-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RcnEqKIeaInrJwnHXyP0GBNw/8F4TTGI815RqzyApSOjZO4nY5sI493hcK3hIDVM pvYCjZQ6FlQpfophQtM3AQ== 0000946275-06-000433.txt : 20060512 0000946275-06-000433.hdr.sgml : 20060512 20060512153540 ACCESSION NUMBER: 0000946275-06-000433 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060512 DATE AS OF CHANGE: 20060512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWOOD FINANCIAL CORP CENTRAL INDEX KEY: 0001013272 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232828306 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28364 FILM NUMBER: 06834628 BUSINESS ADDRESS: STREET 1: 717 MAIN ST STREET 2: PO BOX 269 CITY: HONESDALE STATE: PA ZIP: 18431 BUSINESS PHONE: 7172531455 10-Q 1 f10q_033106-0160.txt FORM SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2006 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------ Commission file number 0-28366 ------- Norwood Financial Corp. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2828306 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 717 Main Street, Honesdale, Pennsylvania 18431 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (570)253-1455 ------------- N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check (x) whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): [ ] Yes [X] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of May 12, 2006 - --------------------------------------- ------------------------------ Common stock, par value $0.10 per share 2,667,061 NORWOOD FINANCIAL CORP. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006 INDEX
Page Number ------ Part I - CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP. Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Qualitative and Quantitative Disclosures about Market Risk 20 Item 4. Controls and Procedures 21 Part II - OTHER INFORMATION Item 1. Legal Proceedings 22 Item 1A. Risk Factors Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 22 Item 3. Defaults upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits 23 Signatures 24
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NORWOOD FINANCIAL CORP. Consolidated Balance Sheets (dollars in thousands, except per share data)
March 31, December 31, 2006 2005 --------- --------- (unaudited) ASSETS Cash and due from banks $ 9,330 $ 9,746 Interest bearing deposits with banks 22 70 --------- --------- Cash and cash equivalents 9,352 9,816 Securities available for sale 116,659 115,814 Securities held to maturity, fair value 2006: $976, 2005: $1,480 953 1,452 Loans receivable (net of unearned income) 291,840 290,890 Less: Allowance for loan losses 3,743 3,669 --------- --------- Net loans receivable 288,097 287,221 Investment in FHLB Stock 2,073 1,620 Bank premises and equipment, net 5,508 5,393 Accrued interest receivable 1,979 1,812 Other assets 9,509 10,428 --------- --------- TOTAL ASSETS $ 434,130 $ 433,556 ========= ========= LIABILITIES Deposits: Non-interest bearing demand $ 54,505 $ 50,891 Interest bearing 285,002 289,712 --------- --------- Total deposits 339,507 340,603 Short-term borrowings 19,765 18,564 Long-term debt 23,000 23,000 Accrued interest payable 1,626 1,691 Other liabilities 1,735 1,590 --------- --------- TOTAL LIABILITIES 385,633 385,448 STOCKHOLDERS' EQUITY Common stock, $.10 par value per share, authorized 10,000,000 shares issued 2006: 2,841,000, 2005: 2,705,715 shares 284 270 Surplus 5,730 5,648 Retained earnings 44,497 43,722 Treasury stock at cost: 2006: 35,267 shares, 2005: 21,189 (1,029) (633) Unearned ESOP shares (77) (127) Accumulated other comprehensive loss (908) (772) --------- --------- TOTAL STOCKHOLDERS' EQUITY 48,497 48,108 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 434,130 $ 433,556 ========= =========
See accompanying notes to the unaudited consolidated financial statements 3 NORWOOD FINANCIAL CORP. Consolidated Statements of Income (unaudited) (dollars in thousands, except per share data) Three Months Ended ------------------ March 31 ------------------ 2006 2005 ------ ------ INTEREST INCOME Loans receivable, including fees $4,944 $3,920 Securities 1,050 1,041 Other 2 12 ------ ------ Total interest income 5,996 4,973 INTEREST EXPENSE Deposits 1,590 987 Short-term borrowings 187 99 Long-term debt 293 317 ------ ------ Total interest expense 2,070 1,403 ------ ------ NET INTEREST INCOME 3,926 3,570 PROVISION FOR LOAN LOSSES 70 100 ------ ------ NET INTEREST INCOME AFTER PROVSION FOR LOAN LOSSES 3,856 3,470 OTHER INCOME Service charges and fees 590 579 Income from fiduciary activities 77 84 Net realized gains on sales of securities 7 77 Gain on sale of loans -- 40 Other 150 140 ------ ------ Total other income 824 920 OTHER EXPENSES Salaries and employee benefits 1,406 1,387 Occupancy, furniture & equipment, net 380 384 Data processing related 156 160 Taxes, other than income 113 98 Professional fees 113 109 Other 598 513 ------ ------ Total other expenses 2,766 2,651 ------ ------ INCOME BEFORE INCOME TAXES 1,914 1,739 INCOME TAX EXPENSE 581 496 ------ ------ NET INCOME $1,333 $1,243 ====== ====== BASIC EARNINGS PER SHARE $ 0.48 $ 0.44 ====== ====== DILUTED EARNINGS PER SHARE $ 0.47 $ 0.43 ====== ====== See accompanying notes to the unaudited consolidated financial statements. 4 NORWOOD FINANCIAL CORP Consolidated Statements of Changes in Stockholders' Equity (unaudited) (dollars in thousands, except per share data)
