Norwood Financial Corporation

11/06/2026 | Press release | Distributed by Public on 11/06/2026 08:13

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q may include certain forward-looking statements based on current management expectations. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may", "will", "believe", "expect", "estimate", "anticipate", "continue", or similar terms or variations on those terms, or the negative of those terms. The actual results of the Company could differ materially from those management expectations. This includes statements regarding general economic conditions, legislative and regulatory changes, monetary, trade, tariff and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities and failure to integrate or profitably operate acquired businesses. Additional potential factors include changes in interest rates, the rate of inflation, deposit flows, cost of funds, demand for loan products and financial services, competition and changes in the quality or composition of loan and investment portfolios of the Company. Other factors that could cause future results to vary from current management expectations include changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, instability in the banking system, and the potential for a recessionary economy. Further description of the risks and uncertainties to the business are included in the Company's other filings with the Securities and Exchange Commission.

The majority of the assets and liabilities of a financial institution are monetary in nature, and therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an impact on the Company, particularly with respect to the growth of total assets and noninterest expenses, which tend to rise during periods of general inflation. Risks also exist due to supply and demand imbalances, employment shortages, the interest rate environment, and geopolitical tensions. It is reasonably foreseeable that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and the fair value of financial instruments that are carried at fair value.

Our operations are subject to risks and uncertainties surrounding our exposure to changes in the interest rate environment. Earnings and liquidity depend to a great extent on our interest rates. Interest rates are highly sensitive to many factors beyond our control, including competition, general economic conditions, geopolitical tensions and conflicts and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve. Conditions such as inflation, deflation, recession, unemployment and other factors beyond our control may also affect interest rates. The nature and timing of any changes in interest rates or general economic conditions and their effect on us cannot be controlled and are difficult to predict. If the rate of interest we pay on our interest-bearing liabilities increases more than the rate of interest we receive on our interest-earning assets, our net interest income, and therefore our earnings, could contract and be materially adversely affected. Our earnings could also be materially adversely affected if the rates on interest-earning assets fall more quickly than those on our interest-bearing liabilities. Changes in interest rates could also create competitive pressures, which could impact our liquidity position. See "Item 3. Quantitative and Qualitative Disclosures about Market Risk - Asset/Liability Management."

Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

Note 2 to the Company's consolidated financial statements for the fiscal year ended December 31, 2025 (included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2025) 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 credit losses, the determination of goodwill impairment, and business combination accounting. Please refer to the discussion of the allowance for credit losses calculation under "Changes in Financial Condition - Loans" below.

In connection with the acquisition of North Penn in 2011, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition. In connection with the acquisition of Delaware 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 New York

Bancorp, Inc. 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. In connection with the acquisition of PB Bankshares, we recorded goodwill in the amount of $7.1 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.

Changes in Financial Condition

General

Total assets as of September 30, 2026 were $2.952 billion compared to $2.425 billion as of December 31, 2025. The increase was due primarily to a $435.8 million increase in outstanding net loans receivable, which was primarily a result of the PB Bankshares acquisition.

Other Assets

Other assets as of September 30, 2026 were $10.2 million compared to $8.4 million as of December 31, 2025. The increase was due primarily to a $1.3 million increase in right of use asset, due to the acquisition of PB Bankshares.

Securities

The fair value of securities available for sale as of September 30, 2026 was $429.5 million compared to $408.8 million as of December 31, 2025. The increase of $20.7 million was due primarily to the acquired portfolio, as well as investment purchases during 2026.

The Company has securities in an unrealized loss position. In Management's opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. The increase in the unrealized loss is due to the overall increase in interest rates. The Company did not recognize any credit losses on these available for sale debt securities for the nine months ended September 30, 2026. The Company does not intend to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

Loans

Loans receivable totaled $2.295 billion at September 30, 2026 compared to $1.854 billion as of December 31, 2025, due primarily to the acquired portfolio from Presence Bank. The $441.2 million increase in loans receivable during the nine months ended September 30, 2026, was due primarily to a $311.2 million increase in commercial real estate loans, a $62.9 million increase in residential real estate loans, a $37.3 million increase in construction loans, and an increase of $29.8 million in all other portfolios, net.

