
$
$
1,023
174
—
174
1,197
Balance as of December 31, 2019
Other comprehensive income (loss) before reclassification
Amount reclassified from accumulated other comprehensive loss
Total other comprehensive
Balance as of December 31, 2020
(a) All amounts are net of tax. Amounts in parentheses indicate debits.
Unrealized gains
on available for
sale securities (a)
354
$
3,798
(56)
3,742
4,096
$
Unrealized gain
on pension
liability (a)
$
$
833
190
—
190
1,023
67
Total (a)
5,119
(5,302)
(73)
(5,375)
(256)
1,187
3,988
(56)
3,932
5,119
$
$
$
$
The following table presents significant amounts reclassified out of each component of accumulated other comprehensive
income (loss) (in thousands) for the years ended December 31, 2021 and 2020:
Details about other comprehensive income
Amount Reclassified
From Accumulated
Other
Comprehensive
Income (a)
Affected Line Item in
Consolidated
Statements of
Income
Twelve months
Twelve months
ended
December 31,
2021
ended
December 31,
2020
Unrealized gains on available for sale securities $
$
92
(19)
73
$
$
71 Net realized gains on sales of securities
(15)
56
Income tax expense
(a) Amounts in parentheses indicate debits to net income.
NOTE 18 – ACQUISITION OF UPSTATE NEW YORK BANCORP, INC. AND USNY BANK
On January 8, 2020, the Company and the Bank, and UpState and its wholly owned subsidiary, USNY Bank entered into an
Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which UpState would merge with and into the Company, with
the Company as the surviving corporation (“the Merger”). The Merger was completed on July 7, 2020. Pursuant to the terms of the
Merger Agreement, UpState was merged with and into the Company, with the Company as the surviving corporation of the Merger.
Immediately following the Merger, USNY Bank was merged with and into Wayne Bank, with Wayne Bank as the surviving entity.
USNY Bank conducted its business from two Bank of the Finger Lakes offices in Geneva and Penn Yan, New York, and two
Bank of Cooperstown offices in Cooperstown and Oneonta, New York. At June 30, 2020, UpState had total assets of $463.8 million,
total deposits of $412.8 million and total stockholders’ equity of $44.8 million.
Pursuant to the terms of the Merger Agreement, shareholders of UpState elected to receive for each share of UpState common
stock they owned, either 0.9390 shares of the Company’s common stock or $33.33 in cash, or a combination of both. All shareholder
elections were subject to the allocation and proration procedures set forth in the Merger Agreement which were intended to ensure that
90% of the shares of UpState would be exchanged for the Company’s common stock and 10% of the shares of UpState would be
exchanged for cash. In addition, under the terms of the Merger Agreement, UpState shareholders received an additional $0.67 per share
in cash for each share of UpState common stock held. In the aggregate, the merger consideration paid to UpState shareholders consisted
of approximately $8,845,198 in cash and 1,865,738 shares of the Company’s common stock.
The senior management of the Company and Wayne Bank remained the same following the completion of the Merger. UpState
directors Jeffrey S. Gifford and Alexandra K. Nolan have been appointed to the boards of directors of the Company and Wayne Bank.
In addition, the remaining former directors of UpState have been invited to join a regional advisory board. UpState President and CEO
R. Michael Briggs has entered into a consulting agreement with Wayne Bank. The Company has retained the brand names of USNY
Bank’s two units, Bank of the Finger Lakes and Bank of Cooperstown, and has also retained USNY Bank’s administration center in
Geneva, New York. Scott D. White, unit President of Bank of Cooperstown, and Jeffrey E. Franklin, unit President of Bank of the Finger
Lakes, will also remain in place as executives of their units.
The acquired assets and assumed liabilities were measured at estimated fair values. Management made significant estimates
and exercised significant judgement 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. The Company also recorded and identifiable asset
representing the core deposit base of UpState 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. UpState
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 $15,410,000 of purchased credit-impaired loans subject to a non-accretable difference of $5,213,000. The method
68
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.
