10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One):

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission File No. 0-28364

NORWOOD FINANCIAL CORP.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	23-2828306
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

717 Main Street, Honesdale, Pennsylvania	18431
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (570) 253-1455

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.10 par value	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o YES     x NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o YES     x NO

Indicate by check mark 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.  x YES     o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x YES     o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer  o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).o Yes     x No

The registrant’s voting stock trades on the NASDAQ Global Market under the symbol “NWFL.”  The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of the registrant’s Common Stock as of June 30, 2015, $29.32 per share, was $102.1 million based on 3,480,879 shares of Common Stock held by non-affiliates on that date.  For purposes of this calculation, the term “affiliate” refers to all directors and executive officers of the registrant, and all persons beneficially owning more than 5% of the registrant’s common stock.

As of March 1, 2016, there were 3,702,357 shares outstanding of the registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

 1.           Portions of the Annual Report to Stockholders for the Fiscal Year Ended December 31, 2015. (Parts I, II, and IV)

 2.Portions of the definitive Proxy Statement for the 2016 Annual Meeting of Shareholders. (Part III)

NORWOOD FINANCIAL CORP.

ANNUAL REPORT ON FORM 10-K

Table of Contents

Part I		Page
Item 1.	Business.	2
Item 1A.	Risk Factors.	23
Item 1B.	Unresolved Staff Comments.	31
Item 2.	Properties.	31
Item 3.	Legal Proceedings.	32
Item 4.	Mine Safety Disclosures.	32
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	32
Item 6.	Selected Financial Data.	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	32
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk.	32
Item 8.	Financial Statements and Supplementary Data.	32
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	32
Item 9A.	Controls and Procedures.	33
Item 9B.	Other Information.	33
Part III
Item 10.	Directors, Executive Officers and Corporate Governance.	33
Item 11.	Executive Compensation.	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	33
Item 13.	Certain Relationships and Related Transactions and Director Independence.	34
Item 14.	Principal Accounting Fees and Services.	34
Part IV
Item 15.	Exhibits, Financial Statement Schedules.	35
SIGNATURES		37

PART I

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 as detailed in Item 1A include:

• our ability to realize the anticipated benefits from our acquisition of Delaware Bancshares, Inc.

• possible future impairment of intangible assets

• our ability to effectively manage future growth

• loan losses in excess of our allowance

• risks inherent in commercial lending

• real estate collateral which may be subject to declines in value

• potential other-than-temporary impairments

• soundness of other financial institutions

• interest rate risks

• potential liquidity risk

• availability of capital

• regional economic factors

• loss of senior officers

• comparatively low legal lending limits

• risks of new capital requirements

• limited market for the Company’s stock

• restrictions on ability to pay dividends

• common stock may lose value

• competitive environment

• issuing additional shares may dilute ownership

• extensive and complex governmental regulation and associated cost

•   cybersecurity

Norwood Financial Corp. 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.

Item 1. Business

General

Norwood Financial Corp. (the “Company”), a Pennsylvania corporation, is the holding company for Wayne Bank. On March 29, 1996, the Bank completed a holding company reorganization and became a wholly owned subsidiary of the Company. As of December 31, 2015, the Company had total consolidated assets of $750.5 million, consolidated deposits of $550.9 million, and consolidated stockholders’ equity of $101.0 million. The Company’s ratio of average equity to average assets was 13.76%, 13.62% and 13.42% for fiscal years 2015, 2014 and 2013, respectively.

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Wayne Bank is a Pennsylvania chartered bank and trust company headquartered in Honesdale, Pennsylvania. The Bank was originally chartered on February 17, 1870 as Wayne County Savings Bank. Wayne County Savings Bank changed its name to Wayne County Bank and Trust in December 1943. In September 1993, the Bank adopted the name Wayne Bank. The Bank’s deposits are currently insured to applicable limits by the Deposit Insurance Fund (“DIF”) as administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is regulated by the Pennsylvania Department of Banking and Securities (“Department”) and the FDIC.

The Bank is an independent community bank with five offices in Wayne County, three offices in Pike County, four offices in Monroe County and three offices in Lackawanna County.  The Bank offers a wide variety of personal and business credit services and trust and investment products and real estate settlement services to the consumers, businesses, nonprofit organizations, and municipalities in each of the communities that the Bank serves. The Bank primarily serves the Pennsylvania counties of Wayne, Pike, Monroe and Lackawanna and, to a much lesser extent, Susquehanna County. In addition, the Bank operates 15automated teller machines, each one located at a branch facility.

The Company’s main office is located at 717 Main Street, Honesdale, Pennsylvania and its main telephone number is (570) 253-1455. The Company maintains a website at www.waynebank.com.  Information on our website should not be treated as part of this Annual Report on Form 10-K.  The Company makes copies of its SEC filings available free of charge as soon as reasonably practicable after they are filed, through a link on its website to the SEC’s website.

Proposed Acquisition of Delaware Bancshares, Inc.

On March 10, 2016, Norwood Financial Corp. (“Norwood Financial”) and its wholly owned subsidiary, Wayne Bank, and Delaware Bancshares, Inc. (“Delaware Bancshares”), and its wholly owned subsidiary, The National Bank of Delaware County (“NBDC Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Delaware Bancshares will merge with and into Norwood Financial, with Norwood Financial as the surviving corporation. Concurrent with the merger, it is expected that NBDC Bank will merge with and into Wayne Bank.

NBDC Bank, headquartered in Walton, New York, operates 12 branches in Delaware and Sullivan Counties, New York.  At December 31, 2015, Delaware Bancshares had $371.7 million in consolidated assets, $115.7 million in total loans receivable, $317.0 million in deposits and $21.1 million in consolidated stockholders’ equity.

Under the terms of the Merger Agreement, each outstanding share of Delaware Bancshares common stock will be converted into either the right to receive $16.68 in cash or 0.6221 shares of Norwood Financial common stock or a combination of both.  Not more than 25% of the merger consideration shall be paid in cash and the remainder will be paid in Norwood Financial common stock.   In the event of a greater than 20% decline in market value of Norwood Financial common stock, Delaware Bancshares may, in certain circumstances, be able to terminate the Merger Agreement unless Norwood Financial increases the number of shares into which Delaware Bancshares common stock may be converted.

The senior management of Norwood Financial and Wayne Bank will remain the same following the merger.  The directors of NBDC Bank will be invited to join newly formed regional advisory board.  Within 18 months of the merger, Norwood Financial and Wayne Bank will invite one member of the advisory board to join their boards.

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The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Delaware Bancshares.  The merger is currently expected to be completed in the third quarter of 2016.

Each of the directors and executive officers of Delaware Bancshares have agreed to vote their shares in favor of the approval of the Merger Agreement at the shareholders’ meeting to be held to vote on the proposed transaction. If the merger is not consummated under certain circumstances, Delaware Bancshares has agreed to pay Norwood Financial a termination fee of $615,000.

The Merger Agreement also contains usual and customary representations and warranties that Norwood Financial and Delaware Bancshares made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract between Norwood Financial and Delaware Bancshares, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used to allocate risk between Norwood Financial and Delaware Bancshares rather than establishing matters as facts.

The foregoing summary of the Agreement is not complete and is qualified in its entirety by reference to the complete text of such document, which is filed as Exhibit 2.1 to this Annual Report on Form 10-K and which is incorporated herein by reference in its entirety.

Acquisition of North Penn Bancorp, Inc.

