What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 223 added, 134 removed, 857 unchanged (29% of the section changed)

43 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

24 unchanged sentences

Amortization of intangibles

Merger related

Total other expenses

10 unchanged sentences

Investment securities available for sale:

Unrealized holding gain

Reclassification of investment securities gains

recognized in net income

Other comprehensive income

Comprehensive Income

Six Months Ended

Other comprehensive income

Investment securities available for sale:

Unrealized holding (loss) gain

6 unchanged sentences

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2021 and 2020

Six Months Ended June 30, 2021 and 2020

( dollars in thousands, except share and per share data)

8 unchanged sentences

Compensation expense related to stock options

Balance, March 31, 2021

Balance, June 30, 2021

Treasury Stock

3 unchanged sentences

Cash dividends declared ($ 0.50 per share)

Acquisition of treasury stock

Compensation expense related to restricted stock

1 unchanged sentence

Compensation expense related to stock options

Balance, June 30, 2020

NORWOOD FINANCIAL CORP

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended June 30, 2021 and 2020

( dollars in thousands, except share and per share data)

Treasury Stock

Comprehensive

Income (Loss)

Balance, March 31, 2021

Other comprehensive loss

Cash dividends declared ($ 0.26 per share)

Compensation expense related to restricted stock

Stock options exercised

Compensation expense related to stock options

Balance, June 30, 2021

Treasury Stock

Comprehensive

Balance, March 31, 2020

Other comprehensive income

Cash dividends declared ($ 0.25 per share)

Compensation expense related to restricted stock

Acquisition of treasury stock

Compensation expense related to stock options

Balance, June 30, 2020

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

12 unchanged sentences

Compensation expense related to restricted stock

(Increase) decrease in accrued interest receivable

Decrease (increase) in accrued interest receivable

(Decrease) increase in accrued interest payable

6 unchanged sentences

Redemption of regulatory stock

Net increase in loans

Net decrease (increase) in loans

Proceeds from bank-owned life insurance policies

Purchase of premises and equipment

Proceeds from sales of bank premises and fixed assets

Proceeds from sales of foreclosed real estate owned

Net cash (used in) provided by investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

2 unchanged sentences

Repayments of other borrowings

Proceeds from other borrowings

Stock options exercised

8 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosures of Cash Flow Information

15 unchanged sentences

The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the consolidated financial position and results of operations of the Company.

The operating results for the three-months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future interim period.

The operating results for the three-month and six-month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future interim period.

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 security gains, loan servicing, gains on the sale of 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 three months ended March 31:

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30:

Three months ended

17 unchanged sentences

Total Noninterest Income

Six months ended

(dollars in thousands)

Noninterest Income

In-scope of Topic 606:

Service charges on deposit accounts

Overdraft fees

Safe deposit box rental

Loan related service fees

Debit card fees

Fiduciary activities

Commissions on mutual funds and annuities

Noninterest Income ( in-scope of Topic 606 )

Out-of-scope of Topic 606:

Net realized gains on sales of securities

Loan servicing fees

Gains on sales of loans

Earnings on and proceeds from bank-owned life insurance

Noninterest Income ( out-of-scope of Topic 606 )

Total Noninterest Income

Earnings Per Share

5 unchanged sentences

Three Months Ended

Six Months Ended

Weighted average shares outstanding

4 unchanged sentences

Diluted EPS weighted average shares outstanding

For the three month period ended March 31, 2021, there were 114,100 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of the Company’s common stock of $ 26.61 per share as of March 31, 2021.

As of March 31, 2020, there were 82,600 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of the Company’s common stock of $ 26.70 per share on March 31, 2020.

For the three and six month periods ended June 30, 2021, there were 115,100 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of the Company’s common stock of $ 26.00 per share as of June 30, 2021.

For the three and six month periods ended June 30, 2020, there were 82,600 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of Norwood common stock of $ 24.79 per share as of June 30, 2020.

Stock-Based Compensation

No awards were granted during the three-month period ended March 31, 2021.

As of March 31, 2021, there was $ 160,000 of total unrecognized compensation cost related to non-vested options granted in 2020 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2021.