UpState’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, UpState’s
loan portfolio without evidence of deterioration totaled $400,127,000 and was recorded at a fair value of $393,580,000.
The allocation of purchase consideration related to the Merger was considered preliminary, primarily with respect to certain
tax-related assets and liabilities. Subsequent to the closing date of the acquisition, final tax returns were prepared and filed for UpState
which resulted in tax refunds related to the operations of UpState and USNY Bank.
In accordance with ASC 805 the acquiring Company shall adjust the provisional amounts recognized at the acquisition date to
reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected
the measurement of the amounts recognized as of that date. A provisional amount is necessary when the buyer must issue financial
statements prior to completing its accounting for the business combination (i.e. prior to the end of the measurement period). The
measurement period begins on the acquisition date and ends on the earlier of either: (a) the buyer obtaining the information needed to
finish the accounting for the business combination or (b) one year from the acquisition date.
Adjustments to preliminary allocations related to certain tax-related assets and liabilities occurred in the fourth quarter of 2020.
The change to provisional amounts resulted in a reduction in goodwill of $923,000 and no impact to results of operations during the
fourth quarter.
The Company finalized the allocation of purchase price during the second quarter of 2021, which was within the one-year
measurement-period following the acquisition. The final adjustment resulted in a $24,000 reduction in goodwill and had no impact to
results of operations during the second quarter.
69
The following table summarizes the purchase of UpState as of July 7, 2020:
(Dollars in Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
UpState New York Bancorp, Inc. common shares settled for stock
Exchange Ratio
Norwood Financial Corp shares issued
Value assigned to each Norwood Financial Corp common share
Purchase price assigned to UpState New York Bancorp, Inc. common shares
exchanged for Norwood Financial Corp shares
1,987,206
0.9390
1,865,738
24.30
$
$
45,337
Purchase Price Consideration - Cash for Common Stock
UpState New York Bancorp, Inc. shares exchanged for cash, excluding fractional shares
Purchase price paid to each UpState New York Bancorp, Inc. common share exchanged for cash $
Purchase price assigned to UpState New York Bancorp, Inc. common shares exchanged for cash
Purchase price additional cash consideration per share
Purchase price consideration - Cash-in-lieu of Fractional Shares
Total Purchase Price
220,794
33.33
$
$
7,359
1,479
6
54,181
Net Assets Acquired:
UpState New York Bancorp, Inc. shareholders' equity
UpState New York Bancorp, Inc. goodwill and intangibles
Total tangible equity
Adjustments to reflect assets acquired at fair value:
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
Net assets acquired
Goodwill resulting from merger
70
$
44,803
-
44,803
(112)
3,982
(10,529)
(5,213)
(1,724)
409
(812)
(1,211)
5,982
3,730
(48)
(3,011)
$
36,246
17,935
The following condensed statement reflects the values assigned to UpState New York Bancorp, Inc. net assets as of the
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
Core deposit intangible
Other assets
Deposits
Accrued interest payable
Other liabilities
Total identifiable net assets acquired
Goodwill resulting from UpState New York Bancorp, Inc. Merger
$
54,181
$
24,037
13,836
405,221
4,318
2,487
1,426
564
5,398
(414,370)
(175)
(6,496)
36,246
$
17,935
The Company recorded goodwill associated with the acquisition of UpState totaling $17,935,000. Goodwill is not amortized,
but is periodically evaluated for impairment. The Company did not recognize any impairment during the year ended December 31,
2021. The carrying amount of the goodwill at December 31, 2021 related to the UpState acquisition was $17,935,000.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also
periodically reassessed to determine if any amortization period adjustments are required. During the year ended December 31, 2021,
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 asset. The gross carrying amount of the core deposit intangible at December 31, 2021
was $409,000 with $108,000 accumulated depreciation as of that date.