The allowance for credit losses totaled $25.1 million as of September 30, 2026, and represented 1.10% of total loans outstanding, compared to $19.9 million, or 1.07% of total loans outstanding, at December 31, 2025. The Company had net charge-offs for the nine months ended September 30, 2026 of $2.6 million, compared to $1.3 million in the corresponding period in 2025. The Company's management assesses the adequacy of the allowance for credit losses on a quarterly basis. Based on management's best judgement, the qualitative factors are applied to the final adjusted loss rate each quarter. Management considers the allowance for credit losses adequate at September 30, 2026 based on the Company's criteria. However, there can be no assurance that the allowance for credit losses will be adequate to cover significant losses, if any, which might be incurred in the future.

As of September 30, 2026, non-performing loans totaled $16.8 million, or 0.73% of total loans compared to $6.3 million, or 0.34% of total loans, at December 31, 2025. At September 30, 2026, non-performing assets totaled $17.5 million, or 0.59% of total assets, compared to $7.1 million, or 0.29% of total assets at December 31, 2025. The increase is due primarily to the addition of one large commercial real estate relationship being placed on non-accrual, following the borrower's filing for chapter 11 bankruptcy in June 2026.

The following table sets forth information regarding non-performing loans and foreclosed real estate at the dates indicated:

(dollars in thousands)

September 30, 2026

December 31, 2025

Loans accounted for on a non-accrual basis:

Real Estate

Residential

$

1,610

$

919

Commercial

11,016

4,064

Agricultural

2,144

-

Construction

15

34

Commercial loans

420

68

Other agricultural loans

188

-

Consumer loans to individuals

1,381

1,131

Total non-accrual loans

16,774

6,216

Accruing loans which are contractually

past due 90 days or more

-

123

Total non-performing loans

16,774

6,339

Foreclosed real estate

771

771

Total non-performing assets

$

17,545

$

7,110

Allowance for credit losses

$

25,146

$

19,882

Coverage of non-performing loans

150

%

314

%

Non-performing loans to total loans

0.73

%

0.34

%

Non-performing loans to total assets

0.57

%

0.27

%

Non-performing assets to total assets

0.59

%

0.29

%

Deposits

During the nine-months ended September 30, 2026, total deposits increased $430.3 million due primarily to a $162.2 million increase in certificates of deposit, a $105.9 million increase in interest-bearing demand deposits, and a $162.2 million increase in all other deposit categories. All increases were primarily due to the PB Bankshares acquisition.

The following table sets forth deposit balances as of the dates indicated:

(dollars in thousands)

September 30, 2026

December 31, 2025

Non interest-bearing demand

$

487,753

$

419,597

Interest-bearing demand

510,016

404,079

Money market deposit accounts

259,784

188,215

Savings

223,904

201,388

Time deposits <$250,000

735,662

575,515

Time deposits >$250,000

291,861

289,851

Total

$

2,508,980

$

2,078,645

Borrowings

The Company had $56.1 million in short-term borrowings at September 30, 2026, compared to $14.7 million at December 31, 2025. The increase in short-term borrowings is due primarily to an increase in loan volumes along with a decrease of $37.5 million in long term borrowings.

Other borrowings as of September 30, 2026 were $62.7 million compared to $59.4 million as of December 31, 2025. There were no Federal Reserve Bank borrowings during the nine-months ended September 30, 2026, while Federal Home Loan Bank borrowings increased $3.3 million during the nine-months ended September 30, 2026.