Accumulated Number of Unearned Other shares Common Retained Treasury ESOP Comprehensive issued Stock Surplus Earnings Stock Shares Income (Loss) Total ------ ----- ---------------- ----- ------ ------------- ----- Balance December 31, 2004 2,705,715 $270 $5,336 $40,222 ($149) ($327) $333 $45,685 Comprehensive Income: Net Income 1,243 1,243 Change in unrealized losses on securities available for sale, net of reclassification adjustment and tax effects (957) (957) ------ Total comprehensive income 286 ------ Cash dividends declared, $.18 per share (481) (481) Stock options exercised (3) 48 45 Tax benefit of stock options exercised 7 7 Release of Treasury Stock for ESOP 22 22 Aquisition of treasury stock (78) (78) Release of earned ESOP shares 81 28 109 --------- ---- ------ ------- ----- ----- ----- ------- Balance, March 31, 2005 2,705,715 $270 $5,421 $40,984 ($157) ($299) ($624) $45,595 ========= ==== ====== ======= ===== ===== ===== =======
Accumulated Number of Unearned Other shares Common Retained Treasury ESOP Comprehensive issued Stock Surplus Earnings Stock Shares Income (Loss) Total ------ ----- ---------------- ----- ------ ------------- ----- Balance December 31, 2005 2,705,715 $270 $5,648 $43,722 ($633) ($127) ($772) $48,108 Comprehensive Income: Net Income 1,333 1,333 Change in unrealized losses on securities available for sale, net of reclassification adjustment and tax effects (136) (136) ------- Total comprehensive income 1,197 ------- Cash dividends declared, $.21 per share (558) (558) 5% Stock dividend 135,285 14 (14) 0 Acquisition of treasury stock (396) (396) Release of earned ESOP shares 96 50 146 --------- ---- ------ ------- ------- ----- ----- ------- Balance, March 31, 2006 2,841,000 $284 $5,730 $44,497 ($1,029) ($77) ($908) $48,497 ========= ==== ====== ======= ======= ===== ===== =======
See accompanying notes to the unaudited consolidated financial statements. 5 NORWOOD FINANCIAL CORP. Consolidated Statements of Cash Flows (unaudited) (dollars in thousands)
Three Months Ended March 31, ---------------------------- 2006 2005 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,333 $ 1,243 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 70 100 Depreciation 123 133 Amortization of intangible assets 13 13 Deferred income taxes (129) (350) Net amortization of securities premiums and discounts 92 124 Net realized gain on sales of securities (7) (77) Earnings on life insurance policy (64) (62) Net gain on sale of mortgage loans and servicing - (40) Mortgage loans originated for sale - (3,934) Proceeds from sale of mortgage loans and servicing - 3,974 Tax benefit of stock options exercised - 7 Release of ESOP shares 146 154 Decrease in accrued interest receivable and other assets 959 226 Increase in accrued interest payable and other liabilities 153 427 -------- -------- Net cash provided by operating activities 2,689 1,938 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale: Proceeds from sales - 81 Proceeds from maturities and principal reductions on mortgage-backed securities 3,622 2,602 Purchases (4,765) (6,748) Securities held to maturity, proceeds from maturities 505 630 Increase in investment in FHLB stock (453) (252) Net increase in loans (972) (11,323) Purchase of bank premises and equipment (238) (119) -------- -------- Net cash used in investing activities (2,301) (15,129) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (1,096) (1,697) Net increase in short term borrowings 1,201 1,974 Stock options exercised - 44 Acquisition of treasury stock (396) (101) Cash dividends paid (561) (480) -------- -------- Net cash used in financing activities (852) (260) -------- -------- Decrease in cash and cash equivalents (464) (13,451) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,816 20,666 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,352 $ 7,215 ======== ========
See accompanying notes to the unaudited consolidated financial statements 6 Notes to Unaudited Consolidated Financial Statements - ---------------------------------------------------- 1. Basis of Presentation --------------------- The consolidated financial statements include the accounts of Norwood Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp. and WTRO Properties. All significant intercompany transactions have been eliminated in consolidation. 2. Estimates --------- The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the financial position of the Company. The operating results for the three month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006 or any other future interim period. These statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Company's Annual Report on Form 10-K for the year-ended December 31, 2005. 3. Stock Dividend and Earnings Per Share ------------------------------------- On April 11, 2006, the Board of Directors declared a 5% stock dividend on common stock outstanding, payable May 26, 2006 to shareholders of record on May 12, 2006. The stock dividend will result in the issuance of 135,285 additional common shares. All per share data has been adjusted for the effect of the stock dividend. Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. The following table sets forth the computations of basic and diluted earnings per share: (in thousands) Three Months Ended ------------------ March 31, --------- 2006 2005 ---- ---- Basic EPS weighted average shares outstanding 2,797 2,798 Dilutive effect of stock options 55 63 ----- ----- Diluted EPS weighted average shares outstanding 2,852 2,861 ===== ===== 7 4. Stock Based Compensation ------------------------ Prior to January 1, 2006, the Company's stock option plan was accounted for under the recognition and measurement provisions of APB Opinion No. 25 (Opinion 25), Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock Based Compensation (as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company's consolidated statements of earnings through December 31, 2005, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123R), using the modified-prospective transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on a grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of December 31, 2005, all stock options were fully vested and no stock options were granted during the three months ended March 31, 2006. Therefore no expense related to stock based compensation was incurred for the period ending March 31, 2006. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company's stock option plan for the three months ended March 31, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option pricing model and is being amortized to expense over the options' vesting periods. Three Months Ended ------------------ March 31, 2005 -------------- (in thousands, except for per share data) Net income as reported $1,243 Total stock-based employee compensation cost, net of tax, which would have been included in the determination of net income if the fair value based method had been applied to all awards (49) ----- Pro forma net income $1,194 ===== Earnings per share (basic) As Reported $ .44 Pro forma .43 Diluted earnings per share (assuming dilution) As Reported .43 Pro forma .42 8 5. Cash Flow Information --------------------- For the purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits with banks and federal funds sold. Cash payments for interest for the period ended March 31, 2006 and 2005 were $2,124,000 and $1,414,000 respectively. Cash payments for income taxes in 2006 were $5,000 compared to $3,000 in 2005. Non-cash investing activity for 2006 and 2005 included foreclosed mortgage loans and repossession of other assets of $26,000 and $23,000, respectively. 6. Comprehensive Income -------------------- Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects are as follows. (in thousands) Three Months Ended March 31 --------------------------- 2006 2005 ---- ---- Unrealized holding losses on available for sale securities $(199) $(1,375) Reclassification adjustment for gains realized in income (7) (77) ----- ----- Net unrealized losses (206) (1,452) Income tax benefit (70) (495) ----- ----- Other comprehensive loss $(136) $(957) ===== ===== 7. Off-Balance Sheet Financial Instruments and Guarantees ------------------------------------------------------ The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank's financial instrument commitments is as follows: (in thousands) March 31, -------------------- 2006 2005 ---- ---- Commitments to grant loans $18,971 $11,056 Unfunded commitments under lines of credit 31,532 31,495 Standby letters of credit 7,120 1,831 ------- ------- $57,623 $44,382 ======= ======= 9 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the customer and generally consists of real estate. The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. 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, 2006 for guarantees under standby letters of credit issued is not material. 8. New Accounting Pronouncements ----------------------------- FAS 155 In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments"("SFAS No. 155"). SFAS No. 155 amends FASB Statement No. 133 and FASB Statement No. 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company is required to adopt the provisions of SFAS No. 155, as applicable, beginning in fiscal year 2007. Management does not believe the adoption of SFAS No. 155 will have a material impact on the Company's consolidated financial position and results of operations. FAS 156 In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets -- An Amendment of FASB Statement No. 140" ("SFAS 156"). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006, which for the Company will be as of the beginning of fiscal 2007. The Company does not believe that the adoption of SFAS 156 will have a significant effect on its consolidated financial statements. 10 FSP No. FAS 123(R)-4 In February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4, "Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event." This Position amends SFAS 123(R) to incorporate that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee's control does not meet certain conditions in SFAS 123(R) until it becomes probable that the event will occur. The guidance in this FASB Staff Position shall be applied upon initial adoption of Statement 123(R). This FASB Staff Position did not have a significant effect on the Company's consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements - -------------------------- The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words believes, anticipates, contemplates, expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of opening a new branch, the ability to control costs and expenses, demand for real estate and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Critical Accounting Policies - ---------------------------- Note 2 to the Company's consolidated financial statements (incorporated by reference in Item 8 of the 10-K) lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, accounting for stock options, the valuation of deferred tax assets and the determination of other-than-temporary impairment losses on securities. Please refer to the discussion of the allowance for loan losses