Compensation costs related to stock options amounted to $ 54,000 and $ 51,000 during the three-month periods ended March 31, 2021 and 2020, respectively.

A summary of the Company’s stock option activity for the three-month period ended March 31, 2021 is as follows:

During the six-month period ended June 30, 2021, 1,000 stock options were granted at a price of $ 26.35 per share.

As of June 30, 2021, there was $ 107,000 of total unrecognized compensation cost related to non-vested options granted in 2020 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2021.

Compensation costs related to stock options amounted to $ 107,000 and $ 102,000 during the six-month periods ended June 30, 2021 and 2020, respectively.

A summary of the Company’s stock option activity for the six-month period ended June 30, 2021 is as follows:

Average Exercise

3 unchanged sentences

Outstanding at January 1, 2021

Outstanding at March 31, 2021

Exercisable at March 31, 2021

Outstanding at June 30, 2021

Exercisable at June 30, 2021

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option.

The market price was $ 26.61 per share as of March 31, 2021 and $ 26.17 per share as of December 31, 2020.

A summary of the Company’s restricted stock activity for the three-month periods ended March 31, 2021 and 2020 is as follows:

The market price was $ 26.00 per share as of June 30, 2021 and $ 26.17 per share as of December 31, 2020.

A summary of the Company’s restricted stock activity for the six-month periods ended June 30, 2021 and 2020 is as follows:

Weighted-Average

3 unchanged sentences

Non-vested, January 1,

Non-vested, March 31,

The expected future compensation expense relating to the 35,235 shares of non-vested restricted stock outstanding as of March 31, 2021 is $ 998,000 .

Non-vested, June 30,

The expected future compensation expense relating to the 35,235 shares of non-vested restricted stock outstanding as of June 30, 2021 is $ 914,000 .

This cost will be recognized over the remaining vesting period of 4.5 years.

Compensation costs related to restricted stock amounted to $ 84,000 during the three-month periods ended March 31, 2021 and 2020.

Compensation costs related to restricted stock amounted to $ 167,000 and $ 167,000 during the six-month periods ended June 30, 2021 and 2020, respectively.

Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) (in thousands) by component net of tax for the three months ended March 31, 2021 and 2020:

The following table presents the changes in accumulated other comprehensive income (loss) (in thousands) by component net of tax for the three and six months ended June 30, 2021 and 2020:

Unrealized gains (losses) on

5 unchanged sentences

Total other comprehensive loss

Balance as of March 31, 2021

Balance as of June 30, 2021

Unrealized gains (losses) on

5 unchanged sentences

Total other comprehensive income

Balance as of June 30, 2020

Unrealized gains (losses) on

available for sale

securities (a)

Balance as of March 31, 2021

Other comprehensive loss before reclassification

Amount reclassified from accumulated other comprehensive loss

Total other comprehensive loss

Balance as of June 30, 2021

Unrealized gains (losses) on

available for sale

securities (a)

Balance as of March 31, 2020

Other comprehensive income before reclassification

Amount reclassified from accumulated other comprehensive income

Total other comprehensive income

Balance as of June 30, 2020

(a) All amounts are net of tax.

Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three months ended March 31, 2021 and 2020:

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three and six months ended June 30, 2021 and 2020:

Amount Reclassified

8 unchanged sentences

Income tax expense

Six months ended

Unrealized gains on available for sale securities

Net realized gains on sales of securities

Income tax expense

(a) Amounts in parentheses indicate debits to net income

20 unchanged sentences

The Bank, generally, holds collateral and/or personal guarantees supporting these commitments.

Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.

The current amount of the liability as of March 31, 2021 for guarantees under standby letters of credit issued is not material.

Management believes that the proceeds obtained through a

liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.

The current amount of the liability as of June 30, 2021 for guarantees under standby letters of credit issued is not material.

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale were as follows:

March 31, 2021

June 30, 2021

(In Thousands)

Available for Sale:

Treasury securities

Government agencies

States and political subdivisions

Corporate obligations

Mortgage-backed securities-

11 unchanged sentences

The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by length of time that individual securities have been in a continuous unrealized loss position (in thousands):

March 31, 2021

June 30, 2021

Less than 12 Months

14 unchanged sentences

Mortgage-backed securities-government sponsored entities

At March 31, 2021, the Company had 53 debt securities in an unrealized loss position in the less than twelve months category and no debt securities in the twelve months or more category.