Other borrowings consisted of the following:

(dollars in thousands)

September 30, 2026

December 31, 2025

Notes with the FHLB:

Fixed rate borrowing due March 2026 at 4.31%

$

-

$

10,000

Fixed rate borrowing due April 2026 at 4.04%

-

20,000

Fixed rate borrowing due October 2026 at 4.98%

1,500

-

Fixed rate borrowing due January 2027 at 1.39%

5,000

-

Fixed rate borrowing due January 2027 at 1.74%

3,400

-

Amortizing fixed rate borrowing due May 2027 at 4.37%

5,371

11,231

Fixed rate borrowing due June 2027 at 2.96%

5,000

-

Fixed rate borrowing due November 2027 at 4.15%

3,000

-

Fixed rate borrowing due December 2027 at 3.96%

3,100

-

Fixed rate borrowing due January 2028 at 3.85%

5,400

-

Fixed rate borrowing due March 2028 at 3.86%

1,500

-

Fixed rate borrowing due April 2028 at 3.59%

3,000

-

Amortizing fixed rate borrowing due July 2028 at 4.70%

5,912

8,188

Fixed rate borrowing due July 2028 at 4.49%

10,000

10,000

Fixed rate borrowing due September 2028 at 4.59%

3,750

-

Fixed rate borrowing due March 2030 at 4.11%

2,000

-

Fixed rate borrowing due April 2030 at 3.84%

3,000

-

Amortizing fixed rate borrowing due January 2032 at 1.83%

1,835

-

62,768

59,419

Fair value adjustment of borrowings

(40)

-

$

62,728

$

59,419

Stockholders' Equity and Capital Ratios

As of September 30, 2026, total stockholders' equity was $283.4 million, compared to $242.2 million as of December 31, 2025, an increase of $41.2 million. The increase consisted of $44.3 million due to the PB Bankshares acquisition and net income of $24.8 million, offset, in part by an $18.6 million decrease in the fair value of securities in the available-for-sale portfolio and a decrease of $11.0 million of dividends declared, net of tax. Because of interest rate volatility, the Company's accumulated other comprehensive income could materially fluctuate for each interim and year-end period.

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 Bank Holding Company Act ("BHCA"). The Federal Reserve's capital rules are similar to those imposed on the Bank by the FDIC. 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.

A comparison of the Company's consolidated regulatory capital ratios is as follows:

September 30, 2026

December 31, 2025

Tier 1 Capital

(To average assets)

9.75%

9.65%

Tier 1 Capital

(To risk-weighted assets)

12.07%

12.37%

Common Equity Tier 1 Capital

(To risk-weighted assets)

12.07%

12.37%

Total Capital

(To risk-weighted assets)

13.16%

13.41%

The Bank is required to comply with applicable capital adequacy rules adopted by the FDIC and other federal bank regulatory agencies (the "Basel III Capital Rules"). The Basel III 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 Small Bank Holding Company Policy Statement.

Under the Basel III 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 Basel III 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. The Company and the Bank were in compliance with all applicable regulatory capital requirements as of September 30, 2026.

Liquidity

As of September 30, 2026, the Company had cash and cash equivalents of $72.5 million in the form of cash, due from banks, and short-term deposits with other institutions. In addition, the Company had total non-pledged securities available for sale of $144.2 million which could be used for liquidity needs. Total liquidity of $221.8 million as of September 30, 2026 represents 7.52% of total assets, compared to $190.8 million and 7.9% of total assets as of December 31, 2025. The Company also monitors other liquidity measures, all of which were within the Company's policy guidelines as of September 30, 2026 and December 31, 2025. Based upon these measures, the Company believes its liquidity is adequate.

Capital Resources

The Company has a line of credit commitment from Atlantic Community Bankers Bank for $7.0 million which expires June 30, 2027. There were no borrowings under this line as of September 30, 2026 and December 31, 2025.

The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $10.0 million. There were no borrowings under this line as of September 30, 2026 and December 31, 2025.

