NORWOOD FINANCIAL CORP

Previous wording

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 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.”

Current wording

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.”

Previous wording

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. Goodwill is tested annually and deemed impaired when the carrying value of goodwill exceeds its implied fair value.

Current wording

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

Previous wording

Total assets as of June 30, 2025 were $2.365 billion compared to $2.317 billion as of December 31, 2024. The increase was due primarily to a $77.0 million increase in gross loans outstanding.

Current wording

Total assets as of September 30, 2025 were $2.412 billion compared to $2.317 billion as of December 31, 2024. The increase was due primarily to a $101.0 million increase in gross loans outstanding.

Previous wording

Other assets as of June 30, 2025 were $9.2 million compared to $18.2 million as of December 31, 2024. The decrease was primarily due to the movement of $6.9 million in prepaid dealer fees from other assets to loans receivable.

Current wording

Other assets as of September 30, 2025 were $9.6 million compared to $18.2 million as of December 31, 2024. The decrease was primarily due to the movement of $7.2 million in prepaid dealer fees from other assets to loans receivable.

Previous wording

The fair value of securities available for sale as of June 30, 2025 was $402.5 million compared to $397.8 million as of December 31, 2024. In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. The Company concluded that the decrease in the value of these securities was not indicative of a credit loss. The Company did not recognize any credit losses on these available for sale debt securities for the six months ended June 30, 2025, or the six months ended June 30, 2024. 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.

Current wording

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 Company did not recognize any credit losses on these available for sale debt securities for the nine months ended September 30, 2025. 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.

Previous wording

Loans receivable totaled $1.770 billion at June 30, 2025 compared to $1.694 billion as of December 31, 2024. The $75.9 million increase in net loans receivable during the six months ended June 30, 2025, was due primarily to a $20.1 million increase in commercial real estate loans, a $17.2 million increase in commercial loans, a $27.3 million increase in consumer loans, and a $12.4 million increase in residential, agricultural and construction loans, net.

Current wording

Loans receivable totaled $1.795 billion at September 30, 2025 compared to $1.694 billion as of December 31, 2024, due primarily to organic growth. The $101.0 million increase in net loans receivable during the nine months ended September 30, 2025, was due primarily to a $20.7 million increase in commercial real estate loans, a $11.5 million increase in commercial loans, a $39.1 million increase in consumer loans, a $27.2 million increase in construction loans, and a $3.2 million increase in residential loans, and agricultural loans, net.

Previous wording

The allowance for credit losses totaled $20,908,000 as of June 30, 2025, and represented 1.17% of total loans outstanding, compared to $19,843,000, or 1.16% of total loans outstanding, at December 31, 2024. The Company had net charge-offs for the six months ended June 30, 2025 of $699,000, compared to $834,000 in the corresponding period in 2024. 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 June 30, 2025 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.

Current wording

The allowance for credit losses totaled $19.9 million as of September 30, 2025, and represented 1.10% of total loans outstanding, compared to $19.8 million, or 1.16% of total loans outstanding, at December 31, 2024. The Company had net charge-offs for the nine months ended September 30, 2025 of $1.3 million, compared to $1.2 million in the corresponding period in 2024. 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, 2025 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.

Previous wording

As of June 30, 2025, non-performing loans totaled $8,091,000 or 0.45% of total loans compared to $7,874,000, or 0.46%, of total loans at December 31, 2024. At June 30, 2025, non-performing assets totaled $8,091,000, or 0.34%, of total assets, compared to $7,874,000, or 0.34%, of total assets at December 31, 2024.

Current wording

As of September 30, 2025, non-performing loans totaled $6.6 million or 0.36% of total loans compared to $7.9 million, or 0.46%, of total loans at December 31, 2024. At September 30, 2025, non-performing assets totaled $7.4 million, or 0.31%, of total assets, compared to $7.9 million, or 0.34%, of total assets at December 31, 2024.

Previous wording

During the six-months ended June 30, 2025, total deposits increased $138.7 million due primarily to an $69.9 million increase in interest-bearing demand deposits, a $50.6 million increase in certificates of deposit, and a $18.2 million increase in all other deposit categories, net.

Current wording

During the nine-months ended September 30, 2025, total deposits increased $214.8 million due primarily to a $105.3 million increase in interest-bearing demand deposits, a $69.4 million increase in certificates of deposit, and a $40.0 million increase in all other deposit categories, net.