calculation under "Non-performing Assets and Allowance for Loan Losses" in the "Financial Condition" section. For periods ending prior to January 1, 2006, the Company accounted for stock option plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. No stock-based employee compensation was reflected in net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the grant date. The Company adopted SFAS No. 123(R) "Share-Based Payment" as of January 1, 2006. However, no stock options were awarded in 2005 or for the three months ended March 31, 2006. The Norwood Financial Corp, 2006 Stock Option Plan was approved on April 25, 2006. The Company expects to grant options in the second quarter of 2006. The Company expects SFAS No. 123(R) to have a negative impact on its consolidated financial position, results of operations and cash flows in subsequent periods. 11 The deferred income taxes reflect temporary differences in the recognition of the revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes. Although realization is not assured, the Company believes it is more likely than not that all deferred tax assets will be realized. In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of time and extent to which the fair value has been less than cost 2) the financial condition of the issuer and 3) the intent and ability of the Company to hold the security to allow for a recovery to fair value. Changes in Financial Condition - ------------------------------ General - ------- Total assets as of March 31, 2006 were $434.1 million compared to $433.6 million as of December 31, 2005. Securities - ---------- The fair value of securities available for sale as of March 31, 2006 was $116.7 million compared to $115.8 million as of December 31, 2005. The Company purchased $4.8 million of securities to offset $3.6 million of maturities and principal reductions on mortgage-backed securities. 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's available-for-sale portfolio has an average repricing term of 1.9 years. Interest rates in the 2-3 year section of the treasury yield curve have increased 100 basis points in the last year impacting the fair value of individual securities. Management believes that the unrealized losses represent temporary impairment of the securities, as a result of changes in interest rates. The Company has the intent and ability to hold these investments until maturity or market price recovery. Loans Receivable - ---------------- Loans receivable totaled $291.8 million compared to $290.9 million as of December 31, 2005. Commercial real estate loans decreased $6.2 million due to the pay off of a short-term $6.7 million loan originated in the first quarter of 2005. This was offset by $5.0 million increase in commercial loans and $3.3 million growth in residential real estate loans. 12 Set forth below is selected data relating to the composition of the loan portfolio at the dates indicated:
Types of loans (dollars in thousands) March 31, 2006 December 31, 2005 -------------------- -------------------- $ % $ % --------- ----- --------- ----- Real Estate-Residential $ 103,957 35.6% $ 100,705 34.6% Commercial 127,285 43.6 133,495 45.8 Construction 6,183 2.1 5,944 2.0 Commercial, financial and agricultural 31,718 10.9 26,755 9.2 Consumer loans to individuals 23,105 7.9 24,353 8.4 --------- ----- --------- ----- Total loans 292,248 100.0% 291,252 100.0% ===== ===== Deferred fees (408) (362) --------- ---------- 291,840 290,890 Allowance for loan losses (3,743) (3,669) --------- ---------- Net loans receivable $ 288,097 $ 287,221 ========= ==========
Allowance for Loan Losses and Non-performing Assets - --------------------------------------------------- Following is a summary of changes in the allowance for loan losses for the periods indicated: Three (dollars in thousands) Months Ended March 31 --------------------- 2006 2005 ------- ------- Balance, beginning $ 3,669 $ 3,448 Provision for loan losses 70 100 Charge-offs (27) (47) Recoveries 31 22 ------- ------- Net (charge-offs)/recoveries 4 (25) ------- ------- Balance, ending $ 3,743 $ 3,523 ======= ======= Allowance to total loans 1.28% 1.32% Net (charge-offs) recoveries to average loans (annualized) .01% (.04%) The allowance for loan losses totaled $3,743,000 as of March 31, 2006 and represented 1.28% of total loans, compared to $3,669,000 at year end, and $3,523,000 as of March 31, 2005. The Company had net recoveries for the three months ended March 31, 2006 of $4,000 compared to net charge-offs of $25,000 in 2005. The Company's loan review process assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes an analysis of the risks inherent in the loan portfolio. It includes an analysis of impaired loans and a historical review of credit losses by loan type. Other factors considered include: concentration of credit in specific industries; economic and industry conditions; trends in delinquencies and loan classifications, large dollar exposures and loan growth. Management considers the allowance adequate at March 31, 2006 based on the Company's criteria. However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, if any, that might be incurred in the future. 13 As of March 31, 2006, non-performing loans totaled $398,000, which is ..14% of total loans compared to $353,000, or .12% of total loans at December 31, 2005. The following table sets forth information regarding non-performing loans and foreclosed real estate at the date indicated:
(dollars in thousands) March 31, 2006 December 31, 2005 -------------- ----------------- Loans accounted for on a non accrual basis: Commercial and all other $ - $ - Real Estate 330 330 Consumer 20 11 ---- ---- Total 350 341 Accruing loans which are contractually Past due 90 days or more 48 12 ---- ---- Total non-performing loans 398 353 Foreclosed real estate - - ---- ---- Total non-performing assets $398 $353 ==== ==== Allowance for loans losses coverage of non-performing loans 9.4x 10.4x Non-performing loans to total loans .14% .12% Non-performing assets to total assets .09% .08%
14 Deposits - -------- Total deposits as of March 31, 2006 were $339.5 million declining slightly from $340.6 million as of December 31, 2005. The following table sets forth deposit balances as of the dates indicated. (dollars in thousands) March 31, 2006 December 31, 2005 -------------- ----------------- Non-interest bearing demand $ 54,505 $ 50,891 Interest bearing demand 41,294 40,738 Money Market 60,498 52,194 Savings 52,082 53,311 Time deposits <$100,000 95,947 94,612 Time deposits >$100,000 35,181 48,857 -------- -------- Total $339,507 $340,603 ======== ======== Money Market accounts increased $8.3 million principally due to short term funds on deposit from one corporate customer. Time deposits greater than $100,000 decreased $13.7 million principally due to the scheduled maturities of short-term CDs from local school districts. Short-term Borrowings - --------------------- Short-term borrowings as of March 31, 2006 were $19.8 million compared to $18.6 million as of December 31, 2005. Short-term borrowings consist of the following: (dollars in thousands) March 31, 2006 December 31, 2005 -------------- ----------------- Securities sold under agreements to purchase $12,091 $12,464 Federal funds purchased 7,290 5,100 U.S. Treasury demand notes 384 1,000 ------- ------- $19,765 $18,564 ======= ======= Off-Balance Sheet Arrangements - ------------------------------ The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. 15 A summary of the contractual amount of the Company's financial instrument commitments is as follows: March 31, December 31, 2006 2005 ---- ---- (in thousands) Commitments to grant loans $18,971 $16,078 Unfunded commitments under lines of credit 31,532 29,969 Standby letters of credit 7,120 6,791 ------- ------- $57,623 $52,838 ======= ======= Stockholders' Equity and Capital Ratios - --------------------------------------- At March 31, 2006, total stockholders' equity totaled $48.5 million, compared to $48.1 million as of December 31, 2005. The net change in stockholders' equity included $1,333,000 in net income, that was partially offset by $558,000 of dividends declared. In addition, accumulated other comprehensive loss increased $136,000 due to a decrease in fair value of securities in the available for sale portfolio. This decrease in fair value is the result of a change in interest rates, which may impact the value of the securities. Because of interest rate volatility, the Company's accumulated other comprehensive income (loss) could materially fluctuate for each interim and year-end period. A comparison of the Company's regulatory capital ratios is as follows: March 31, 2006 December 31, 2005 -------------- ----------------- Tier 1 Capital (To average assets) 11.17% 11.05% Tier 1 Capital (To risk-weighted assets) 15.41% 15.29% Total Capital (To risk-weighted assets) 16.78% 16.63% The minimum capital requirements imposed by the FDIC on the Bank for leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The Company has similar capital requirements imposed by the Board of Governors of the Federal Reserve System (FRB). The Bank is also subject to more stringent Pennsylvania Department of Banking (PDB) guidelines. The Bank's capital ratios do not differ significantly from the Company's ratios. Although not adopted in regulation form, the PDB utilizes capital standards requiring a minimum of 6.5% leverage capital and 10% total capital. The Company and the Bank were in compliance in FRB, FDIC and PDB capital requirements as of March 31, 2006 and December 31, 2005. Liquidity - --------- As of March 31, 2006, the Company had cash and cash equivalents of $9.4 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 $116.7 million which could be used for liquidity needs. This totals $126.0 million and represents 29.0% of total assets compared to $125.6 million and 29.0% of total assets as of December 31, 2005. The Company also monitors other liquidity measures, all of which were within the Company's policy guidelines as of March 31, 2006 and December 31, 2005. Based upon these measures, the Company believes its liquidity is adequate. The Company maintains established lines of credit with the Federal Home Loan Bank of Pittsburgh (FHLB), the Atlantic Central Bankers Bank (ACBB) and other correspondent banks, which are available to support liquidity needs. The total available under these lines was $35 million with $7.3 million outstanding as of March 31, 2006. The approximate borrowing capacity from the FHLB was $158.8 million, of which $23 million was outstanding as of March 31, 2006 and December 31, 2005. 16 Results of Operations - --------------------- NORWOOD FINANCIAL CORP. Consolidated Average Balance Sheets with Resultant Interest and Rates (Tax-Equivalent Basis, dollars in thousands)
Three Months Ended March 31, --------------------------------------------------------------------- 2006 2005 --------------------------------- ------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- (2) (1) (3) (2) (1) (3) Assets Interest-earning assets: Federal funds sold $ - $ - -% $ 1,855 $ 11 2.37% Interest bearing deposits with banks 150 2 5.33 76 - - Securities held-to-maturity 1,062 25 9.42 5,412 129 9.53 Securities available for sale: Taxable 99,225 858 3.46 102,178 788 3.08 Tax-exempt 19,135 267 5.58 18,565 255 5.49 -------- ------ -------- ------ Total securities available for sale 118,360 1,125 3.80 120,743 1,043 3.46 Loans receivable (4) (5) 290,414 4,994 6.88 258,380 3,950 6.12 -------- ------ -------- ------ Total interest earning assets 409,986 6,146 6.00 386,466 5,133 5.31 Non-interest earning assets: Cash and due from banks 8,113 7,525 Allowance for loan losses (3,709) (3,496) Other assets 16,661 14,508 -------- -------- Total non-interest earning assets 21,065 18,537 -------- -------- Total Assets $431,051 $405,003 ======== ======== Liabilities and Stockholders' Equity Interest bearing liabilities: Interest bearing demand and money market $ 96,967 359 1.48% $ 88,753 167 0.75% Savings 52,720 61 0.46 59,477 69 0.46 Time 138,217 1,170 3.39 123,904 751 2.42 -------- ------ -------- ------ Total interest bearing deposits 287,904 1,590 2.21 272,134 987 1.45 Short-term borrowings 19,163 187 3.90 17,116 99 2.31 Long-term debt 23,000 293 5.10 23,000 317 5.51 -------- ------ -------- ------ Total interest bearing liabilities 330,067 2,070 2.51 312,250 1,403 1.80 Non-interest bearing liabilities: Demand deposits 50,222 45,603 Other liabilities 2,207 1,158 -------- -------- Total non-interest bearing liabilities 52,429 46,761 Stockholders' equity 48,555 45,992 -------- -------- Total Liabilities and Stockholders' Equity $431,051 $405,003 ======== ======== Net interest income (tax equivalent basis) 4,076 3.49% 3,730 3.52% ==== ==== Tax-equivalent basis adjustment (150) (160) ------ ------ Net interest income $3,926 $3,570 ====== ====== Net interest margin (tax equivalent basis) 3.98% 3.86% ==== ====
(1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 34%. (2) Average balances have been calculated based on daily balances. (3) Annualized (4) Loan balances include non-accrual loans and are net of unearned income. (5) Loan yields include the effect of amortization of deferred fees, net of costs. 17 Rate/Volume Analysis. The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.
Increase/(Decrease) ------------------- Three months ended March 31, 2006 Compared to --------------------------------------------- Three months ended March 31, 2005 --------------------------------- Variance due to --------------------------- Volume Rate Net ------ ---- --- (dollars in thousands) Interest earning assets: Federal funds sold $ (5) $ (6) $ (11) Interest bearing deposits with banks -- 2 2 Securities held to maturity (102) (2) (104) Securities available for sale: Taxable (134) 204 70 Tax-exempt securities 8 4 12 ------- ------- ------- Total securities (126) 208 82 Loans receivable 520 524 1,044 ------- ------- ------- Total interest earning assets 287 726 1,013 Interest bearing liabilities: Interest-bearing demand and money market 17 175 192 Savings (8) -- (8) Time 95 324 419 ------- ------- ------- Total interest bearing deposits 104 499 603 Short-term borrowings 13 75 88 Other borrowings -- (24) (24) ------- ------- ------- Total interest bearing liabilities 117 550 667 ------- ------- ------- Net interest income (tax-equivalent basis) $ 170 $ 176 $ 346 ======= ======= =======
18 Comparison of Operating Results for The Three Months Ended March 31, 2006 to - -------------------------------------------------------------------------------- March 31, 2005 - -------------- General - ------- For the three months ended March 31, 2006, net income totaled $1,333,000, an increase of $90,000, or 7.2%, over $1,243,000 earned in the similar period of 2005. Earnings per share for the current period were $.48 basic and $.47 on a diluted basis, compared to $.44 basic and $.43 on a fully diluted basis for the three months ended March 31, 2005. The resulting return on average assets and return on average equity for the three months ended March 31, 2006, was 1.25% and 11.14%, respectively, compared to 1.24% and 10.96%, respectively, for the similar period in 2005. The following table sets forth changes in net income:
Dollars in thousands Three months ended ------------------ March 31, 2006 to March 31, 2005 -------------------------------- Net income-three months ended March 31, 2005 $1,243 Change due to: Net interest income 356 Provision for loan losses 30 Net realized gains on sales of securities (70) Gains on sale of loans (40) All other income 14 Salaries and employee benefits (19) All other expenses (96) Income tax effect (85) ------ Net income-three months ended March 31, 2006 $1,333 ======
Net Interest Income - ------------------- Net interest income on a fully taxable equivalent basis (fte) for the three months ended March 31, 2006 totaled $4,076,000, an increase of $346,000 or 9.3% over the similar period in 2005. The net interest spread (fte) and net interest margin were 3.49% and 3.98%, respectively, for the three months ended March 31, 2006. Interest income (fte) totaled $6,146,000 with an average yield of 6.00%, increasing from $5,133,000 and 5.31% for the 2005 period. The increase was partially due to growth in the loan portfolio. Average loans increased $32.0 million and represented 70.8% of average earning assets for the three months ended March 31, 2006 compared to 66.9% of average earning assets for the similar period in 2005. The average yield (fte) on loans also increased, to 6.88% for the 2006 period from 6.12% for the similar period in 2005. This increase in yield was principally the result of the increase in the prime interest rate which was 7.75% as of March 31, 2006. The increase in prime rate increases the yield on the Company's floating rate commercial loan portfolio and on home equity lines of credit. Interest expense for the three months ended March 31, 2006 totaled $2,070,000 at an average cost of 2.51% increasing from $1,403,000 and 1.80% for the similar period in 2005. As a result of the increase in short-term interest rates the Company as increased rates on money market accounts and short-term CDs. The cost of time 19 deposits averaged 3.39% for the 2006 period compared to 2.42% for the similar period in 2005. The Company expects the cost of time deposits to increase in 2006 as lower rate instruments are maturing and are then repricing at the current higher interest rates. Deposits have also shifted to higher costing instruments with time deposits representing 41.2% of average interest bearing liabilities in the 2006 period compared to 39.7% for the 2005 period. Other Income - ------------ Other income totaled $824,000 for the three months ended March 31, 2006 a decrease of $96,000 from $920,000 for the similar period in 2005. Net realized gains on sales of securities decreased $70,000, from $77,000 in 2005 to $7,000 in 2006. For the three months ended March 31, 2005, the Company sold $3.1 million of 30 year fixed rate residential mortgages at a gain of $40,000 with no such transactions in the 2006 period. Other Expenses - -------------- Other expenses for the three months ended March 31, 2006 totaled $2,766,000, an increase of $115,000, or 4.3% over the similar period in 2005. Health insurance premium expenses, included in salaries and employee benefits increased $32,000 to $111,000. The Company incurred a $50,000 loss in a robbery at one of its branch locations in the three months ended March 31, 2006. Income Tax Expense - ------------------ Income tax expense totaled $581,000 for an effective tax rate of 30.3% for the period ending March 31, 2006 compared to $496,000 and 28.5% for the similar period in 2005. The effective tax rate is lower than the statutory rate due to tax-exempt interest income on certain investments and loans. Item 3: Quantitative and Qualitative Disclosures about Market Risk Market Risk - ----------- Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset and Liability Management Committee (ALCO). The principal objective of ALCO is to maximize net interest income within acceptable levels of risk, which are established by policy. Interest rate risk is monitored and managed by using financial modeling techniques to measure the impact of changes in interest rates. Net interest income, which is the primary source of the Company's earnings, is impacted by changes in interest rates and the relationship of different interest rates. To manage the impact of the rate changes, the balance sheet must be structured so that repricing opportunities exist for both assets and liabilities at approximately the same time intervals. The Company uses net interest simulation to assist in interest rate risk management. The process includes simulating various interest rate environments and their impact on net interest income. As of March 31, 2006, the level of net interest income at risk in a 200 basis points change in interest rates was within the Company's policy limits. The Company's policy allows for a decline of no more than 8% of net interest income. Imbalance in repricing opportunities at a given point in time reflects interest-sensitivity gaps measured as the difference between rate-sensitive assets and rate-sensitive liabilities. These are static gap measurements that do not take into account any future activity, and as such are principally used as early indications of potential interest rate exposures over specific intervals. 20 As of March 31, 2006, the Bank had a positive 90 day interest sensitivity gap of $19.6 million or 4.5% of total assets, decreasing from $24.4 million, 5.6% of total assets as of December 31, 2005. A positive gap means that rate-sensitive assets are greater than rate-sensitive liabilities at the time interval. This would indicate that in a rising rate environment, the yield on interest-earning assets would increase faster than the cost of interest-bearing liabilities in the 90 day time frame. The repricing intervals are managed by ALCO strategies, including adjusting the average life of the investment portfolio, pricing of deposit liabilities to attract longer term time deposits, loan pricing to encourage variable rate products and evaluation of loan sales of long term fixed rate mortgages. March 31, 2006 - -------------- Rate Sensitivity Table - ----------------------
3 Months 3-12 Months 1 to 3 Years 3 Years Total -------- ----------- ------------ ------- ----- Federal funds sold and interest bearing deposits $ 22 $ -- $ -- $ -- $ 22 Securities 11,634 39,236 45,928 20,814 117,612 Loans Receivable 96,652 48,288 63,683 83,217 291,840 ------- ------- -------- --------- -------- Total RSA 108,308 87,524 109,611 104,031 409,474 Non-maturity interest-bearing deposits 24,134 26,447 69,798 33,495 153,874 Time Deposits 36,460 56,466 30,823 7,379 131,128 Other 28,115 4,479 10,171 -- 42,765 ------- ------- -------- --------- -------- Total RSL 88,709 87,392 110,792 40,874 327,767 Interest Sensitivity Gap $19,599 $ 132 ($1,181) $63,157 $81,707 Cumulative Gap 19,599 19,731 18,550 81,707 RSA/RSL-cumulative 122.1% 111.2% 106.5% 124.9% December 31, 2005 Interest Sensitivity Gap $24,402 ($5,676) $1,642 $56,582 $76,950 Cumulative Gap 24,402 18,726 20,368 76,950 RSA/RSL-cumulative 126.6% 110.7% 107.1% 123.2%
Item 4: Controls and Procedures The Company's management evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 21 Part II. Other Information Item 1. Legal Proceedings Not applicable Item 1A. Risk Factors There have been no material changes in the risk factors affecting the Company that were identified in Item 1A of Part I of the Company's Form 10-K for the year ended December 31, 2005 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities ----------------- Maximum number Total number of of shares (or approximate --------------- ------------------------- shares purchased dollar value) that may yet ---------------- -------------------------- Total number Average price as part of publicly be purchased ------------ ------------- -------------------- ------------ of shares paid per announced plans under the plans --------- -------- --------------- --------------- purchased share or programs or programs (2) --------- ----- ----------- --------------- January 1-January 31, 2006 7,100 $31.63 7,100 103,900 February 1-February 28, 2006 - - - - March 1 - March 31, 2006 5,299 (1) $32.25 - - ------ ------ ----- ------- 12,399 $31.89 - 103,900 ====== ====== ===== =======
(1) Purchases related to the Company's Employee Stock Ownership Plan (ESOP) related to purchase of shares from terminated participants. (2) On June 15, 2005, the Registrant announced its intention to repurchase up to 5% of its outstanding common stock (approximately 134,000 shares) in the open market. Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None 22
Item 6. Exhibits (a) 3(i) Articles of Incorporation of Norwood Financial Corp.* 3(ii) Bylaws of Norwood Financial Corp.* 4.0 Specimen Stock Certificate of Norwood Financial Corp.* 10.1 Amended Employment Agreement with William W. Davis, Jr.** 10.2 Amended Employment Agreement with Lewis J. Critelli ** 10.3 Form of Change-In-Control Severance Agreement with seven key employees of the Bank* 10.4 Consulting Agreement with Russell L. Ridd*** 10.5 Wayne Bank Stock Option Plan* 10.6 Salary Continuation Agreement between the Bank and William W. Davis, Jr.**** 10.7 Salary Continuation Agreement between the Bank and Lewis J. Critelli**** 10.8 Salary Continuation Agreement between the Bank and Edward C. Kasper**** 10.9 1999 Directors Stock Compensation Plan*** 10.10 Salary Continuation Agreement between the Bank and Joseph A. Kneller***** 10.11 Salary Continuation Agreement between the Bank and John H. Sanders***** 10.12 2006 Stock Option Plan ****** 31.1 Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) 31.2 Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) 32 Section 1350 Certification
- --------------------------- * Incorporated herein by reference to the identically numbered exhibits of the Registrant's Form 10 Registration Statement initially filed with the Commission on April 29, 1996. ** Incorporated herein by reference to the identically numbered exhibits to the Registrant's Form 8-K filed with the Commission March 6, 2006. *** Incorporated herein by reference to the identically numbered exhibits of the Registrant's Form 10-K filed with the Commission on March 31, 1997. **** Incorporated herein by reference to the identically numbered exhibits of the Registrant's Form 10-K filed with the Commission on March 20, 2000. ***** Incorporated herein by reference to the identically numbered exhibit to the Registrants Form 10-K filed with the Commission on March 22, 2004. ****** Incorporated herein by reference to the Registrant's Form 8-K filed with the Commission on April 25, 2006. 23 Signatures - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORWOOD FINANCIAL CORP. Date: May 11, 2006 By: /s/William W. Davis, Jr. ------------------------------------- William W. Davis, Jr. President and Chief Executive Officer (Principal Executive Officer) Date: May 11, 2006 By: /s/Lewis J. Critelli ------------------------------------- Lewis J. Critelli Executive Vice President and Chief Financial Officer (Principal Financial Officer) 24 EX-31 2 ex31-1.txt CERTIFICATION SECTION 302 CERTIFICATION I, William W. Davis, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Norwood Financial Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 11, 2006 /s/William W. Davis, Jr. ------------------------------------- William W. Davis, Jr. President and Chief Executive Officer EX-31 3 ex31-2.txt CERTIFICATION SECTION 302 CERTIFICATION I, Lewis J. Critelli, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Norwood Financial Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 11, 2006 /s/Lewis J. Critelli ---------------------------------------------------- Lewis J. Critelli Executive Vice President and Chief Financial Officer EX-32 4 ex32.txt CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Norwood Financial Corp. (the Company) on Form 10-Q for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), we, William W. Davis, Jr., President and Chief Executive Officer, and Lewis J. Critelli, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/William W. Davis, Jr. /s/Lewis J. Critelli - -------------------------------- -------------------------------- William W. Davis, Jr. Lewis J. Critelli President and Chief Executive Officer Executive Vice President and Chief Financial Officer May 11, 2006
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