The Bank's maximum borrowing capacity with the Federal Home Loan Bank was estimated to be $911.4 million as of September 30, 2026, of which $94.8 million was outstanding in the form of borrowings as of September 30, 2026. As of December 31, 2025, the maximum borrowing capacity was $677.6 million, of which $74.1 million of borrowings was outstanding as of December 31, 2025. Additionally, as of September 30, 2026, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $169.2 million as collateral for specific municipal deposits. These Letters of Credit reduce the availability under the maximum borrowing capacity. As of December 31, 2025, there was $155.5 million outstanding in the form of Letters of Credit. Advances and Letters of Credit from the Federal Home Loan Bank are secured by qualifying assets of the Bank.

Non-GAAP Financial Measures

This report contains or references fully taxable-equivalent (fte) interest income and net interest income, which are non-GAAP financial measures. Interest income (fte) and net interest income (fte) are derived from GAAP interest income and net interest income using an assumed tax rate of 21%. We believe the presentation of interest income (fte) and net interest income (fte) ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income (fte) and Net interest income (fte) is reconciled to GAAP interest income and net interest income on page 45 and 49.

Fully taxable equivalent interest income and net interest income is also reflected in the table on page 46 and 50. Although the Company believes that these non-GAAP financial measures enhance investors' understanding of our business and performance, these non-GAAP financial measures should not be considered as an alternative to GAAP measures.


‎

Results of Operations

NORWOOD FINANCIAL CORP

Consolidated Average Balance Sheets with Resultant Interest and Rates

(Tax-Equivalent Basis,

Three Months Ended September 30,

dollars in thousands)

2026

2025

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

(2)

(1)

(3)

(2)

(1)

(3)

Assets

Interest-earning assets:

Fed funds sold

$

15

$

-

-%

$

-

$

-

-%

Interest-bearing deposits with banks

39,717

354

3.54

12,485

144

4.58

Securities available for sale:

Taxable

439,064

4,224

3.82

399,090

3,661

3.64

Tax-exempt (1)

43,956

322

2.91

44,074

312

2.81

Total securities available for sale (1)

483,020

4,546

3.73

443,164

3,973

3.56

Loans receivable (1) (4) (5)

2,267,664

36,760

6.43

1,802,046

28,267

6.22

Total interest-earning assets

2,790,416

41,660

5.92

2,257,695

32,384

5.69

Non-interest earning assets:

Cash and due from banks

19,466

31,050

Allowance for credit losses

(26,101)

(21,128)

Other assets

125,818

96,142

Total non-interest earning assets

119,183

106,064

Total Assets

$

2,909,599

$

2,363,759

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Interest-bearing demand and money market

$

741,251

$

3,519

1.88

$

579,145

$

2,900

1.99

Savings

230,456

268

0.46

200,559

113

0.22

Time

1,045,893

8,989

3.41

822,491

7,717

3.72

Total interest-bearing deposits

2,017,600

12,776

2.51

1,602,195

10,730

2.66

Short-term borrowings

3,540

36

4.03

8,740

105

4.77

Other borrowings

63,901

640

3.97

81,125

899

4.40

Total interest-bearing liabilities

2,085,041

13,452

2.56

1,692,060

11,734

2.75

Non-interest bearing liabilities:

Demand deposits

494,690

416,150

Other liabilities

38,244

28,816

Total non-interest bearing liabilities

532,934

444,966

Stockholders' equity

291,624

226,733

Total Liabilities and Stockholders' Equity

$

2,909,599

$

2,363,759

Net interest income/spread (tax equivalent basis)

28,208

3.36%

20,650

2.94%

Tax-equivalent basis adjustment

(199)

(192)

Net interest income

$

28,009

$

20,458

Net interest margin (tax equivalent basis)

4.01%

3.63%

(1)Interest and yields are presented on a tax-equivalent basis.

(2)Average balances have been calculated based on daily balances.

(3)Annualized

(4)Loan balances include non-accrual loans and are net of unearned income.