Previous wording

Short-term borrowings were $26.5 at June 30, 2025, compared to $113.1 million at December 31, 2024, due primarily to a decrease in overnight borrowings.

Current wording

The Company had no short-term borrowings at September 30, 2025, compared to $113.1 million at December 31, 2024, due primarily to a decrease in overnight borrowings, which was a result of the overall growth in deposits.

Previous wording

Other borrowings as of June 30, 2025, were $85.4 million compared to $101.8 million as of December 31, 2024. Federal Reserve Bank borrowings decreased $20.0 million during six-months ended June 30, 2025, while Federal Home Loan Bank borrowings increased $3.6 million during the six-months ended June 30, 2025.

Current wording

Other borrowings as of September 30, 2025, were $72.1 million compared to $101.8 million as of December 31, 2024. Federal Reserve Bank borrowings decreased $20.0 million during nine-months ended September 30, 2025, while Federal Home Loan Bank borrowings decreased $9.7 million during the nine-months ended September 30, 2025.

Previous wording

As of June 30, 2025, total stockholders’ equity was $225.4 million, compared to $213.5 million as of December 31, 2024. Total stockholders’ equity increased $12.0 million due to net income and $5.6 million due to an increase in the fair value of securities in the available-for-sale portfolio, offset partially by $5.7 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.

Current wording

As of September 30, 2025, total stockholders’ equity was $234.9 million, compared to $213.5 million as of December 31, 2024. Total stockholders’ equity increased $20.3 million as of September 30, 2025, due to net income for the nine months ended September 30, 2025, of $20.3 million and a $9.4 million increase in the fair value of securities in the available-for-sale portfolio, offset partially by $8.6 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.

Previous wording

As of June 30, 2025, the Company had cash and cash equivalents of $53.0 million in the form of cash, due from banks and short-term deposits with other institutions. In addition, the Company had total securities available for sale of $402.5 million which could be used for liquidity needs. Total liquidity of $455.5 million as of June 30, 2025, represents 19.3% of total assets, compared to $470.1 million and 20.3% of total assets as of December 31, 2024. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of June 30, 2025 and December 31, 2024. Based upon these measures, the Company believes its liquidity is adequate.

Current wording

As of September 30, 2025, the Company had cash and cash equivalents of $74.7 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 $141.7 million which could be used for liquidity needs. Total liquidity of $216.4 million as of September 30, 2025, represents 8.97% of total assets, compared to $161.5 million and 6.97% of total assets as of December 31, 2024. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of September 30, 2025 and December 31, 2024. Based upon these measures, the Company believes its liquidity is adequate.

Previous wording

The Company has a line of credit commitment from Atlantic Community Bankers Bank for $7,000,000 which expires June 30, 2026. There were no borrowings under this line as of June 30, 2025 and December 31, 2024.

Current wording

The Company has a line of credit commitment from Atlantic Community Bankers Bank for $7.0 million which expires June 30, 2026. There were no borrowings under this line as of September 30, 2025 and December 31, 2024.

Previous wording

The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $10,000,000. There were no borrowings under this line as of June 30, 2025 and December 31, 2024.

Current wording

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, 2025 and December 31, 2024.

Previous wording

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $661,776,000 as of June 30, 2025, of which $85,350,000 was outstanding in the form of borrowings as of June 30, 2025. As of December 31, 2024, the maximum borrowing capacity was $654,838,000, of which $15,525,000 of borrowings was outstanding as of December 31, 2024. Additionally, as of June 30, 2025, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $144,725,000 as collateral for specific municipal deposits. These Letters of Credit reduce the availability under the maximum borrowing capacity. As of December 31, 2024, there was $146,975,000 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.

Current wording

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $673.7 million as of September 30, 2025, of which $72.1 million was outstanding in the form of borrowings as of September 30, 2025. As of December 31, 2024, the maximum borrowing capacity was $654.8 million, of which $158.5 million of borrowings was outstanding as of December 31, 2024. Additionally, as of September 30, 2025, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $139.7 million as collateral for specific municipal deposits. These Letters of Credit reduce the availability under the maximum borrowing capacity. As of December 31, 2024, there was $147.0 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.

Previous wording

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 pages 42 and 46. Fully taxable equivalent interest income and net interest income is also reflected in the table on pages 43 and 47. 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.

Current wording

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 pages 41 and 45. Fully taxable equivalent interest income and net interest income is also reflected in the table on pages 42 and 46. 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.