At June 30, 2021, the Company had 59 debt securities in an unrealized loss position in the less than twelve months category and no debt securities in the twelve months or more category.

In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities.

1 unchanged sentence

Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent 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.

The amortized cost and fair value of debt securities as of March 31, 2021 by contractual maturity are shown below.

The amortized cost and fair value of debt securities as of June 30, 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.

8 unchanged sentences

Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):

Ended March 31,

Ended June 30,

Gross realized gains

2 unchanged sentences

Proceeds from sales of securities

Securities with a carrying value of $ 259,532,000 and $ 199,361,000 at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

Securities with a carrying value of $ 286,324,000 and $ 199,361,000 at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

Loans Receivable and Allowance for Loan Losses

Set forth below is selected data relating to the composition of the loan portfolio at the dates indicated (dollars in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

9 unchanged sentences

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 March 31, 2021 and December 31, 2020, the Company had outstanding principal balances of $ 119.3 million and $ 95.0 million, respectively, in PPP loans.

As of June 30, 2021 and December 31, 2020, the Company had outstanding principal balances of $ 74.2 million and $ 95.0 million,

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.

As of March 31, 2021, $ 30.0 million of PPP loans have been forgiven.

PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company.

As of June 30, 2021, $ 77.6 million of PPP loans have been forgiven.

PPP loans are included in the Commercial loan category.

2 unchanged sentences

The following table presents information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

6 unchanged sentences

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 for the three-months ended March 31, 2021 and 2020, were as follows (in thousands):

Changes in the accretable yield for purchased credit impaired loans for the six-months ended June 30, 2021 and 2020, were as follows (in thousands):

Balance at beginning of period

20 unchanged sentences

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 March 31, 2021 and December 31, 2020, foreclosed real estate owned totaled $ 844,000 and $ 965,000 , respectively.

During the three months ended March 31, 2021, there were no additions to

the foreclosed real estate category.

As of June 30, 2021 and December 31, 2020, foreclosed real estate owned totaled $ 844,000 and $ 965,000 , respectively.

During the six months ended June 30, 2021, there were no additions to the foreclosed real estate category.

The Co mpany disposed of a parcel of the one property that was previously transferred to foreclosed real estate owned with a carrying value of $ 121,000 through the sale of the property.

As of March 31, 2021, the Company has initiated formal foreclosure proceedings on five properties classified as consumer residential mortgages with an aggregate carrying value of $ 1,061,000 .

As of June 30, 2021, the Company has initiated formal foreclosure proceedings on four properties classified as consumer residential mortgages with an aggregate carrying value of $ 489,000 .

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

Real Estate Loans

March 31, 2021

June 30, 2021

(In thousands)

9 unchanged sentences

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.

March 31, 2021

June 30, 2021

(in thousands)

2 unchanged sentences

Commercial Loans

With an allowance recorded:

Commercial Loans

Other agricultural loans

Real Estate Loans:

Commercial Loans

Other agricultural loans

Total Impaired Loans

4 unchanged sentences

Commercial Loans

With an allowance recorded:

Real Estate Loans:

Commercial Loans

Total Impaired Loans

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month periods ended March 31, 2021 and 2020, respectively (in thousands):

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month periods ended June 30, 2021 and 2020, respectively (in thousands):

Average Recorded

2 unchanged sentences

Commercial Loans

Other agricultural loans

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the six-month periods ended June 30, 2021 and 2020, respectively (in thousands):

Average Recorded

Interest Income

Real Estate Loans:

Commercial Loans

Other agricultural loans

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 March 31, 2021 and December 31, 2020, troubled debt restructured loans totaled $ 75,000 , with no specific reserve.

For the three-month period ended March 31, 2021 and 2020, there were no new loans identified as troubled debt restructurings.