(5)Loan yields include the effect of amortization of deferred fees, net of costs.


‎

Rate/Volume Analysis. The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense. 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.

Increase/(Decrease)

Three months ended September 30, 2026 Compared to

Three months ended September 30, 2025

Variance due to

Volume

Rate

Net

(dollars in thousands)

Interest-earning assets:

Fed funds sold

$

-

$

-

$

-

Interest-bearing deposits with banks

293

(83)

210

Securities available for sale:

Taxable

373

190

563

Tax-exempt securities

(1)

11

10

Total securities

372

201

573

Loans receivable

7,337

1,156

8,493

Total interest-earning assets

7,709

1,357

9,276

Interest-bearing liabilities:

Interest-bearing demand and money market

804

(185)

619

Savings

31

124

155

Time

2,043

(771)

1,272

Total interest-bearing deposits

2,878

(832)

2,046

Short-term borrowings

(61)

(8)

(69)

Other borrowings

(186)

(73)

(259)

Total interest-bearing liabilities

2,631

(913)

1,718

Net interest income (tax-equivalent basis)

$

5,078

$

2,270

$

7,558


‎

Comparison of Operating Results for the Three Months Ended September 30, 2026 to September 30, 2025

General

For the three months ended September 30, 2026, net income totaled $11.8 million compared to net income of $8.3 million for the three months ended September 30, 2025. The increase in net income for the three months ended September 30, 2026 was due primarily to a $7.6 million increase in net interest income and a net increase of $415,000 in all other income, offset, in part by a $1.6 million increase in salaries and employee benefits, a $602,000 increase in provision for credit losses, and a net increase of $2.4 million in all other expenses. Earnings for the three-months ended September 30, 2026 were $1.08 per basic and fully diluted share, compared to $0.89 per basic and fully diluted share for the three months ended September 30, 2025. The resulting annualized return on average assets and annualized return on average equity for the three months ended September 30, 2026 were 1.60% and 16.00%, respectively, compared to 1.40% and 14.58%, respectively, for the same period in 2025.

The following table sets forth changes in net income:

(dollars in thousands)

Three months ended

September 30, 2026 compared to September 30, 2025

Net income three months ended September 30, 2025

$

8,334

Change due to:

Net interest income

7,551

Provision for credit losses

(602)

Net gains on sales of securities and loans

(72)

Service charges and fees

344

Earnings and proceeds on bank-owned life insurance

66

Other income

77

Salaries and employee benefits

(1,578)

Occupancy, furniture and equipment

(160)

Data processing related

(563)

Professional fees

(130)

Merger-related

568

All other expenses

(755)

Income tax expense

(1,317)

Net income three months ended September 30, 2026

$

11,763

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the three months ended September 30, 2026 totaled $28.2 million which was $7.6 million higher than the comparable period in 2025. The increase in net interest income was due primarily to a $9.3 million increase in total interest income, offset by a $1.7 million increase in total interest expense. The (fte) net interest spread and net interest margin were 3.36% and 4.01%, respectively, for the three months ended September 30, 2026 compared to 2.94% and 3.63%, respectively, for the same period in 2025. See "Non-GAAP Financial Measures" described above beginning on page 43.

For the three-months ended September 30, 2026, interest income (fte) totaled $41.7 million, with a yield on average earning assets of 5.92% compared to $32.4 million and 5.69% for the three months ended September 30, 2025. Average loans increased $465.6 million during the three months ended September 30, 2026, over the comparable period of 2025, while average securities increased $39.9 million compared to the three months ended September 30, 2025. Average earning assets totaled $2.790 billion for the three months ended September 30, 2026, an increase of $532.7 million, over average earning assets for the same period in 2025. See "Non-GAAP Financial Measures" described above beginning on page 43.