As of December 31, 2021, the current year and estimated future amortization expense for the core deposit intangible associated
with the UpState acquisition is:
(In thousands)
2022
2023
2024
2025
After five years
$
$
71
63
56
48
41
93
301
The following table presents financial information for the former UpState included in the Consolidated Statements of Income
from the date of acquisition through December 31, 2020:
Actual From
Acquisition Date
Through
December 31,2020
(in thousands)
Net interest income after provision for loan losses
Noninterest income
$
$
7,291
313
The following table presents pro forma information for the years ended December 31, 2021 and 2020, as if the acquisition of
UpState had occurred on January 1, 2020. This table has been prepared for comparative purposes only, and is not 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:
(In Thousands, Except Per Share Data)
Net interest income after provision for loan losses
Noninterest income
Net income
Pro forma earnings per share:
Basic
Diluted
NOTE 19 - RISKS AND UNCERTAINTIES
Pro Forma
Twelve Months Ended
December 31,
2020
52,897
8,726
20,613
2.52
2.52
$
$
$
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and
provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The
CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program
called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP
loans.
Under the original terms of the PPP, an eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its
average monthly payroll costs; or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year or five-year loan
term to maturity; and (c) principal and interest payments deferred for ten months from the end of the coverage period. The SBA will
guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any
accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels
of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan
proceeds used for other qualifying expenses. As of December 31, 2021, the Company approved over 1,900 applications for
$156.3 million of loans under the PPP.
Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that
such banks used in processing applications for the PPP. Norwood may be exposed to the risk of similar litigation, from both customers
and non-customers that approached the bank regarding PPP loans, regarding the process and procedures used in processing
applications for the PPP. If any such litigation is filed against and is not resolved in a manner favorable to Norwood, it may result in
significant financial liability or adversely affect reputation. In addition, litigation can be costly, regardless of outcome. Any financial
liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business,
financial condition and results of operations.
The Company also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner
in which the loan was originated, funded, or serviced by, such as an issue with the eligibility of a borrower to receive a PPP loan,
which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a
loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP
loan was originated, funded, or serviced by the Company , the SBA may deny its liability under the guaranty, reduce the amount of the
guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.
72
COVID-19 Loan Forbearance Programs. Section 4013 of the CARES Act provides that banks may elect not to categorize a loan
modification as a TDR if the loan modification is (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past
due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date on which the
national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020,
under the National Emergencies Act terminates, or (B) December 31, 2020.
On December 27, 2020, the president signed into law the Consolidated Appropriations Act, 2021, which amended CARES Act
Section 4013. The amendment extends the applicable period for which a financial institution is able to (a) suspend the requirements
under United States generally accepted accounting principles for loan modifications related to the coronavirus disease (COVID-19)
pandemic that would otherwise be categorized as a troubled debt restructuring and (b) any determination of a loan modified as a result
of the effects of the COVID-19 pandemic as being a TDR, including impairment for accounting purposes. The amended end date for
the relief related to a financial institution electing to suspend TDR and loan impairment accounting for qualifying modifications was
extended from the earlier of December 31, 2020, or 60 days after the national emergency concerning COVID-19 declared by the
president terminates to the earlier of January 1, 2022, or 60 days after the national emergency concerning COVID-19 declared by the
president terminates.
According to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with
Customers Affected by the Coronavirus (Revised) issued by the federal bank regulatory agencies on April 7, 2020, short-term loan
modifications not otherwise eligible under Section 4013 that are made on a good faith basis in response to COVID-19 to borrowers
who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment
deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 4 of the financial
statements for additional disclosure of TDRs at December 31, 2021.