As of June 30, 2021 and December 31, 2020, troubled debt restructured loans totaled $ 0 and $ 75,000 , respectively, with no specific reserve.

For the six-month period ended June 30, 2021 and 2020, there were no new loans identified as troubled debt restructurings.

During 2020, the Company recognized a charge-off $ 20,000 on a loan that was previously identified as a troubled debt restructuring.

12 unchanged sentences

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.

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 March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

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 June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

Commercial real estate loans

8 unchanged sentences

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.

The following table presents the recorded investment in the loan classes based on payment activity as of March 31, 2021 and December 31, 2020 (in thousands):

The following table presents the recorded investment in the loan classes based on payment activity as of June 30, 2021 and December 31, 2020 (in thousands):

Nonperforming

March 31, 2021

June 30, 2021

Residential real estate loans

5 unchanged sentences

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 March 31, 2021 and December 31, 2020 (in thousands):

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2021 and December 31, 2020 (in thousands):

31-60 Days Past Due

3 unchanged sentences

Purchased Credit-Impaired

March 31, 2021

June 30, 2021

Real Estate loans

14 unchanged sentences

When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance.

As of March 31, 2021, the allocation of the allowance pertaining to each major category of loans is higher than the allocation as of December 31, 2020.

As of June 30, 2021, the allocation of the allowance pertaining to each major category of loans is higher than the allocation as of December 31, 2020.

This increase is due primarily to an increase in the qualitative factors related to Lending Management and External Factors resulting from the resignation of the Company’s Chief Lending Officer.

As of March 31, 2021, the Company has also continued to incorporate qualitative factors related to the pandemic to capture some of the risk associated with higher-risk industries and to recognize risk related to loans that have been granted deferral of payments due to COVID-19.

At March 31, 2021, the allowance for loan losses includes $ 2.3 million of COVID related factors.

As of June 30, 2021, the Company has also continued to incorporate qualitative factors related to the pandemic to capture some of the risk associated with higher-risk industries and to recognize risk related to loans that have been granted deferral of payments due to COVID-19.

At June 30, 2021, the allowance for loan losses includes $ 2.3 million of COVID related factors.

The 2021 allowance for loan losses excludes growth in Paycheck Protection Program loans which are fully guaranteed by the Small Business Association as well as loans acquired from UpState which were recorded at fair value.

5 unchanged sentences

Provision for loan losses

Ending balance, March 31, 2021

Ending balance, June 30, 2021

Ending balance individually evaluated

5 unchanged sentences

Commercial Real Estate

Beginning balance, March 31, 2021

Provision for loan losses

Ending balance, June 30, 2021

(In thousands)

Residential Real Estate

Commercial Real Estate

Beginning balance, December 31, 2019

Provision for loan losses

Ending balance, March 31, 2020

Ending balance, June 30, 2020

Ending balance individually evaluated

2 unchanged sentences

‎ for impairment

The Company’s primary business activity as of March 31, 2021 was with customers located in northeastern Pennsylvania and the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates.

(In thousands)

Residential Real Estate

Commercial Real Estate

Beginning balance, March 31, 2020

Provision for loan losses

Ending balance, June 30, 2020

The Company’s primary business activity as of June 30, 2021 was with customers located in northeastern Pennsylvania and the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates.

Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to honor their contracts is influenced by the region’s economy.

As of March 31, 2021, the Company considered its concentration of credit risk to be acceptable.

The highest concentrations are in commercial rentals with $ 130.9 million of loans outstanding, or 9.2 % of total loans outstanding, and residential rentals with loans outstanding of $ 115.6 million, or 8.1 % of loans outstanding.

As of June 30, 2021, the Company considered its concentration of credit risk to be acceptable.

The highest concentrations are in commercial rentals with $ 136.6 million of loans outstanding, or 9.8 % of total loans outstanding, and residential rentals with

loans outstanding of $ 118.4 million, or 8.5 % of loans outstanding.

During 2021, the Company did not recognize any charge offs on loans in the named concentrations.

5 unchanged sentences

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 three-month periods ending March 31, 2021 and 2020, amounted to $ 147,000 and $ 140,000 respectively.