Interest expense for the three months ended September 30, 2026 totaled $13.5 million, at an average cost of 2.56%, compared to $11.7 million, at an average cost of 2.75% for the same period in 2025. Average interest-bearing deposits increased $415.4 million during the three months ended September 30, 2026, over the comparable period in 2025, while average borrowings decreased $22.4 million during the three months ended September 30, 2026. During the three months ended September 30, 2026, the average cost of time deposits, which is the most significant component of funding costs, decreased 31 basis points compared to the same three-month period of last year. The average cost of interest-bearing demand and money market decreased 11 basis points during the three months ended September 30, 2026, while savings deposit costs increased 24 basis points. Average short-term borrowing costs decreased 74 basis points, while average other borrowings cost decreased 43 basis points, compared to the same three-month period of 2025.

Provision for Credit Losses

The Company had a provision for credit losses of $100,000 during the three months ended September 30, 2026, compared to a release of provision for credit losses of $502,000 for the three months ended September 30, 2025. The Company makes provisions for, or releases of, credit loss expense in an amount necessary to maintain the allowance for credit losses at an acceptable level under the current expected credit loss (CECL) methodology analysis. The Company recorded a net charge-off of $719,000 for the quarter ended September 30, 2026, compared to a net charge-off of $605,000 for the year earlier quarter. At September 30, 2026, the allowance for credit losses related to loans receivable was 1.10% of loans receivable, the same as at September 30, 2025. Additionally, at September 30, 2026, the allowance for credit losses related to loans receivable represented 150% of non-performing loans, compared to 302% at September 30, 2025.

Other Income

Other income totaled $2.9 million for the three months ended September 30, 2026, compared to $2.5 million for the same period in 2025. The increase was due primarily to an increase in service charges and fees of $344,000. All other categories of other income increased $71,000 net, during the three months ended September 30, 2026.

Other Expense

Other expense for the three months ended September 30, 2026 totaled $15.6 million, an increase of $2.6 million compared to the same period of 2025, due primarily to a $1.6 million increase in salaries and employee benefits, resulting primarily from the PB Bankshares acquisition which closed in January 2026. All other categories of other expense increased $1.6 million during the three months ended September 30, 2026 as compared to the year earlier quarter.

Income Tax Expense

Income tax expense totaled $3.5 million for an effective tax rate of 23.0% for the three months ended September 30, 2026 compared to $2.2 million for an effective tax rate of 20.9% for the three months ended September 30, 2025.

Results of Operations

NORWOOD FINANCIAL CORP

Consolidated Average Balance Sheets with Resultant Interest and Rates

(Tax-Equivalent Basis,

Nine Months Ended September 30,

dollars in thousands)

2026

2025

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

(2)

(1)

(3)

(2)

(1)

(3)

Assets

Interest-earning assets:

Fed funds sold

$

818

$

25

4.09%

$

-

$

-

-%

Interest bearing deposits with banks

51,908

1,107

2.85

17,427

590

4.53

Securities available for sale:

Taxable

429,970

12,328

3.83

403,947

10,907

3.61

Tax-exempt (1)

44,285

955

2.88

44,157

938

2.84

Total securities available for sale (1)

474,255

13,283

3.74

448,104

11,845

3.53

Loans receivable (1) (4) (5)

2,239,147

106,460

6.36

1,776,629

81,636

6.14

Total interest-earning assets

2,766,128

120,875

5.84

2,242,160

94,071

5.61

Non-interest earning assets:

Cash and due from banks

26,719

30,035

Allowance for loan losses

(24,691)

(20,675)

Other assets

128,943

94,389

Total non-interest earning assets

130,971

103,749

Total Assets

$

2,897,099

$

2,345,909

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Interest-bearing demand and money market