The following table presents a summary of loans that were granted forbearance by type of loan during the years ended December 31,
2021 and 2020:
Loan Type
Real Estate Loans:
Residential
Commercial
Agricultural
Construction
Commercial
Other agricultural loans
Consumer loans to individuals
Total
Number of
Loans
Balance
(in thousands)
118 $
385
16
24
186
—
486
1,215 $
10,883
218,984
5,267
4,125
23,801
-
11,130
274,190
As of December 31, 2021, no loans remained in deferment under the Bank’s COVID-19 loan forbearance program.
73
NOTE 20 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
ASSETS
Cash on deposit in bank subsidiary
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
Expenses
Income tax benefit
Equity in undistributed earnings of subsidiary
Net Income
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
Other, net
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Outlays for business combinations
Net Cash (Used in) Provided by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised
Sale of treasury stock for ESOP
Acquisition of treasury stock
Cash dividends paid
Net Cash Used in Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
December 31,
2021
2020
(In Thousands)
$
$
$
$
1,511 $
204,547
2,472
208,530 $
3,268 $
205,262
208,530 $
854
195,035
2,337
198,226
3,441
194,785
198,226
Years Ended December 31,
2021
2020
$
(In Thousands)
10,697 $
627
10,070
(171)
10,241
14,674
24,915 $
19,540 $
$
$
15,319
1,704
13,615
(180)
13,795
1,285
15,080
19,012
Years Ended December 31,
2021
2020
(In Thousands)
$
24,915 $
15,080
(14,674)
(129)
10,112
—
—
394
130
(1,440)
(8,539)
(9,455)
657
(1,285)
28
13,823
(8,844)
(8,844)
268
130
(108)
(7,263)
(6,973)
(1,994)
2,848
854
CASH AND CASH EQUIVALENTS - BEGINNING
CASH AND CASH EQUIVALENTS - ENDING
$
854
1,511 $
74
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company’s management evaluated, with the participation of the Company’s
Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the
end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Internal Control over Financial Reporting. Management’s Report on Internal Control over Financial Reporting is included
in this Annual Report on Form 10-K under Item 8.
(c) Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal control over
financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information contained under the sections captioned “Proposal I - Election of Directors” and “Corporate Governance” in
the Proxy Statement for the 2022 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated herein by reference.
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and
principal accounting officer or controller. The Code of Ethics is posted on the stockholder services page of Wayne Bank’s website at
www.waynebank.com/stockholder-services. The Company intends to report any waiver or amendment to its Code of Ethics on its
website at www.waynebank.com/stockholder-services.
Item 11. Executive Compensation.
The information contained under the sections captioned “Executive Compensation” and “Director Compensation” in the Proxy
Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the Section captioned “Principal Holders of
Our Common Stock” of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned “Proposal I - Election
of Directors” of the Proxy Statement.
75
(c) Changes in Control
Management of the Company knows of no arrangements, including any pledge by any person of securities of the
Company, the operation of which may at a subsequent date result in a change in control of the registrant.
(d) Equity Compensation Plan Information
EQUITY COMPENSATION PLAN INFORMATION
(a)
(b)
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights*
Weighted-average
exercise price of
outstanding
options, warrants
and rights *
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans, (excluding
securities
reflected in
column (a)) *
Equity compensation plans
approved by security holders:
2014 Equity Incentive Plan, as amended
226,075 $
26.37
78,035
Equity compensation plans
not approved by security holders:.
None
TOTAL
—
—
—
226,075 $
26.37
78,035
* Share and per share data adjusted for the 50% stock dividend declared on August 8, 2017.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated herein by reference to the sections in the Proxy Statement captioned
“Related Party Transactions” and “Corporate Governance”.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the section in the Proxy Statement captioned
“Proposal III -Ratification of Appointment of Independent Auditors.”
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)
1.
Listed below are all financial statements, schedules and exhibits filed as part of this Annual Report on Form 10-K.
The consolidated balance sheets of Norwood Financial Corp and subsidiary as of December 31, 2021 and 2020, and
the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each
of the years in the two-year period ended December 31, 2021, together with the related notes and the independent
registered public accounting firm reports of S.R. Snodgrass, P.C. (PCAOB: 00074), independent registered public
accounting firm.
2.
Schedules omitted as they are not applicable.
76
3.
The following exhibits are filed as part of the Form 10-K
Description
Amended and Restated Articles of Incorporation of Norwood Financial Corp (14)
Bylaws of Norwood Financial Corp (1)
Specimen Stock Certificate of Norwood Financial Corp (2)
Description of Capital Stock of Norwood Financial Corp (16)
No.
3(i)
3(ii)
4.1
4.2
10.1† Employment Agreement with Lewis J. Critelli (3)
10.2† Change in Control Severance Agreement with William S. Lance (3)
10.3† Change in Control Severance Agreement with Robert J. Mancuso (4)
10.4† Salary Continuation Agreement between the Bank and William W. Davis, Jr. (5)
10.5† Amended and Restated Salary Continuation Agreement, dated September 1, 2017, between the Bank and Lewis J. Critelli (6)
10.6† Salary Continuation Agreement between the Bank and John H. Sanders (7)
10.7† 2006 Stock Option Plan (8)
10.8† First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (9)
10.9† First and Second Amendments to Salary Continuation Agreement with John H. Sanders (9)
10.11† 2014 Equity Incentive Plan, as amended (10)
10.12† Addendum to Change in Control Severance Agreement with William S. Lance (11)
10.13† Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and William S. Lance (6)
10.14† Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and Robert J. Mancuso (6)
10.15†
Change-In-Control Severance Agreement, dated February 14, 2022, by and among Norwood Financial Corp, Wayne Bank, and
Vincent G. O’Bell
Change-In-Control Severance Agreement, dated January 16, 2018, by and among Norwood Financial Corp, Wayne Bank, and
John F. Carmody (12)
Addendum, dated January 16, 2018, to Change-In-Control Severance Agreement, dated March 2, 2010, by and among
Norwood Financial Corp, Wayne Bank and William S. Lance (12)
Addendum, dated January 16, 2018, to Change-In-Control Severance Agreement, dated January 3, 2013, by and among
Norwood Financial Corp, Wayne Bank and Robert J. Mancuso (12)
10.16†
10.17†
10.18†
10.19 Wayne Bank Executive Annual Incentive Plan (15)
10.20 Salary-Continuation Agreement dated March 1, 2021, between Wayne Bank and John F. Carmody (13)
21
23
31.1
31.2
32
Subsidiaries of Norwood Financial Corp
Consent of S.R. Snodgrass, P.C.
Rule 13a-14(a)/15d-14(a) Certification of CEO
Rule 13a-14(a)/15d-14(a) Certification of CFO
Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002
101 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted
in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the
Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated
Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to
Consolidated Financial Statements.
Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags
are embedded with the Inline XBRL document)
Inline XBRL Taxonomy Extension Schema Document
101.I
NS
101.S
CH
101.C
AL
101.D
EF
101.L
AB
101.P
RE
104
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Labels Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
77
†
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
Management contract or compensatory plan or arrangement.
Incorporated by reference into this document from the identically numbered exhibit to the Company’s Form 10-Q filed with
the Commission on August 8, 2014.
Incorporated herein by reference into this document from the identically numbered Exhibit to the Company’s Form 10,
Registration Statement initially filed in paper with the Commission on April 29, 1996, Registration No. 0-28364.
Incorporated herein by reference from the identically numbered exhibits to the Company’s Form 10-K filed with the
Commission on March 15, 2010.
Incorporated by reference into this document from Exhibit 10.4 to the Company’s Form 10-K filed with the Commission on
March 14, 2013. File No 0-28364.
Incorporated herein by reference into this document from Exhibit 10.1 to the Company’s Form 10-K filed with the
Commission on March 23, 2000, File No. 0-28364.
Incorporated by reference from the exhibits to the Current Report on Form 8-K filed with the Commission on September 5,
2017.
Incorporated by reference into this document from Exhibit 10.11 to the Company’s Form 10-K filed with the Commission on
March 22, 2004, File No. 0-28364.
Incorporated herein by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-
134831) filed with the Commission on June 8, 2006.
Incorporated herein by reference from Exhibits 10.1 and 10.5 to the Company’s Current Report on Form 8-K filed April 4,
2006.
Incorporated by reference to Exhibit 10.1 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on
Form S-8 (File No. 333-195643) filed with the Commission on May 4, 2018.
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2015.
Incorporated by reference into this document from the exhibits to the Company’s Current Report on Form 8-K filed with the
Commission on January 16, 2018
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on
March 2, 2021, (File No. 0-28364).
Incorporated herein by reference from the identically numbered exhibit to the Company’s Form 10-K filed with the
Commission on March 13, 2020.
Incorporated herein by reference from the identically numbered exhibit to the Company’s Form 10-K filed with the
Commission on March 13, 2020.
(16) Incorporated herein by reference from the identically numbered exhibit to the Company’s Form 10-K filed with the
Commission on March 9, 2021.
Item 16. Form 10-K Summary
None.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 11, 2022
NORWOOD FINANCIAL CORP
By:
/s/ Lewis J. Critelli
Lewis J. Critelli
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
March 11, 2022 on behalf of the registrant and in the capacities indicated.
/s/ Lewis J. Critelli
Lewis J. Critelli
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Andrew A. Forte
Dr. Andrew A. Forte
Director
/s/ Joseph W. Adams
Joseph W. Adams
Director
/s/ Ralph A. Matergia
Ralph A. Matergia
Director
/s/ Jeffrey S. Gifford
Jeffrey S. Gifford
Director
/s/ William S. Lance
William S. Lance
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ William W. Davis, Jr.
William W. Davis, Jr.
Director
/s/ Susan Campfield
Susan Campfield
Director
/s/ Kevin M. Lamont
Kevin M. Lamont
Director
/s/ Kenneth A. Phillips
Dr. Kenneth A. Phillips
Director
/s/ Alexandra K. Nolan
Alexandra K. Nolan
Director
/s/ Meg L. Hungerford
Meg L. Hungerford
Director
79
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NORWOOD FINANCIAL CORP
DIRECTORY OF OFFICERS
NORWOOD FINANCIAL CORP
William W. Davis, Jr. .......................Chairman of the Board
James M. King ......................................Senior Vice President
Dr. Andrew A. Forte ................Vice Chairman of the Board
Julie R. Kuen ........................................Senior Vice President
Lewis J. Critelli ............ President & Chief Executive Officer
Linda D. Mader ...................................Senior Vice President
William S. Lance ........................... Executive Vice President,
Chief Financial Officer & Secretary
Barbara A. Ridd ....................................Senior Vice President
& Assistant Secretary
John F. Carmody ........................... Executive Vice President
Michael E. Rollinson ...........................Senior Vice President
Robert J. Mancuso ......................... Executive Vice President
Michael G. Scaglione ...........................Senior Vice President
Vincent G. O’Bell ...............................Senior Vice President,
Chief Lending Officer
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
John F. Carmody .......................... Executive Vice President,
Chief Credit Officer
Robert J. Mancuso ........................ Executive Vice President,
Chief Operating Officer
Vincent G. O’Bell ................................Senior Vice President
& Chief Lending Officer
Jeffrey E. Franklin ........ President, Bank of the Finger Lakes
Scott D. White ..................President, Bank of Cooperstown
Ryan J. French ....................................Senior Vice President,
Director of Human Resources
Steven R. Daniels ................................Senior Vice President,
Retail Lending Manager
Diane M. Wylam ................................Senior Vice President,
Senior Trust Officer
Nancy A. Hart ..................Senior Vice President, Controller
& Assistant Secretary
Kara R. Suchy .......................................Senior Vice President
& Director of Internal Audit
Thomas A. Byrne .................................Senior Vice President
Joseph A. Castrogiovanni ....................Senior Vice President
Kenneth C. Doolittle ...........................Senior Vice President
Eli T. Tomlinson ..................................Senior Vice President
John D. Veleber ....................................Senior Vice President
Gerald J. Arnese ...............................................Vice President
John M. Baker ..................................................Vice President
Derek C. Bellinger ...........................................Vice President
Joshua Burden ..................................................Vice President
Paul A. Catan ...................................................Vice President
Richard Conners ..............................................Vice President
Francis E. Crowley ...........................................Vice President
Pilar Cueva .......................................................Vice President
Jillian E. Guenther ...........................................Vice President
Amanda L. Hall ...............................................Vice President
Jill A. Hessling ..................................................Vice President
John W. Karavis ................................................Vice President
John E. Koczwara .............................................Vice President
Paul J. Kosiba ...................................................Vice President
Kyle Liner .........................................................Vice President
Kristine Malti .................................................. Vice President
Geraldine Moore ..............................................Vice President
Matthew Murphy .............................................Vice President
Nancy Murray ..................................................Vice President
Andrew B. Rice ................................................Vice President
Briana J. Scholl .................................................Vice President
Frank J. Sislo .....................................................Vice President
Tanyia Vannatta ................................................Vice President
Heidi Westfall ...................................................Vice President
Paul Dunda ...........................................Senior Vice President
John P. Ford ..........................................Senior Vice President
NORWOOD INVESTMENT CORP
Lewis J. Critelli ............ President & Chief Executive Officer
Karen R. Gasper ...................................Senior Vice President
William S. Lance ...................................................... Treasurer
Dawnette M. Hotaling ........................Senior Vice President
Scott C. Rickard .........Investment Executive, LPL Financial
ONTARIO
GENEVA
✮
PENN YAN
✮
YATES
COOPERSTOWN
✮
OTSEGO
ONEONTA
✮
FRANKLIN
✮
WALTON
✮
STAMFORD
✮
ROXBURY
✮
HAMDEN
✮
ANDES
✮
DELAWARE
WAYNE
WAYMART
HONESDALE
ROSCOE
✮
CALLICOON
LIBERTY
✮
SULLIVAN
MONTICELLO
✮
WURTSBORO
CLARKS SUMMIT
WILLOW AVE
LACKAWANNA
HAWLEY
CENTRAL
STATION
SHOHOLA
MILFORD
PIKE
MONROE
TANNERSVILLE
MARSHALLS
CREEK
STROUD
MALL
EFFORT
EXETER
HANOVER
TOWNSHIP
LUZERNE
WAYNE COUNTY
Hawley, PA
Honesdale, PA
Lakewood, PA
Waymart, PA
Willow Avenue (Honesdale), PA
LACKAWANNA COUNTY
Central Scranton, PA
Clarks Summit, PA
MONROE COUNTY
Effort, PA
Marshalls Creek, PA
Stroud Mall (Stroudsburg), PA
Tannersville, PA
LUZERNE COUNTY
Hanover Township, PA
Exeter, PA
PIKE COUNTY
Milford, PA
Shohola, PA
DELAWARE COUNTY
Andes, NY
Franklin, NY
Hamden, NY
Roxbury, NY
Stamford, NY
Walton, NY
SULLIVAN COUNTY
Callicoon, NY
Liberty, NY
Monticello, NY
Roscoe, NY
Wurtsboro, NY
OTSEGO COUNTY
Cooperstown, NY
Oneonta, NY
ONTARIO COUNTY
Geneva, NY
YATES COUNTY
Penn Yan, NY
WWW.WAYNE.BANK
BANKOFTHEFINGERLAKES.COM
BANKOFCOOPERSTOWN.COM