The lease cost associated with the operating leases for the six-month periods ending June 30, 2021 and 2020, amounted to $ 294,000 and $ 280,000 respectively.

Certain of the Company’s leases contain options to renew the lease after the initial term.

1 unchanged sentence

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 March 31, 2021.

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 June 30, 2021.

Weighted-average remaining term

Weighted-average discount rate

The following table presents the undiscounted cash flows due related to operating leases as of March 31, 2021, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

The following table presents the undiscounted cash flows due related to operating leases as of June 30, 2021, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

Undiscounted cash flows due (in thousands)

15 unchanged sentences

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 March 31, 2021 and December 31, 2020 are as follows:

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2021 and December 31, 2020 are as follows:

Fair Value Measurement Using

Reporting Date

March 31, 2021

June 30, 2021

(In thousands)

Available for Sale:

Treasury securities

Government agencies

States and political subdivisions

Corporate obligations

Mortgage-backed securities-government

20 unchanged sentences

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 March 31, 2021 and December 31, 2020 are as follows:

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2021 and December 31, 2020 are as follows:

Fair Value Measurement Using Reporting Date

(In thousands)

March 31, 2021

June 30, 2021

Impaired Loans

6 unchanged sentences

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 March 31, 2021, the fair value investment in impaired loans was $ 2,711,000 which included five loan relationships that did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan, and two loan relationships with a value of $ 38,000 that required a specific reserve of $ 38,000 .

As of March 31, 2021, 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.

As of June 30, 2021, the fair value investment in impaired loans was $ 2,209,000 which included six loan relationships that did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.

As of June 30, 2021, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $ 872,000 over the life of the loans.

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.

12 unchanged sentences

Range (Weighted Average)

March 31, 2021

June 30, 2021

Impaired loans

17 unchanged sentences

0 %- 10.59 % ( 9.75 %)

Probability of default

Foreclosed real estate owned

8 unchanged sentences

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 following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2021 and December 31, 2020.

Loans receivable (carried at cost):

11 unchanged sentences

These prices obtained from this active market represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at March 31, 2021 and December 31, 2020.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at June 30, 2021 and December 31, 2020.

(In thousands)

Fair Value Measurements at March 31, 2021

Fair Value Measurements at June 30, 2021

Carrying Amount

38 unchanged sentences

There was no effect on earnings in any periods presented.

At March 31, 2021 and December 31, 2020, 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.

The fair value of the swaps as of March 31, 2021 and December 31, 2020 was $ 334,000 and $ 276,000 , respectively.

At June 30, 2021 and December 31, 2020, 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.

The fair value of the swaps as of June 30, 2021 and December 31, 2020 was $ 98,000 and $ 276,000 , respectively.

Summary information regarding these derivatives is presented below:

1 unchanged sentence

Notional Amount

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Interest Rate Received

March 31, 2021

June 30, 2021

December 31, 2020

13 unchanged sentences

Balance Sheet Location

March 31, 2021

June 30, 2021

Interest rate derivatives

40 unchanged sentences

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) .

The Update defers the effective dates of ASU 2016-13 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.

This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No.

2017-04, Intangibles ‒ Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (Goodwill) , to align with those used for credit losses.

Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities.

The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

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.

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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.

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.

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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.

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.

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The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2021, the FASB issued ASU 2021-03, Intangibles – Goodwill and Other (Topic 350), which provides private companies and not-for-profit entities with an accounting alternative to elect not to monitor for goodwill impairment-triggering events during the reporting period and, instead, to evaluate the facts and circumstances as of the end of the reporting period to determine whether it is more likely than not that goodwill is impaired.

The amendments in this Update are effective on a prospective basis for fiscal years beginning after December 15, 2019.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021.

An entity should not retroactively adopt the amendments in this Update for interim financial statements already issued in the year of adoption.

This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends ASC 842 so that lessors are no longer required to recognize a selling loss upon commencement of a lease with variable lease payments that, prior to the amendments, would have been classified as a sales-type or direct financing lease.

Furthermore, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a selling loss at lease commencement, provided that the lease includes variable lease payments that do not depend on an index or rate.

For public business entities and certain not-for-profit entities and employee benefit plans that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years.