$

730,956

$

10,441

1.91

$

566,762

$

8,588

2.03

Savings

227,101

605

0.36

205,552

374

0.24

Time

1,052,670

27,416

3.48

812,778

23,385

3.85

Total interest-bearing deposits

2,010,727

38,462

2.56

1,585,092

32,347

2.73

Short-term borrowings

4,337

128

3.95

23,468

774

4.41

Other borrowings

75,503

2,309

4.09

90,110

2,981

4.42

Total interest-bearing liabilities

2,090,567

40,899

2.62

1,698,670

36,102

2.84

Non-interest bearing liabilities:

Demand deposits

479,931

395,470

Other liabilities

36,680

28,978

Total non-interest bearing liabilities

516,611

424,448

Stockholders' equity

289,921

222,791

Total Liabilities and Stockholders' Equity

$

2,897,099

$

2,345,909

Net interest income/spread (tax equivalent basis)

79,976

3.23%

57,969

2.77%

Tax-equivalent basis adjustment

(574)

(589)

Net interest income

$

79,402

$

57,380

Net interest margin (tax equivalent basis)

3.87%

3.46%

(1) Interest and yields are presented on a tax-equivalent basis.

(2)Average balances have been calculated based on daily balances.

(3) Annualized

(4) Loan balances include non-accrual loans and are net of unearned income.

(5) Loan yields include the effect of amortization of deferred fees, net of costs.

Rate/Volume Analysis. The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense.

Increase/(Decrease)

Nine months ended September 30, 2026 Compared to

Nine months ended September 30, 2025

Variance due to

Volume

Rate

Net

(dollars in thousands)

Interest-earning assets:

Fed funds sold

$

25

-

$

25

Interest-bearing deposits with banks

964

$

(447)

517

Securities available for sale:

Taxable

724

697

1,421

Tax-exempt securities

3

14

17

Total securities

727

711

1,438

Loans receivable

21,356

3,468

24,824

Total interest-earning assets

23,072

3,732

26,804

Interest-bearing liabilities:

Interest-bearing demand and money market

2,458

(605)

1,853

Savings

53

178

231

Time

6,696

(2,665)

4,031

Total interest-bearing deposits

9,207

(3,092)

6,115

Short-term borrowings

(629)

(17)

(646)

Other borrowings

(473)

(199)

(672)

Total interest-bearing liabilities

8,105

(3,308)

4,797

Net interest income (tax-equivalent basis)

$

14,967

$

7,040

$

22,007

Comparison of Operating Results for the Nine Months Ended September 30, 2026 to September 30, 2025

General

For the nine months ended September 30, 2026, net income totaled $24.8 million compared to net income of $20.3 million for the nine months ended September 30, 2025. The increase in net income for the nine months ended September 30, 2026 was due primarily to an increase in net interest income of $22.0 million and an increase of $1.1 million in other income, offset in part by a $4.3 million increase in merger-related expenses, a $5.7 million increase in salaries and employee benefits, a $2.2 million increase in provision for credit losses, a net increase of $4.8 million in all other expenses, and an increase of $1.6 million in income tax expense. Earnings for the nine months ended September 30, 2026 were $2.29 per basic and fully diluted share, compared to $2.22 per basic and fully diluted share for the nine months ended September 30, 2025. The resulting annualized return on average assets and annualized return on average equity for the nine months ended September 30, 2026 were 1.15% and 11.45%, respectively, compared to 1.16% and 12.19%, respectively, for the same period in 2025.

(dollars in thousands)

Nine months ended

September 30, 2026 compared to September 30, 2025

Net income nine months ended September 30, 2025

$

20,313

Change due to:

Net interest income

22,022

Provision for credit losses

(2,198)

Service charges and fees

738

Net gains on sales of securities and loans

(54)

Earnings and proceeds on bank-owned life insurance

154

Other income

219

Salaries and employee benefits

(5,724)

Occupancy, furniture and equipment

(727)

Data processing related

(1,299)

Professional fees

(420)

Merger-related

(4,276)

All other expenses

(2,360)

Income tax expense

(1,567)

Net income nine months ended September 30, 2026

$

24,821

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the nine months ended September 30, 2026 totaled $80.0 million, an increase of $22.0 million compared to the same period in 2025. The increase in net interest income was due primarily to a $26.8 million increase in total interest income, offset by a $4.8 million increase in total interest expense. The (fte) net interest spread and net interest margin were 3.23% and 3.87%, respectively, for the nine months ended September 30, 2026 compared to 2.77% and 3.46%, respectively, for the same period in 2025. See "Non-GAAP Financial Measures" described above beginning on page 43.

For the nine months ended September 30, 2026, interest income (fte) totaled $120.9 million, with a yield on average earning assets of 5.84% compared to $94.1 million and 5.61% for the nine months ended September 30, 2025. Average loans increased $462.5 million to $2.239 billion during the nine months ended September 30, 2026, compared to $1.777 billion during the comparable period of 2025, while average securities increased $26.2 million compared to the nine months ended September 30, 2025. Average earning assets totaled $2.766 billion for the nine months ended September 30, 2026, an increase of $524.0 million, over average earning assets for the same period in 2025. See "Non-GAAP Financial Measures" described above beginning on page 43.

Interest expense for the nine months ended September 30, 2026 totaled $40.9 million, at an average cost of 2.62%, compared to $36.1 million, at an average cost of 2.84% for the same period in 2025. Average interest-bearing deposits increased $425.6 million during the nine months ended September 30, 2026, over the comparable period in 2025, while average borrowings decreased $33.7 million compared to the nine months ended September 30, 2025. During the nine months ended September 30, 2026, the average cost of time deposits, which is the most significant component of funding costs, decreased 37 basis points compared to the nine months ended September 30, 2025. The average cost of interest-bearing demand and money market decreased 12 basis points during the nine months ended September 30, 2026, while savings deposit costs increased 12 basis points, compared to the year earlier period. Average short-term borrowing costs decreased 46 basis points, while average other borrowings cost decreased 33 basis points, compared to the same nine-month period of 2025.

Provision for Credit Losses

The Company had a provision for credit losses of $3.5 million during the nine months ended September 30, 2026, compared to $1.3 million for the nine months ended September 30, 2025. The Company makes provisions for, or releases of, credit loss expense in an amount necessary to maintain the allowance for credit losses at an acceptable level under the CECL methodology analysis. The Company recorded a net charge-off of $2.6 million for the nine months ended September 30, 2026, compared to a net charge-off of $1.3 million for the similar period in 2025. At September 30, 2026, the allowance for credit losses related to loans receivable was 1.10% of loans receivable, the same as at September 30, 2025. Additionally, at September 30, 2026, the allowance for credit losses related to loans receivable represented 150% of non-performing loans, compared to 302% at September 30, 2025. The increase in net charge-offs and the decrease in allowance for credit losses as it relates to non-performing loans, were both due to one large commercial real estate relationship filing for chapter 11 bankruptcy in June 2026.

Other Income

Other income totaled $8.2 million for the nine months ended September 30, 2026, compared to $7.1 million for the same period in 2025. The increase was due primarily to an increase in service charges and fees of $738,000. All other categories of other income increased $319,000, net, during the nine months ended September 30, 2026.

Other Expense

Other expense for the nine months ended September 30, 2026 totaled $52.3 million, an increase of $14.8 million compared to the same period of 2025, due primarily to a $4.3 million increase in non-recurring merger-related expenses and a $5.7 million increase in salaries and employee benefits, resulting primarily from the PB Bankshares merger which closed in January 2026. All other categories of other expense increased $4.8 million during the nine months ended September 30, 2026 as compared to the year earlier quarter.

Income Tax Expense

Income tax expense totaled $6.9 million for an effective tax rate of 21.8% for the nine months ended September 30, 2026, compared to $5.3 million for an effective tax rate of 20.8% for the nine months ended September 30, 2025.


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Norwood Financial Corporation published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 14:13 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]