NORWOOD FINANCIAL CORP

Net income for the Company for the year ended December 31, 2025 was $27,755,000, compared to the net loss of $160,000 in the year ended December 31, 2024. Earnings per share on a fully diluted basis were $3.01 for 2025 compared to losses per share on fully diluted basis of $0.02 in 2024. The return on average assets for the year ended December 31, 2025, was 1.17%, and the return on average equity was 12.22%, compared to (0.01)% and (0.09)%, respectively, for the year ended December 31, 2024. Net interest income increased $16,133,000 for the year ended December 31, 2025.

For the year ended December 31, 2025, fully taxable equivalent (“fte”) net interest income totaled $79,099,000, an increase of $16,089,000 from the year ended December 31, 2024 total. Average loans outstanding increased $145.4 million in 2025, which contributed to an increase in interest income (fte) of $10.6 million. During the year ended December 31, 2025, average interest-bearing deposits increased $169.6 million, which contributed to an increase in interest expense of $1.3 million. The cost of borrowed funds decreased $3.5 million in 2025, compared to the prior year due to a decrease in borrowings. During the year ended December 31, 2025, the resulting net interest spread (fte) decreased to 2.81% compared to 2.17% at December 31, 2024, due to a 0.38% increase in the yield earned, and a 0.26% decrease in the cost of funds.

Total other income was $9,617,000 for the year ended December 31, 2025, compared to a loss of $11,151,000 in the prior year, an increase of $20,768,000. Net realized losses on sales of securities decreased $19,962,000 during the year ended December 31, 2025, primarily as a result of the repositioning of the securities portfolio in December 2024, while gains on the sale of foreclosed real estate owned and gains on sale of loans increased $99,000 in aggregate. Earnings and proceeds on life insurance policies increased $32,000 in 2025 compared to 2024, while all other items of other income increased $675,000, net, in 2025.

During the year ended December 31, 2025, other expenses were $51,149,000, compared to $48,625,000 for the year ended December 31, 2024, an increase of $2,524,000. Salaries and benefits costs increased $1,910,000 in 2025, while merger related expenses increased $1,238,000, and furniture and equipment expenses increased $284,000. All other operating expenses decreased $908,000, net, in 2025. Income tax expense for the 2025 year totaled $7,264,000, compared to an income tax benefit of $98,000 from the 2024 year ended. The effective tax rate in 2025 was 20.7% compared to 38.0% in 2024.

The following table sets forth changes in net income (loss) (in thousands):

NET INTEREST INCOME

Net interest income (fte) totaled $79,099,000 for the year ended December 31, 2025 compared to $63,010,000 for 2024, an increase of $16,089,000. The resulting fte net interest spread and net interest margin were 2.81% and 3.49%, respectively, in 2025 compared to 2.17% and 2.91%, respectively, in 2024.

Interest income (fte) for the year ended December 31, 2025 totaled $127,303,000 compared to $113,399,000 in 2024. The fte yield on average earning assetswas 5.62%, increasing 38 basis points from the 5.24% reported last year. The tax-equivalent yield on total loans was 6.16% in 2025, increasing from 6.06% in 2024, while average loans outstanding increased $145.4 million, resulting in an increase in interest income (fte) from loans of $10.6 million. The yield on securities increased 123 basis points in 2025 due primarily to the repositioning of the portfolio in December 2024. During the year ended December 31, 2025, while average securities outstanding decreased $20.8 million, interest income (fte) from securities outstanding, increased $5.0 million from the year ended December 31, 2024.

Interest expense was $48,204,000 for the year ended December 31, 2025, which resulted in an average cost of interest-bearing liabilities of 2.81% compared to total interest expense of $50,389,000 during the year ended December 31, 2024, with an average cost of 3.07%. Total interest-bearing deposits cost was 2.71% for the year ended December 31, 2025, which was a decrease of 23 basis points over the 2024 fiscal year ended. 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 4.18% in 2024 to 3.81% in 2025, along with a decrease in the interest-bearing demand and money market from 2.21% in 2024 to 2.04% in 2025, and a decrease in savings from 0.32% in 2024 to 0.24% in 2025.

PROVISION FOR CREDIT LOSSES

Theprovision for credit losses was $1,773,000 in 2025 compared to $2,673,000 in 2024. Net charge-offs for the year ended December 31, 2025 decreased to $1,890,000 from net charge-offs of $1,671,000 for the year ended December 31, 2024.

The Company makes provisions for, or releases of, credit losses in an amount necessary to maintain the allowance for credit losses at an acceptable level under the current expected credit loss methodology analysis.

OTHER INCOME

Total other income was $9,617,000 for the year ended December 31, 2025, compared to a loss of other income of $11,151,000 for the year ended December 31, 2024, an increase of $20,768,000. Net realized losses on sales of securities decreased $19,962,000 to $0 during the year ended December 31, 2025, primarily as a result of the repositioning of the securities portfolio in December 2024. Service charges and fees increased $462,000 and gains on sale of loans increased $131,000. All other items of other income increased $213,000, net, during the year ended December 31, 2025.

Other Income (dollars in thousands)

For the year ended December 31

The following table shows total other income:

OTHER EXPENSES

Other expenses totaled $51,149,000 for the year ended December 31, 2025, compared to $48,625,000 in the 2024 fiscal year. For the year ended December 31, 2025, salaries and employee benefits increased $1,910,000 to $26,928,000, while merger related expenses increased $1,238,000. Furniture and equipment expenses increased $284,000 to $1,405,000 during the year ended December 31, 2025, compared to $1,121,000 for the year ended December 31, 2024. During the year ended December 31, 2025, all other operating expenses decreased $908,000, net. The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income excluding losses on securities sales was 58.2% in 2025 compared to 68.5% in 2024. Please see “Non-GAAP Financial Measures” later in this discussion for more information on this Non-GAAP Financial Measure.

Other Expenses (dollars in thousands)

For the year ended December 31

The following table shows total other expenses:

INCOME TAXES

Income tax expense for the year ended December 31, 2025 totaled $7,264,000, which resulted in an effective tax rate of 20.7%, compared to an income tax benefit of $98,000 and 38.0% for 2024.

CAPITAL AND DIVIDENDS

Total stockholders’ equity as of December 31, 2025 was $242.2 million, compared to $213.5 million as of December 31, 2024. Earnings retention, net of an $11.6 million reduction resulting from cash dividends declared, contributed to the increase. Fluctuations in interest rates during the year ended December 31, 2025, impacted the fair value of the Company’s Available-for-Sale securities, and contributed to $11.8 million increase in accumulated other comprehensive income. As of December 31, 2025 the Company had a leverage capital ratio of 9.65%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 12.37%, and a total risk-based capital ratio of 13.41%, compared to 9.36%, 12.35% and 13.45%, respectively, at December 31, 2024.

NON-GAAP FINANCIAL MEASURES

This Annual Report contains or references fully taxable-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 fully taxable-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 fully taxable-equivalent basis:

The following table provides a reconciliation between certain GAAP financial measures (net interest income and other expense) and the related non-GAAP measures to derive the efficiency ratio measure:

CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES

(Tax-Equivalent Basis, dollars in thousands)

(1)Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.

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

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

(4)Loan yields include the effect of amortization of purchased credit marks and deferred fees net of costs.

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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.