For all other entities that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022.

All entities that have adopted ASC 842 are permitted to early adopt the amendments in ASU 2021-05.

The amendments in ASU 2021-05 are effective as of the same date as the guidance in ASC 842 for entities that have not adopted ASC 842.

This Update is not expected to have a significant impact on the Company’s financial statements.

Acquisition of UpState New York Bancorp, Inc.

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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.

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.

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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 is considered preliminary, primarily with respect to certain tax-related assets and liabilities.

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 are expected to result in tax refunds, which relate to the operations of UpState and USNY Bank.

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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 expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition.

During the second quarter of 2021, the Company recorded final measurement period adjustments to goodwill which resulted in a $ 24,000 decrease, net, in the carrying value.

The final adjustments were related to tax-related assets and liabilities and an unrecorded liability.

The adjustments had no impact on the results of operations.

The following table summarizes the purchase of UpState as of July 7, 2020:

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Purchase Price Consideration in Common Stock

UpState New York Bancorp, Inc.

common shares settled for stock

UpState common shares settled for stock

Exchange Ratio

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Value assigned to each Norwood Financial Corp common share

Purchase price assigned to UpState New York Bancorp, Inc.

common shares

Purchase price assigned to UpState common shares

exchanged for Norwood Financial Corp shares

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

UpState shares exchanged for cash, excluding fractional shares

Purchase price paid to each UpState common share exchanged for cash

Purchase price assigned to UpState common shares exchanged for cash

Purchase price additional cash consideration per share

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Net Assets Acquired:

UpState New York Bancorp, Inc.

shareholders'

UpState New York Bancorp, Inc.

goodwill and intangibles

UpState shareholders'

UpState goodwill and intangibles

Total tangible equity

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Adjustments to reflect liabilities acquired at fair value:

Time deposits

Net assets acquired

Goodwill resulting from merger

The fo llowing condensed statement reflects the values assigned to UpState New York Bancorp, Inc.

net assets as of the acquisition date:

The fo llowing condensed statement reflects the values assigned to UpState net assets as of the acquisition date:

(In Thousands)

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Total identifiable net assets acquired

Goodwill resulting from UpState New York Bancorp, Inc.

The Company recorded goodwill and other intangibles associated with the acquisition of UpState New York Bancorp, Inc.

totaling $ 17,959,000 .

Goodwill resulting from UpState Merger

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 no t recognize any impairment during the three months ended March 31, 2021.

The carrying amount of the goodwill at March 31, 2021 related to the UpState acquisition was $ 17,959,000 .

The Company did no t recognize any impairment during the six months ended June 30, 2021.

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 three months ended March 31, 2021, no such adjustments were recorded.

During the six months ended June 30, 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 March 31, 2021 was $ 409,000 with $ 56,000 accumulated amortization as of that date.

As of March 31, 2021, the current year and estimated future amortization expense for the core deposit intangible associated with the UpState acquisition is:

The gross carrying amount of the core deposit intangible at June 30, 2021 was $ 409,000 with $ 74,000 accumulated amortization as of that date.

As of June 30, 2021, the current year and estimated future amortization expense for the core deposit intangible associated with the UpState acquisition is:

(In thousands)

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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 March 31, 2021, the Company has approved over 1,700 applications for $ 149.2 million of loans since the inception of the PPP.

As of June 30, 2021, the Company has approved over 1,800 applications for $ 151.6 million of loans since the inception of 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.

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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 8 of the financial statements for additional disclosure of TDRs at March 31, 2021.

The following table presents a summary of loans that were granted forbearance by type of loan since the inception of the CARES Act through March 31, 2021:

See Note 8 of the financial statements for additional disclosure of TDRs at June 30, 2021.

The following table presents a summary of loans that were granted forbearance by type of loan since the inception of the CARES Act through June 30, 2021:

‎ (in thousands)

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Consumer loans to individuals

The following table presents a summary of loans that remain in forbearance by type of loan as of March 31, 2021:

The following table presents a summary of loans that remain in forbearance by type of loan as of June 30, 2021:

‎ (in thousands)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements