NORWOOD FINANCIAL CORP

Previous wording

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, and the determination of goodwill impairment. Please refer to the discussion of the allowance for credit losses calculation under “Changes in Financial Condition - Loans” below.

Current wording

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.

Previous wording

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

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.

Previous 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.

Current wording

Total assets as of March 31, 2026 were $2.917 billion compared to $2.425 billion as of December 31, 2025. The increase was due primarily to a $385.2 million increase in gross loans outstanding and a $58.1 million increase in cash and cash equivalents. Both were primarily a result of the PB Bankshares acquisition.

Previous wording

The fair value of securities available for sale as of September 30, 2025 was $404.0 million compared to $397.8 million as of December 31, 2024.

Current wording

The fair value of securities available for sale as of March 31, 2026 was $431.2 million compared to $408.8 million as of December 31, 2025. The increase of $22.4 million was due primarily to the acquired portfolio.

Previous 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.

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 three months ended March 31, 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.

Previous 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.

Current wording

Loans receivable totaled $2.239 billion at March 31, 2026 compared to $1.853 billion as of December 31, 2025, due primarily to the acquired portfolio. The $385.4 million increase in loans receivable during the three months ended March 31, 2026, was due primarily to a $118.3 million increase in commercial real estate loans, a $177.4 million increase in commercial loans, a $57.1 million increase in residential real estate loans, and an increase of $32.6 million in all other portfolios, net.

Previous 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.

Current wording

The allowance for credit losses totaled $24.4 million as of March 31, 2026, and represented 1.09% 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 three months ended March 31, 2026 of $501,000, compared to $324,000 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 March 31, 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.

Previous 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.

Current wording

As of March 31, 2026, non-performing loans totaled $10.3 million or 0.46%, of total loans compared to $6.3 million, or 0.34%, of total loans at December 31, 2025. At March 31, 2026, non-performing assets totaled $11.1 million, or 0.38%, of total assets, compared to $7.1 million, or 0.29%, of total assets at December 31, 2025.

Previous 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.

Current wording

During the three-months ended March 31, 2026, total deposits increased $428.1 million due primarily to a $198.1 million increase in certificates of deposit, an $83.9 million increase in interest-bearing demand deposits, and a $146.1 million increase in all other deposit categories. All increases were primarily due to the PB Bankshares acquisition.

Previous 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.

Current wording

The Company had no short-term borrowings at March 31, 2026, compared to $14.7 million at December 31, 2025, due primarily to a decrease in overnight borrowings, which was a result of the overall growth in deposits.

Previous 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.

Current wording

Other borrowings as of March 31, 2026, were $88.3 million compared to $59.4 million as of December 31, 2025. There were no Federal Reserve Bank borrowings during three-months ended March 31, 2026, while Federal Home Loan Bank borrowings increased $29.0 million during the three-months ended March 31, 2026.

Previous 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.

Current wording

As of March 31, 2026, total stockholders’ equity was $283.9 million, compared to $242.2 million as of December 31, 2025. Total stockholders’ equity increased $41.7 million as of March 31, 2026. The increase consisted of $44.3 million due to the PB Bankshares acquisition and net income of $3.7 million, offset, in part by a $2.8 million decrease in the fair value of securities in the available-for-sale portfolio and a decrease of $4.0 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.

Previous 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.

Current wording

As of March 31, 2026, the Company had cash and cash equivalents of $102.6 million in the form of cash, due from banks, short-term deposits with other institutions, and fed funds sold. In addition, the Company had total non-pledged securities available for sale of $137.9 million which could be used for liquidity needs. Total liquidity of $234.3 million as of March 31, 2026, represents 8.0% 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 March 31, 2026 and December 31, 2025. Based upon these measures, the Company believes its liquidity is adequate.

Previous 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.

Current wording

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was estimated to be $682.8 million as of March 31, 2026, of which $88.4 million was outstanding in the form of borrowings as of March 31, 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 March 31, 2026, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $178.1 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.

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 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.

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