On May 31, 2011, the Company completed its acquisition of North Penn Bancorp, Inc. (“North Penn”) and its wholly owned subsidiary, North Penn Bank, as contemplated by the Agreement and Plan of Merger, dated as of December 14, 2010, by and among the Company, Wayne Bank, North Penn and North Penn Bank (the “Agreement”). The Company acquired all of the outstanding shares of North Penn for an aggregate cash consideration of approximately $12.2 million and 532,000 shares of the Company’s common stock.  The cash and stock transaction was valued at approximately $26.9 million based on the closing price of the Company’s common stock on May 31, 2011.  In accordance with the Agreement, each outstanding share of North Penn common stock was converted, at the election of the holder, into either the right to receive $19.12 in cash or 0.6829 shares of the Company’s common stock, subject to the election and allocation procedures in the Agreement, including the requirement that $12,194,000 of the merger consideration (which included amounts paid in cancellation of existing stock options, for the unallocated shares held by the Employee Stock Ownership Plan (“ESOP”) and any shares as to which the holders exercised dissenters’ rights) be paid in cash and that the remainder be paid in the Company’s common stock.

Competition

The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, and multi-state regional banks in the Company’s market area of Wayne, Pike, Monroe and Lackawanna Counties, Pennsylvania. Based on data compiled by the FDIC as of June 30, 2015 (the latest date for which data is available), the Bank had the third largest share of FDIC-insured deposits in Wayne County with approximately 19.67%, the second largest share in Pike County with 19.72%, seventh largest share in Monroe County with 3.41% and tenth largest share in Lackawanna County with 1.73%. This data does not reflect deposits held by credit unions with which the Bank also competes. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition varies depending upon market conditions and comes from other insured

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financial institutions such as commercial banks, thrift institutions, credit unions, multi-state regional banks, and mortgage bankers.

Personnel

As of December 31, 2015, the Bank had 136 full-time and 9 part-time employees. None of the Bank’s employees are represented by a collective bargaining group.

Lending Activities

The Bank’s loan products include loans for personal and business use. Personal lending includes mortgage lending to finance principal residences and to a lesser extent second home dwellings. The Bank’s loan products include fixed-rate mortgage products with terms up to 30 years which may be sold, in the secondary market through the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Bank (FHLB) or held in the Bank’s portfolio to the extent consistent with our asset/liability management strategies. Fixed-rate home equity loans are originated on terms up to 180 months.  Home equity lines of credit tied to the prime rate are also offered. The Bank to a lesser extent also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvania.  At December 31, 2015, there were $23.5 million of indirect loans in the portfolio.  In connection with the acquisition of North Penn Bancorp, Inc., the Company acquired approximately $119.7 million in loans, including $36.2 million in residential real estate loans, $70.8 million in commercial real estate loans, $10.5 million in commercial, financial and agricultural loans, $1.8 million in consumer loans and $358,000 in construction loans.  As of December 31, 2015, the approximate outstanding balance of these acquired loans was $52.5 million.

Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures.  During the year ended December 31, 2015, the Bank increased its municipal finance lending, which is included in commercial loans.  Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue producing projects such as sewer authorities and educational units.  During 2015, the Bank was invited to submit proposals for a number of such projects and was the successful bidder on a number of projects resulting in growth of over $21.0 million in this area of lending.  At  December 31, 2015, the Bank had approximately $52.6 million in loans to the hospitality lodging industry, as well as  $27.5 million of loans outstanding to automobile dealers.  Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate or adjustable at set intervals.

The Bank’s construction lending has primarily involved lending for commercial construction projects and for single-family residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage.

The Bank also, from time to time, originates loans secured by undeveloped land. Land loans granted to individuals have a term of up to 5 years. Land loans granted to developers may have an interest only period during development. The substantial majority of land loans have a loan-to-value ratio not exceeding 75%. The Bank has limited its exposure to land loans but may expand its lending on raw land, as market conditions allow, to qualified borrowers experienced in the development and sale of raw land.

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Loans involving construction financing and loans on raw land have a higher level of risk than loans for the purchase of existing homes since collateral values, land values, development costs and construction costs can only be estimated at the time the loan is approved. The Bank has sought to minimize its risk in construction lending and in lending for the purchase of raw land by offering such financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous experience in such projects. The Bank also limits construction lending and loans on raw land to its market area, with which management is familiar.

Adjustable-rate loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for payment default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate may also be limited by the maximum periodic interest rate adjustment permitted in certain adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest rates. These risks have not had an adverse effect on the Bank.

Consumer lending, including indirect financing, provides benefits to the Bank’s asset/liability management program by reducing the Bank’s exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly.

Commercial lending including real-estate related loans entail significant additional risks when compared with residential real estate and consumer lending. For example, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse space. In periods of decreasing cash flows, the commercial borrower may permit a lapse in general maintenance of the property causing the value of the underlying collateral to deteriorate. The liquidation of commercial property is often more costly and may involve more time to sell than residential real estate. The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and by obtaining the personal guaranties of the principals. In addition, a majority of the Bank’s commercial real estate portfolio is owner occupied property.

Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending. The repayment of unsecured commercial business loans is wholly dependent on the success of the borrower’s business, while secured commercial business loans may be secured by collateral that may not be readily marketable in the event of default.  Municipal financing includes lending to local taxing authorities and revenue producing projects.  Such loans may constitute  the general obligation of the taxing authority or may rely on a specific revenue source which is responsible for the repayment of the debt.  General obligations are considered to carry a lower level of risk than other loan types since they are backed by the full faith and credit of the taxing authority  Revenue obligations are backed solely by revenues generated by the project financed and repayment may be affected by the success of the project.

Due to the type and nature of the collateral, consumer lending generally involves more credit risk when compared with residential real estate lending. Consumer lending collections are typically dependent on the borrower’s continuing financial stability, and thus, are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted

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consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining deficiency is usually turned over to a collection agency.

There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis. We seek to mitigate these risks by only dealing with dealers with whom we have a long-standing relationship.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) prohibits lenders from making residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to repay the mortgage loan according to its terms.  A borrower may recover statutory damages equal to all finance charges and fees paid within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time.  As authorized by the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) has adopted regulations defining “qualified mortgages” that would be presumed to comply with the Dodd-Frank Act’s ability-to-repay rules.  Under the CFPB regulations, qualified mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments, or a term greater than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower’s income and assets are verified and documented; and (iv) the borrower’s debt-to-income ratio generally may not exceed 43%.  Qualified mortgages are conclusively presumed to comply with the ability-to-pay rule unless the mortgage is a “higher cost” mortgage, in which case the presumption is rebuttable.

Loan Solicitation and Processing

 The Bank has established various lending limits for its officers and also maintains an Officer Loan Committee to approve higher loan amounts. The loan committee is comprised of the President and Chief Executive Officer, Chief Lending Officer and other Bank officers. The Loan Committee has the authority to approve all loans up to set limits based on the type of loan and the collateral. Requests in excess of these limits must be submitted to the Directors’ Loan Committee or Board of Directors for approval. Additionally, the President and Chief Executive Officer, and the Chief Lending Officer and other officers have the authority to approve secured and unsecured loans up to amounts approved by the Board of Directors and maintained in the Bank’s Loan Policy. Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the loan committee for approval.

 Hazard insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required, when applicable.

 Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral, and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan.

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Loan Portfolio Composition. Set forth below is selected data relating to the composition of the Bank’s loan portfolio at the dates indicated.

	As of December 31,
	2015			2014			2013				2012				2011
	$		%	$		%	$			%	$			%	$			%
	(dollars in thousands)
Commercial loans	$	71,090	12.7	$	42,514	8.5	$	35,745		7.1	$	25,113		5.3	$	22,684		5.0
Real Estate-Construction		18,987	3.4		19,221	3.9		20,551		4.1		13,435		2.8		11,087		2.4
Real Estate-Residential		161,820	28.9		158,139	31.5		158,842		31.6		150,043		31.4		148,148		32.3
Real Estate-Commercial		279,123	49.8		261,956	52.2		273,144		54.2		274,484		57.5		262,476		57.3
Consumer loans		29,231	5.2		19,704	3.9		15,295		3.0		14,154		3.0		13,934		3.0
		560,251	100.0		501,534	100.0		503,577		100.0		477,229		100.0		458,329		100.0
Deferred fees, net		(326)			(399)			(480	)			(519	)			(422	)
Allowance for loan losses		(7,298)			(5,875)			(5,708	)			(5,502	)			(5,458	)
Loans receivable, net	$	552,627		$	495,260		$	497,389			$	471,208			$	452,449

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Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2015. Scheduled repayments are reported in the maturity category in which payment is due.  Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less.

	One Year or Less		After One to Five Years		Over Five Years		Total
	(dollars in thousands)
Commercial loans	$	14,335	$	12,643	$	44,112	$	71,090
Real Estate – Construction		4,103		2,968		11,916		18,987
Total	$	18,438	$	15,611	$	56,028	$	90,077
Loans with fixed rates	$	7,367	$	9,691	$	33,090	$	50,148
Loans with floating rates		14,331		6,908		18,690		39,929
Total	$	21,698	$	16,599	$	51,780	$	90,077

Non-Performing Assets. The following table sets forth information regarding non-accrual loans, foreclosed real estate owned and loans 90 days or more delinquent on which the Bank was accruing interest at the dates indicated.  At December 31, 2015, 2014, 2013, 2012 and 2011, the Company also had $6.8 million, $8.8 million, $9.2 million, $5.6 million and $7.2 million, respectively, in troubled debt restructurings.For the year ended December 31, 2015, interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of such loans was $515,000 of which $144,000 was collected. For those loans classified as troubled debt restructurings, interest income that would have been recorded under the original terms of the loans for fiscal year 2015 was $552,000 of which $344,000 was collected.  Of those loans classified as troubled debt restructurings at December 31, 2015, seven loans with a balance of $5.7 million are included in non-accrual loans, while one loan relationship with a balance of $1.1 million is carried in full accrual status.

	As of December 31,
	2015			2014			2013			2012			2011
	(dollars in thousands)
Non-accrual loans:
Commercial	$	43		$	—		$	—		$	328		$	404
Real estate		7,089			5,596			9,547			12,872			7,411
Consumer		—-			4			—			—			—
Total non-accrual loans*		7,132			5,600			9,547			13,200			7,815
Accruing loans which are contractually past-due 90 days or more		—			—			—			—			—
Total non-performing loans		7,132			5,600			9,547			13,200			7,815
Foreclosed real estate		2,847			3,726			1,009			852			2,910
Total non-performing assets	$	9,979		$	9,326		$	10,556		$	14,052		$	10,725
Total non-performing loans to total loans		1.27	%		1.12	%		1.90	%		2.77	%		1.71	%
Total non-performing loans to total assets		0.95	%		0.79	%		1.34	%		1.96	%		1.17	%
Total non-performing assets to total assets		1.33	%		1.31	%		1.48	%		2.09	%		1.60	%

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*Includes non-accrual TDRs of $5.7 million, $2.2 million, $6.2 million, $5.6 million and $0.7 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively.  The Company also had $1.1 million, $6.6 million, $3.0 million, $0 and $6.5 million in accruing TDRs on those dates.

The recorded investment in impaired loans, not requiring an allowance for loan losses was  $2,855,000 (net of a charge-off against the allowance for loan losses of $1,971,000) and $8,632,000 (net of a charge-off against the allowance for loan losses of $158,000) at December 31, 2015 and 2014, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $6,373,000 (net of charge-off against the allowance for loan losses of $73,000) and $2,973,000 (net of charge-off against the allowance for loan losses of $864,000) at December 31, 2015 and 2014, respectively. For the years ended December 31, 2015 and 2014, the average recorded investment in these impaired loans was $9,015,000 and $7,725,000, and the interest income recognized on these impaired loans was $532,000 and $508,000, respectively. In connection with the North Penn acquisition, the Company acquired loans with deteriorated credit quality with an unpaid balance of $1.9 million, which are being carried at their fair value of $498,000.

As of December 31, 2015, there were no loans not previously disclosed in the above table, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.

Troubled Debt Restructured 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.  During 2015, there were two new loan relationships identified as troubled debt restructures totaling $176,000 based on executed modification agreements.

Classified Assets.  Management has instituted an internal loan review program, whereby weaker credits are classified as special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to establish a valuation reserve for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss asset, a reserve equal to 100% of the loan balance is required to be established or the loan is to be charged-off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and particular problem assets.

An asset is considered substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a loss reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess credit deficiencies or potential weaknesses are required to be designated special mention by management.

Management’s evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process.

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The following table sets forth at the dates indicated the Bank’s classified assets in accordance with its asset classification system:

	As of December 31,
	2015			2014			2013			2012			2011
	(In thousands)
Special mention		$	1,837		$	1,983		$	3,651		$	11,563		$	11,436
Substandard			9,437			13,344			18,927			12,123			14,719
Doubtful			—			—			—			—			—
Loss			—			—			—			—			—
Total		$	11,274		$	15,327		$	22,578		$	23,686		$	26,155

Analysis of the Allowance for Loan Losses. The following table sets forth information with respect to the Bank’s allowance for loan losses for the years indicated:

	As of December 31,
	2015			2014			2013			2012			2011
	(dollars in thousands)
Total loans receivable net of deferred fees	$	559,925		$	501,135		$	503,097		$	476,710		$	457,907
Average loans receivable		529,989			500,960			483,041			478,317			414,473
Allowance balance at beginning of period	$	5,875		$	5,708		$	5,502		$	5,458		$	5,616
Charge-offs:
Commercial		—			—			(4	)		(24	)		(2	)
Real Estate – residential, commercial and construction		(3,107	)		(1,466	)		(2,131	)		(2,354	)		(1,735	)
Consumer		(91	)		(80	)		(90	)		(59	)		(109	)
Total		(3,198	)		(1,546	)		(2,225	)		(2,437	)		(1,846	)
Recoveries:
Commercial		—			—			—			—			5
Real Estate – residential, commercial and construction		20			2			9			7			51
Consumer		21			31			22			24			57
Total		41			33			31			31			113
Net Charge-offs		(3,157	)		(1,513	)		(2,194	)		(2,406	)		(1,733	)
Provision Expense		4,580			1,680			2,400			2,450			1,575
Allowance balance at end of period	$	7,298		$	5,875		$	5,708		$	5,502		$	5,458
Allowance for loan losses as a percent of total loans outstanding		1.30	%		1.17	%		1.13	%		1.15	%		1.19	%
Net loans charged off as a percent of average loans outstanding		0.60	%		0.30	%		0.45	%		0.50	%		0.42	%

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Allocation of the Allowance For Loan Losses. The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan.

	As of December 31,
	2015				2014				2013				2012				2011
			% of				% of				% of				% of				% of
			Loans				Loans				Loans				Loans				Loans
			to Total				to Total				to Total				to Total				to Total
	Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans
	(dollars in thousands)
Commercial	$	397	12.7	%	$	256	8.5	%	$	184	7.1	%	$	223	5.3	%	$	147	5.0	%
Real estate – construction		90	3.4			222	3.9			897	4.1			119	2.8			72	2.4
Real estate – residential		1,069	28.9			1,323	31.5			1,441	31.6			1,797	31.4			1,256	32.3
Real estate – commercial		5,506	49.8			3,890	52.2			3,026	54.2			3,183	57.5			3,839	57.3
Consumer		236	5.2			184	3.9			160	3.0			180	3.0			144	3.0
Unallocated		—	—			—	—			—	—			—	—			—	—
Total	$	7,298	100.0	%	$	5,875	100.00	%	$	5,708	100.0	%	$	5,502	100.0	%	$	5,458	100.0	%

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Investment Activities

General. The Company maintains a portfolio of investment securities consisting of obligations of the U.S. Government and its agencies, including mortgage-backed securities, and obligations of states, counties and municipalities including school districts. To a lesser extent, the Company also has corporate debt obligations in the portfolio as well as a portfolio of equity instruments of other financial services companies. The Company considers its investment portfolio a source of earnings and liquidity. Investment securities may also be pledged to secure public deposits and customer repurchase agreements.

Securities Portfolio. Carrying values of securities at the dates indicated are as follows:

	As of December 31,
	2015		2014		2013
	(in thousands)
U.S. Government agencies	$	9,169	$	28,975	$	33,413
State and political subdivisions		60,755		54,332		59,204
Corporate obligations		4,974		6,486		3,711
Mortgage-backed securities –    government sponsored entities		63,569		66,204		61,650
Equity securities-financial services		384		398		328
Total Securities	$	138,851	$	156,395	$	158,306
Fair Value of Securities	$	138,851	$	156,395	$	158,309

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Maturity Distribution of Securities. The following table sets forth certain information regarding carrying values, weighted average yields, and maturities of the Company’s securities portfolio as of December 31, 2015. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 34%.  Actual maturities may differ from contractual maturities as certain instruments have call features which allow prepayment of obligations. Maturity on the mortgage-backed securities is based upon contractual terms, the average life may differ as a result of changes in cash flow. Equity securities with no stated maturity are classified as “after ten years.”  The average yield on equity securities reflects actual income received during the period.

					After One				After Five								Total Investment
	One Year or Less				Through Five Years				Through Ten Years				After Ten Years				Securities
	Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average
	Value		Yield		Value		Yield		Value		Yield		Value		Yield		Value		Yield
	(dollars in thousands)
U.S. Government agencies	$	—	—	%	$	8,167	1.49	%	$	1,002	2.00	%	$	—	—	%	$	9,169	1.55	%
State and political subdivision		647	5.58			952	3.46			6,437	3.74			52,719	4.54			60,755	4.45
Corporate obligations		—	—			3,884	2.86			1,090	2.82			—	—			4,974	2.85
Mortgage-backed securities- government sponsored entities		—	—			—	—			—	—			63,569	2.02			63,569	2.02
Equity securities-financial services		—	—			—	—			—	—			384	3.66			384	3.66
Total Investment Securities	$	647	5.58	%	$	13,003	2.04	%	$	8,529	3.42	%	$	116,672	3.16	%	$	138,851	3.08	%

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Deposit Activities

General. The Bank provides a full range of deposit products to its retail and business customers. These include interest-bearing and noninterest bearing transaction accounts, statement savings and money market accounts. Certificate of deposit terms range up to 5 years for retail instruments. The Bank has no brokered deposits nor does it participate in the Certificate of Deposit Account Registry Service (“CDARS”).  The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis. Other services the Bank offers its customers on a limited basis include cash management, direct deposit, Remote Deposit Capture and Automated Clearing House (ACH) activity. The Bank operates fifteen automated teller machines and is affiliated with the MoneyPass ATM network. Internet banking including bill-pay is offered through the website at www.waynebank.com.  Other services, such as eStatements and mobile banking are available online.

The following table sets forth information regarding deposit categories of the Company.

	Years Ended December 31,
	2015					2014					2013
	Average					Average					Average
	Balance		Rate Paid			Balance		Rate Paid			Balance		Rate Paid
	(dollars in thousands)
Non-interest bearing demand	$	106,601		—	%	$	96,870		—	%	$	90,331		—	%
Interest-bearing demand		52,825		0.05			50,284		0.05			47,466		0.05
Money Market		124,279		0.22			124,274		0.22			124,982		0.30
Savings		74,753		0.05			71,612		0.05			69,282		0.06
Time		209,930		0.99			206,231		1.03			208,847		1.15
Total	$	568,388				$	549,271				$	540,908

Maturities of Time Deposits. The following table indicates the amount of the Bank’s time deposits of $100,000 or more by time remaining until maturity as of December 31, 2015.

	Amount
Maturity Period	(in thousands)
Within three months		$	12,503
Over three through six months			8,498
Over six through twelve months			13,374
Over twelve months			41,161
		$	75,536

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Short-Term Borrowings

The following table sets forth information concerning the Bank’s short-term borrowings (those maturing within one year) which consist principally of securities sold under agreements to repurchase, short-term fixed-rate Federal Home Loan Bank (“FHLB”) advances and federal funds purchased during the periods indicated.  Securities sold under repurchase agreements consist of commercial and municipal customers’ funds invested in overnight securities for cash management purposes.

	Years Ended December 31,
	2015			2014			2013
	(dollars in thousands)
Short term borrowings:
Average balance during the year	$	34,057		$	36,514		$	30,832
Maximum month-end balance during the year	$	55,183		$	49,634		$	49,914
Average interest rate during the year		0.25	%		0.21	%		0.21	%
Total short-term borrowings at end of the year	$	53,235		$	25,695		$	49,914
Weighted average interest rate at the end of the year		0.36	%		0.20	%		0.21	%

Trust Activities

The Bank operates a Wealth Management/Trust Department which provides estate planning, investment management and financial planning to customers for which it is generally compensated based on a percentage of assets under management. As of December 31, 2015, the Bank had $131.7 million of assets under management compared to $134.9 million as of December 31, 2014. The decrease is partially due to stock market performance which can affect the value of a customer’s investment portfolio.

Subsidiary Activities

The Bank, a Pennsylvania chartered bank, is the only wholly owned subsidiary of the Company. Norwood Investment Corp. (“NIC”), a Pennsylvania corporation incorporated in 1996 and a Pennsylvania licensed insurance agency, is a wholly-owned subsidiary of the Bank. NIC’s business is annuity and mutual fund sales and discount brokerage activities primarily to customers of the Bank. The annuities, mutual funds and other investment products are not insured by the FDIC or any other government agency. They are not deposits, obligations of or guaranteed by any bank. The securities are offered through Invest Financial a registered broker/dealer. NIC generated gross revenues for the Company of $143,000 in 2015, compared to $94,000 in 2014 which is included in Other Income.

WCB Realty Corp., a Pennsylvania corporation, is a wholly-owned real estate subsidiary of the Bank whose principal asset is the administrative offices of the Company, which also includes the Main Office of the Bank.

WTRO Properties Inc., a Pennsylvania corporation, is a wholly-owned real estate subsidiary of the Bank established to hold title to certain real estate upon which the Bank has foreclosed.  As of December 31, 2015 and 2014, the outstanding balance of foreclosed properties on which WTRO held title totaled $2,250,000and $2,996,000, respectively.

Norwood Settlement Services, LLC, a Pennsylvania limited liability company, was established in 2004 to provide title and settlement service to Bank customers and non-customers.  Gross revenues, included in other income, for 2015 totaled $16,000 and $12,000 in 2014.

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Regulation

Set forth below is a brief description of certain laws which relate to the regulation of the Registrant and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulation of the Company

General. The Company, as a bank holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”), is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and by the Department.  The Company is required to file annually a report of its operations with, and is subject to examination by, the Federal Reserve and the Department. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of its subsidiary banks.

Under the BHCA, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the bank holding company would directly or indirectly own or control more than 5% of such shares.

Federal statutes impose restrictions on the ability of a bank holding company and its nonbank subsidiaries to obtain extensions of credit from its subsidiary bank, on the subsidiary bank’s investments in the stock or securities of the holding company, and on the subsidiary bank’s taking of the holding company’s stock or securities as collateral for loans to any borrower. A bank holding company and its subsidiaries are also prevented from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services by the subsidiary bank.

Source of Strength Doctrine.  A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.

Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHCA. Under the BHCA and the Federal Reserve’s bank holding company regulations, the Company may only engage in, or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other subsidiaries authorized under the BHCA and (2) any BHCA activity the Federal Reserve has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of banking as to be a proper incident thereto.

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Financial Modernization. The Gramm-Leach-Bliley Act, permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services company known as a “financial holding company.”  A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for bank holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The Act also permits the Federal Reserve and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may become a financial holding company if it and each of its subsidiary banks is well capitalized and well managed, and each of its subsidiary banks has at least a “satisfactory” CRA rating. A financial holding company must provide notice to the Federal Reserve within 30 days after commencing activities previously determined by statute or by the Federal Reserve and Department of the Treasury to be permissible. The Company has not submitted notice to the Federal Reserve of its intent to be deemed a financial holding company.

Regulatory Capital Requirements. The Federal Reserve has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve’s capital adequacy guidelines are similar to those imposed on the Bank by the FDIC. See “Regulation of the Bank-Regulatory Capital Requirements.”The Federal Reserve, however, has adopted a policy statement that exempts bank holding companies with less than $1.0 billion in consolidated assets that are not engaged in significant non-banking or off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC from its regulatory capital requirements.  As long as their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications.

Regulation of the Bank

General. As a Pennsylvania chartered, FDIC-insured commercial bank, the Bank is subject to extensive regulation and examination by the Department and by the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. This regulatory structure also gives the federal and state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Department, the FDIC or the United States Congress, could have a material impact on the Company, the Bank and their operations.

Pennsylvania Banking Law. The Pennsylvania Banking Code (“Banking Code”) contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and administrative discretion to the Department so that the supervision and regulation of state chartered banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

The Federal Deposit Insurance Act (“FDIA”), however, prohibits state chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments

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which are not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is significantly restricted by the FDIA.

Federal Deposit Insurance. The Bank’s deposits are insured to applicable limits by the FDIC.  Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000 to $250,000.

The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios.  The assessment base is the institution’s average consolidated assets less average tangible equity.  Insured banks with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages.  In the case of a merger, the average assets of the surviving bank for the quarter must include the average assets of the merged institution for the period in the quarter prior to the merger. Average assets are reduced by goodwill and other intangibles.  Average tangible equity equals Tier 1 capital. For institutions with more than $1.0 billion in assets, average tangible equity is calculated on a weekly basis while smaller institutions may use the quarter-end balance.  The base assessment rate for insured institutions in Risk Category I ranges between 5 to 9 basis points and for institutions in Risk Categories II, III, and IV, the assessment rate is 14, 23 and 35 basis points, respectively.  An institution’s assessment rate may be reduced based on the amount of its outstanding unsecured long-term debt and for institutions in Risk Categories II, III and IV may be increased based on their brokered deposits. Risk Categories are eliminated for institutions with more than $10 billion in assets which will be assessed at a rate between 5 and 35 basis points.

The FDIC has proposed to amend its assessment regulations for banks with less than $10 billion in assets to replace the current risk categories with updated financial ratios that are designed to better predict the risk of failure of insured institutions.  The proposed rules would not become effective until the designated reserve ratio of the Deposit Insurance Fund reaches 1.15% and would remain in effect until the designated reserve ratio reaches 2.0%.  The proposed regulations would set a maximum rate that banks rated CAMELS 1 or 2 could be charged and a minimum  rate that CAMELS 3, 4 and 5 banks would be charged.  Under the proposal, the FDIC would use a bank’s weighted average CAMELS component ratings and the following financial measures to determine assessments: Tier 1 leverage ratio; ratio of net income before taxes to total assets; ratio of non-performing loans to gross assets; and ratio of other real estate owned to gross assets.  In addition, assessments would take into consideration core deposits to total assets, one-year asset growth and a loan mix index.  The loan mix index would measure the extent to which a bank’s total assets include higher risk loans.  To calculate the loan mix index, each category of loan in the bank’s portfolio (other than credit card loans) would be divided by the bank’s total assets to determine the percentage of assets represented by that loan category.  Each percentage would then be multiplied by that loan category’s historical weighted average industry-wide charge-off rate.  The sum of these numbers would determine the loan mix index value for that bank.  The FDIC proposal is intended to be revenue neutral to the FDIC but to shift premium payments to higher risk institutions.  Most institutions are expected to see lower premiums.  A companion proposal would assess banks over $10 billion in assets at higher rates for two years in accordance with the requirements of the Dodd-Frank Act.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation.  The FICO assessment rates, which are determined quarterly, averaged .01% of insured deposits on an annualized basis in fiscal year 2015.  These assessments will continue until the FICO bonds mature in 2017.

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Regulatory Capital Requirements. The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System.  Effective January 1, 2015, the capital adequacy requirements were substantially revised to conform them to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III”.  The final rule applies to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Board’s Small Bank Holding Company Policy Statement.

Under the FDIC’s revised capital adequacy regulations, the Bank is required to meet four minimum capital standards: (1) “Tier 1” or “core” capital leverage ratio equal to at least 4%  of total adjusted assets, (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets, (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets, and (4) a total capital ratio equal to 8% of total risk-weighted assets.  Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest  and, unless the bank has made an “opt-out” election, accumulated other comprehensive income, net of goodwill and certain other intangible assets.  Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments.  Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments.  An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight.  Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.

In addition to higher capital requirements, the new capital rules will require banks and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements.  Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.  The capital buffer requirement will be phased in over four years beginning January 1, 2016.  The fully phased-in capital buffer requirement will effectively raise the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in basis.

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.

The Bank is also subject to minimum capital requirements imposed by the Department on Pennsylvania-chartered depository institutions. Under the Department’s capital requirements, a Pennsylvania bank or savings bank must maintain a minimum leverage ratio of Tier 1 capital (as defined under the FDIC’s capital regulations) to total assets of 4%. In addition, the Department has the supervisory discretion to require  higher leverage ratio for any institutions based on the institution’s substandard performance in any of a number of areas. The Bank was in compliance with both the FDIC and Pennsylvania capital requirements in effect as of December 31, 2015.

Prompt Corrective Regulatory Action.  Under applicable federal statutes, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements.  For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and

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critically undercapitalized.  Under the FDIC’s prompt corrective action regulations, an institution is deemed to be “well capitalized” if it has a Total Risk-Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 8.0% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% or better and a leverage ratio of 5.0% or greater. An institution is “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is “undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%

The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements.  In particular, the FDIC may require any non-member bank that is not “adequately capitalized” to take certain action to increase its capital ratios. If the non-member bank’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank’s activities may be restricted.

At December 31, 2015, the Bank qualified as “well capitalized” under the prompt corrective action rules.

Affiliate Transaction Restrictions. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates, including their bank holding companies. In particular loans by a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of a bank subsidiary’s capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary’s capital and surplus. Further, loans and other extensions of credit generally are required to be secured by eligible collateral in specified amounts.  Transactions with non-affiliates may be treated as transactions with an affiliate to the extent that proceeds from the transaction are used to benefit the affiliate. Federal law also requires that all transactions between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Loans to One Borrower. Under Pennsylvania law, commercial banks have, subject to certain exemptions, lending limits to one borrower in an amount equal to 15% of the institution’s capital accounts. An institution’s capital account includes the aggregate of all capital, surplus, undivided profits, capital securities and general reserves for loan losses. Pursuant to the national bank parity provisions of the Pennsylvania Banking Code, the Bank may also lend up to the maximum amounts permissible for national banks, which are allowed to make loans to one borrower of up to 25% of capital and surplus in certain circumstances. As of December 31, 2015, loans-to-one-borrower limitation was $13.9  million and the Bank was in compliance with such limitation.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Trustees of the FHLB.

As a member, the Bank is required to purchase and maintain restricted stock in the FHLB of Pittsburgh in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Bank’s

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outstanding advances from the FHLB. At December 31, 2015, the Bank was in compliance with this requirement.The FHLB incurred losses in both 2009 and 2010 and had suspended the payment of dividends.  However, the FHLB has shown positive results since 2011 which includes stock redemptions and resumed dividend payments. The losses were primarily attributable to impairment of investment securities associated with the extreme economic conditions in place during the previous several years.  Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions that the world is facing.  Management also considered that the FHLB’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, and new shares of FHLB stock continue to change hands at the $100 par value.

Federal Reserve System. The Federal Reserve requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking and NOW accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy the liquidity requirements that are imposed by the Department. At December 31, 2015, the Bank met its reserve requirements.

Restrictions on Dividends. The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital. The Bank has not declared or paid any dividends which cause the Bank’s retained earnings to be reduced below the amount required. Finally, dividends may not be declared or paid if the Bank is in default in payment of any assessment due the FDIC.

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In a recent Supervisory Letter, the Federal Reserve staff has stated that, as a general matter, bank holding companies should eliminate cash dividends if net income available to shareholders for the past four quarters, net of dividends previously paid, is not sufficient to fully fund the dividend. Furthermore, under the federal prompt corrective action regulations, the Federal Reserve may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Volcker Rule.  On July 21, 2015, banking entities, which include insured depository institutions, their holding companies and affiliates of either, became subject to regulations implementing the so-called Volcker Rule of the Dodd-Frank Act, which prohibits proprietary trading for the entity’s own account in certain financial instruments, including securities, derivatives, futures and options but excluding loans, physical commodities and foreign exchange and currency.  Under the rules adopted by the federal financial regulatory agencies, the purchase or sale of a financial instrument that has been held for less than 60 days is presumed to be proprietary trading for the purpose of short-term resale or benefiting from short-term price movements or for another prohibited purpose unless the banking organization can demonstrate a contrary purpose.  Purchases and sales of financial instruments pursuant to repurchase and reverse repurchase agreements or securities lending agreements, however, are excluded from the definition of proprietary trading. Also excluded from the definition of proprietary trading are purchases and sales of financial instruments where the bank is acting solely as agent for a customer, as trustee for a pension or deferred compensation plan or in connection with the collection of debts previously contracted.  Purchases and sales of highly liquid securities that are not reasonably expected to result in short-term trading gains and in an amount consistent with near-term funding needs are excluded from

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proprietary trading if conducted pursuant to a documented liquidity management plan.  Certain proprietary trading activities are permitted if conducted in connection with underwriting or market-making activities or risk-mitigating hedging activities.  Proprietary trading is also permitted in U.S. government, agency and government sponsored-enterprise securities and obligations of states and political subdivisions and the FDIC but not in derivatives of the foregoing.

The Volcker Rule also prohibits banking entities from sponsoring or directly or indirectly acquiring as principal any ownership interest in a “covered fund” unless permitted by the rule.  For purposes of this prohibition, a covered fund is any investment fund such as a hedge or private equity fund that would be required to register as an investment company under SEC rules but for the statutory exemptions for funds held by not more than 100 persons or owned solely by high net worth investors, any exempt or substantively similar non-exempt commodity pool and certain foreign investment funds.  Excluded from the definition of covered fund are wholly owned subsidiaries of a banking entity or its affiliates, certain permissible joint ventures, insurance company separate accounts for which the banking entity is a beneficiary provided the banking entity does not control investment decisions on the underlying assets or participate in the profits for the separate account except in accordance with supervisory guidance regarding bank owned life insurance, certain vehicles for loan and other permissible securitizations, small business investment companies, public welfare companies permitted under the National Bank Act, business development companies, registered investment companies and investment funds exempt from SEC registration under other statutory  provisions.  Investments in pooled trust preferred securities are permitted if acquired before December 10, 2013 and the banking entity reasonably believes that the trust preferred securities in the pool were issued prior to May 19, 2010 by depository institution holding companies with less than $15 billion in assets or by mutual holding companies.

The Volcker Rule prohibits a banking entity from engaging in certain covered transactions, including loans and securities and asset purchases, with any covered fund for which it serves as investment manager, advisor or sponsor or that it organizes and offers.  Any transactions with a covered fund must be on terms as favorable to the banking entity as transactions with non-affiliates.  Finally, the Volcker Rule prohibits any otherwise permitted proprietary trading or covered fund activity that would involve a material conflict of interest between the banking entity and its customers, result in a material exposure of the banking entity to high risk assets or trading strategies or would pose a threat to the safety and soundness of the banking entity or the financial stability of the United States.

Item 1A. Risk Factors

In determining whether to invest in our securities, investors should consider, among other factors, the following:

Risks Related to Our Business

We may not realize the anticipated benefits from our proposed acquisition of Delaware Bancshares, Inc.

On March 10, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Delaware Bancshares, Inc. (“Delaware Bancshares”) and its wholly owned subsidiary, The National Bank of Delaware County (“NBDC Bank”), pursuant to which Delaware Bancshares will merge with and into the Company and immediately thereafter, NBDC Bank will merge with and into the Bank.  The acquisition of Delaware Bancshares will extend our market reach into the contiguous New York counties of Delaware and Sullivan.  The success of this transaction, however, will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of the Bank and NBDC Bank in a manner that permits growth opportunities and does not materially disrupt the

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existing customer relationships of NBDC Bank nor result in decreased revenues resulting from any loss of customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

Norwood Financial Corp. and Delaware Bancshares have operated and, until the completion of the transactions, will continue to operate, independently. Certain Delaware Bancshares employees may not be employed by us after the transaction.  In addition, Delaware Bancshares employees that we wish to retain may elect to terminate their employment as a result of the acquisition, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of Delaware Bancshare’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisition.

We hold certain intangible assets that could be classified as impaired in the future. If these assets are considered to be either partially or fully impaired in the future, our earnings would decrease.

At December 31, 2015, we had approximately $10.0 million in goodwill and identifiable intangible assets on our balance sheet. We are required to test our goodwill and identifiable intangible assets for impairment on a periodic basis. The impairment testing process considers a variety of factors, including the current market price of our common stock, the estimated net present value of our assets and liabilities, and information concerning the terminal valuation of similarly situated insured depository institutions. If an impairment determination is made in a future reporting period, our earnings and the book value of these intangible assets will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock or our regulatory capital levels, but such an impairment loss could significantly restrict the Bank’s ability to make dividend payments to us.

Our success will depend upon our ability to effectively manage our future growth.

We believe that we have in place the management and systems, including data processing systems, internal controls and a strong credit culture, to support continued growth. However, our continued growth and profitability depend on the ability of our officers and key employees to manage such growth effectively, to attract and retain skilled employees and to maintain adequate internal controls and a strong credit culture. Accordingly, there can be no assurance that we will be successful in managing our expansion, and the failure to do so would adversely affect our financial condition and results of operations.

If we experience loan losses in excess of our allowance, our earnings will be adversely affected.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, or if the bank regulatory authorities require us to increase the allowance for loan losses as a part of their examination process, our earnings and capital could be significantly and adversely affected.

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As of December 31, 2015, our allowance for loan losses was $7,298,000 which represented 1.30% of outstanding loans. At such date, we had 20 nonperforming loans totaling $7.1 million and 20 impaired loans totaling $9.2 million, most of which are included in the nonperforming loans total. We actively manage our nonperforming loans in an effort to minimize credit losses. Although management believes that its allowance for loan losses is adequate, there can be no assurance that the allowance will prove sufficient to cover future loan losses. Further, although management uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Material additions to our allowance for loan losses would result in a decrease in our net income and capital, and could have a material adverse effect on our financial condition and results of operations.

Most of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

Commercial loans are often larger and may involve greater risks than other types of lending. Because payments onsuch loans are often dependent on the successful operation of the property or business involved, repayment of such loans may be more sensitive than other types of loans due to adverse conditions in the real estate market or the economy. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the general economic environment. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.

Most of our loans are secured, in whole or in part, with real estate collateral which may be subject to declines in value.

In addition to the financial strength and cash flow characteristics of the borrower in each case, we often secure our loans with real estate collateral. As of December 31, 2015, approximately 82% of our loans had real estate as a primary, secondary or tertiary component of collateral. In addition, approximately 46% of our securities portfolio consisted of mortgage-backed securities issued by either Fannie Mae, Freddie Mac or Government National Mortgage Association (GNMA). Real estate values and real estate markets are generally affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. If real estate prices in our markets decline, the value of the real estate collateral securing our loans could be reduced. If we are required to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.

We may be required to record other-than-temporary impairment charges in respect of our investment securities portfolio and restricted stock.

As of December 31, 2015, we had approximately $77.8 million in investments, including mortgage-backed securities, on which we had unrealized losses of $1.2 million.  In addition, we had $3.4  million of regulatory stock in the FHLB of Pittsburgh. We may be required to record impairment charges on our investments and FHLB stock if they suffer a decline in value that is considered other-than-

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temporary. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in the business climate, or adverse actions by regulators could have a negative effect on the value of our investments and mortgage backed securities. If an impairment charge is significant enough to result in a loss for the period, it could affect the ability of our bank subsidiary to upstream dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to stockholders and could also negatively impact our regulatory capital ratios and result in us not being classified as “well capitalized” for regulatory purposes.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.  There is no assurance that any such losses would not materially and adversely affect our results of operations.

Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect our financial performance.

Changes in the interest rate environment may reduce our profits. We realize income primarily from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and the interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs. Our net interest spread depends on many factors that are partly or completely out of our control, including competition, federal economic monetary and fiscal policies, and general economic conditions.

In order to mitigate the risks from increases in interest rates, we emphasize the origination of loans with variable rates of interest so that loan yields increase with the general level of interest rates.  Since many of the variable-rate loans in our portfolio specify minimum or floor rates of interest that borrowers must pay, however, the effective rates on these loans will not increase until the index rate exceeds the floor rate, which may initially reduce the sensitivity of these loans to increases in general interest rates.  An increase in the general level of interest rates may adversely affect the ability of certain borrowers with variable-rate loans to pay the interest on and principal of their obligations. In addition, an increase in market interest rates on loans is generally associated with a lower volume of loan originations, which may reduce earnings. Following an increase in the general level of interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace loan maturities with new originations, minimize increases on our deposit rates, and maintain an acceptable level and mix of funding. We cannot provide assurances that we will be able to increase our loan offering rates and continue to originate loans due to the competitive landscape in which we operate. Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while maintaining an acceptable level of deposits. Finally, we cannot provide any assurances that we can maintain our current levels of non-interest-bearing deposits as customers may seek higher yielding products when rates increase.

Following a decline in the general level of interest rates, our ability to maintain a positive net interest spread is dependent on our ability to reduce the interest paid on deposits, borrowings, and other interest-bearing liabilities. We cannot provide assurance that we would be able to lower the rates paid on deposit accounts to support our liquidity requirements as lower rates may result in deposit outflows.

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Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, liquidity, and overall profitability. We cannot assure you that we can minimize our interest rate risk.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and investments and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital in response to a deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors. Should we be required by regulatory authorities to raise additional capital, we may seek to do so through the issuance of, among other things, our common stock or preferred stock.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

Our business is geographically concentrated and is subject to regional economic factors that could have an adverse impact on our business.

Substantially all of our business is with customers in our market area of Northeastern Pennsylvania. Most of our customers are consumers and small and medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in our markets could adversely affect our borrowers, their ability to repay their loans and to borrow additional funds, and consequently our financial condition and performance.

Additionally, we often secure our loans with real estate collateral, most of which is located in Northeastern Pennsylvania. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

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The loss of senior executive officers and certain other key personnel could hurt our business.

Our success depends, to a great extent, upon the services of Lewis J. Critelli, our President and Chief Executive Officer.  Although we have an employment agreement with non-compete provisions with Mr. Critelli, the existence of such agreement does not assure that we will retain his services. The unexpected loss of Mr. Critelli could have a material adverse effect on our operations. From time to time, we also need to recruit personnel to fill vacant positions for experienced lending officers and branch managers. Competition for qualified personnel in the banking industry is intense, and there can be no assurance that we will continue to be successful in attracting, recruiting and retaining the necessary skilled managerial, marketing and technical personnel for the successful operation of our existing lending, operations, accounting and administrative functions or to support the expansion of the functions necessary for our future growth. Our inability to hire or retain key personnel could have a material adverse effect on our results of operations.

Our legal lending limits are relatively low and restrict our ability to compete for larger customers.

At December 31, 2015, our lending limit per borrower was approximately $13.9 million, or 15% of our capital plus allowance for loan losses. Accordingly, the size of loans that we can offer to potential borrowers is less than the size of loans that many of our competitors with larger capitalization are able to offer. We may engage in loan participations with other banks for loans in excess of our legal lending limits. However, there can be no assurance that such participations will be available at all or on terms which are favorable to us and our customers.

The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital rules is uncertain.

The federal banking agencies have recently adopted proposals that would substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The amendments implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The amended rules include new minimum risk-based capital and leverage ratios, which become effective in January 2015 with certain requirements to be phased in beginning in 2016, and will refine the definition of what constitutes “capital” for purposes of calculating those ratios.

The new minimum capital level requirements applicable to the Company and the Bank include: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The new rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Company and the Bank.

The application of more stringent capital requirements to the Company and the Bank could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.  Furthermore,

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the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit our ability to make distributions, including paying out dividends or buying back shares.

Risks Related to Our Common Stock

There is a limited trading market for our common stock, which may adversely impact your ability to sell your shares and the price you receive for your shares.

Although our common stock is quoted on the Nasdaq Global Market, there has been limited trading activity in our stock and an active trading market is not expected to develop. This means that there may be limited liquidity for our common stock, which may make it difficult to buy or sell our common stock, may negatively affect the price of our common stock and may cause volatility in the price of our common stock.

There are restrictions on our ability to pay cash dividends.

Although we have paid cash dividends on a quarterly basis since 1996, and the Bank has paid dividends for many previous years, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board may deem relevant and will be subject to applicable federal and state laws that impose restrictions on our ability to pay dividends.

Our common stock is not insured and you could lose the value of your entire investment.

An investment in shares of our common stock is not a deposit and is not insured against loss by the government.

Our management and significant shareholders control a substantial percentage of our stock and therefore have the ability to exercise substantial control over our affairs.

As of December 31, 2015, our directors and executive officers beneficially owned approximately 317,479 shares, or approximately 8.2% of our common stock, including options to purchase 100,857 shares, in the aggregate, of our common stock at exercise prices ranging from $24.44 to $29.08 per share. Because of the large percentage of stock held by our directors and executive officers and other significant shareholders, these persons could influence the outcome of any matter submitted to a vote of our shareholders.

We may issue additional shares of common or preferred stock, which may dilute the ownership and voting power of our shareholders and the book value of our common stock.

We are currently authorized to issue up to 10,000,000 shares of common stock of which 3,701,357 shares are currently outstanding and up to 5,000,000 shares of preferred stock of which no shares are outstanding. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares and to establish the terms of any series of preferred stock. These authorized but unissued shares could be issued on terms or in circumstances that could dilute the interests of other stockholders. In addition, a total of 525,000 shares of common stock

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have been reserved for issuance under the Norwood Financial Corp 2006 Stock Option Plan and the 2014 Equity Incentive Plan, of which 293,970 were issued as of December 31, 2015. As of December 31, 2015, options to purchase a total of 180,021 shares were exercisable and had exercise prices ranging from $24.44 to $29.08.  Any such issuance will dilute the percentage ownership interest of shareholders and may further dilute the book value of our common stock.

Provisions of our Articles of Incorporation and the Pennsylvania Business Corporation Law could deter takeovers which are opposed by the Board of Directors.

Our articles of incorporation require the approval of 80% of our outstanding shares for any merger or consolidation unless the transaction meets certain fair price criteria or the business combination has been approved or authorized by the Board of Directors. In addition, our articles of incorporation may require the disgorgement of profits realized by any person who attempts to acquire control of the Company. As a Pennsylvania corporation with a class of securities registered with the Securities and Exchange Commission, the Company is governed by certain provisions of the Pennsylvania Business Corporation Law that, inter alia, permit the disparate treatment of certain shareholders; prohibit calls of special meetings by shareholders; require unanimous written consent for shareholder action in lieu of a meeting; require shareholder approval for certain transactions in which a shareholder has an interest; and impose additional requirements on business combinations with persons who are the beneficial owners of more than 20% of the Company’s stock.

Risks Related to Our Industry

We operate in a competitive market which could constrain our future growth and profitability.

We operate in a competitive environment, competing for deposits and loans with commercial banks, savings associations and other financial entities. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market and mutual funds and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings associations, mortgage banking firms, credit unions and other financial intermediaries. Many of the financial intermediaries operating in our market area offer certain services, such as international banking services, which we do not offer. Moreover, banks with a larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the needs of larger customers.

We are required to comply with extensive and complex governmental regulation which can adversely affect our business.

Our operations are and will be affected by current and future legislation and by the policies established from time to time by various federal and state regulatory authorities. We are subject to supervision and periodic examination by the Federal Reserve Board (the “FRB”), FDIC and the Pennsylvania Department of Banking and Securities. Banking regulations, designed primarily for the safety of depositors, may limit a financial institution’s growth and the return to its investors by restricting such activities as the payment of dividends, mergers with or acquisitions by other institutions, investments, loans and interest rates, interest rates paid on deposits, expansion of branch offices, and the offering of securities or trust services. We are also subject to capitalization guidelines established by federal law and could be subject to enforcement actions to the extent that we are found by regulatory examiners to be undercapitalized. It is not possible to predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that any such changes may have on our future business and earnings prospects. Further, the cost of compliance with regulatory requirements may adversely affect our ability to operate profitability.

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In addition, the monetary policies of the FRB have had a significant effect on the operating results of banks in the past and are expected to continue to do so in the future. Among the instruments of monetary policy used by the FRB to implement its objectives are changes in the discount rate charged on bank borrowings and changes in the reserve requirements on bank deposits. It is not possible to predict what changes, if any, will be made to the monetary policies of the FRB or to existing federal and state legislation or the effect that such change may have on our future business and earnings prospects.

During the past several years, significant legislative attention has been focused on the regulation and deregulation of the financial services industry. Non-bank financial institutions, such as securities brokerage firms, insurance companies and money market funds, have been permitted to engage in activities which compete directly with traditional bank business.

We may bear costs associated with the proliferation of computer theft and cybercrime.

As part of our banking business, we collect, use and hold sensitive data concerning individuals and businesses with whom we have a banking relationship. Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with customer expectations and statutory and regulatory requirements. The increasing sophistication of cyber-criminals and terrorists makes it extremely difficult to keep up with new threats and could result in a breach of our data security. Patching and other measures to protect existing systems and servers could be inadequate, especially on systems that are being retired. Controls employed by our information technology department and third-party vendors could prove inadequate. We could also experience a breach by intentional or negligent conduct on the part of our employees or other internal sources or by merchants using our customers’ debit and credit cards, software bugs or other technical malfunctions, or other causes. As a result of any of these threats, our customer accounts may become vulnerable to account takeover schemes or cyber-fraud. Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.

A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, customer notification requirements, significant increases in compliance costs, and reputational damage, any of which could individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition and prospects.

Item 1B. Unresolved Staff Comments

None.

Item  2. Properties

The Bank operates from its main office located at 717 Main Street, Honesdale, Pennsylvania and 14 additional branch offices. The Bank’s total investment in office property and equipment is $16.6 million with a net book value of $6.5 million as of December 31, 2015. The Bank currently operates automated teller machines at 15 of its facilities. The Bank leases fiveof its locations with minimum lease commitments of $3.7 million through 2029.  Four of the locations have various renewal options.

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Item 3. Legal Proceedings

Neither the Company nor its subsidiaries are involved in any pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.

Item 4.  Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)   Market Information.  Information relating to the market for Registrant’s common equity and related stockholder matters appears under “Capital and Dividends” in the Registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2015 (the “Annual Report”) and is incorporated herein by reference.

(b)  Use of Proceeds.  Not applicable.

(c)  Issuer Purchases of Equity Securities. Not applicable.

Item 6. Selected Financial Data

The above-captioned information appears under “Summary of Selected Financial Data” in the Annual Report, and is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

The above-captioned information appears under “Management’s Discussion and Analysis” in the Annual Report and is incorporated herein by reference from the Annual Report.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The above-captioned information appears under “Management’s Discussion and Analysis -- Market Risk” in the Annual Report and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The Company’s consolidated financial statements listed in Item 15 and the Summary of Quarterly Results (unaudited) are incorporated herein by reference from the Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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Item 9A. Controls and Procedures

(a)  Disclosure 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 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.

(b)  Internal Control over Financial Reporting. Management’s Report on Internal Control over Financial Reporting and the Report of the Company’s Independent Registered Public Accounting Firm are incorporated herein by reference from the Annual Report. 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.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained under the sections captioned “Section 16(a) Beneficial Ownership Reporting Compliance” and “Proposal I -- Election of Directors” and “Corporate Governance” in the Proxy Statement for the 2016 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer or controller. The Code of Ethics is posted on the stockholder services page of Wayne Bank’s website at www.waynebank.com/stockholder-services.

Item 11. Executive Compensation

The information contained under the section captioned “Director and Executive Compensation” in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a)           Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the Section captioned “Principal Holders of Our Common Stock” of the Proxy Statement.

(b)           Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned  “Proposal I -- Election of Directors” of the Proxy Statement.

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(c) Changes in Control

Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d)           Equity Compensation Plan Information

EQUITY COMPENSATION PLAN INFORMATION

	(a)		(b)			(c)
	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans, (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
2006 Stock Option Plan		194,521		$	26.91		4,057
2014 Equity Incentive Plan		23,027			28.76		226,973
Equity compensation plans not approved by security holders		—			—		—
TOTAL		217,548		$	27.10		231,030

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to the section in the Proxy Statement captioned “Related Party Transactions” and “Corporate Governance”.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the section in the Proxy Statement captioned “Proposal II -- Ratification of Appointment of Independent Registered Public Accounting Firm.”

- 34 -

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Listed below are all financial statements, schedules and exhibits filed as part of this report, and are incorporated by reference.

1. The consolidated balance sheets of Norwood Financial Corp. and subsidiary as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years in the three year period ended December 31, 2015, together with the related notes and the independent registered public accounting firm report of S.R. Snodgrass, P.C., independent registered public accounting firm.

2. Schedules omitted as they are not applicable.

3.           Exhibits

P
No.	Description
2.1	Agreement and Plan of Merger, dated March 10, 2016, by and among Norwood Financial Corp., Wayne Bank, Delaware Bancshares, Inc. and The National Bank of Delaware County.(1)
3(i)	Articles of Incorporation of Norwood Financial Corp.(2)
3(ii)	Bylaws of Norwood Financial Corp. (3)
4.0	Specimen Stock Certificate of Norwood Financial Corp. (2)
10.1†	Employment Agreement with Lewis J. Critelli (4)
10.2†	Change in Control Severance Agreement with William S. Lance (4)
10.3†	Norwood Financial Corp. Stock Option Plan (5)
10.4†	Change in Control Severance Agreement with Robert J. Mancuso (6)
10.5†	Salary Continuation Agreement between the Bank and William W. Davis, Jr. (7)
10.6†	Salary Continuation Agreement between the Bank and Lewis J. Critelli (7)
10.7†	1999 Directors Stock Compensation Plan (5)
10.8†	Salary Continuation Agreement between the Bank and John H. Sanders (8)
10.9†	2006 Stock Option Plan (9)
10.10†	First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (10)
10.11†	First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli (10)
10.12†	First and Second Amendments to Salary Continuation Agreement with John H. Sanders (10)
10.13†	Change in Control Severance Agreement with James F. Burke (11)
10.14†	2014 Equity Incentive Plan (12)
10.15†	Addendum to Change in Control Severance Agreement with William S. Lance (13)
13	Annual Report to Stockholders for the fiscal year ended December 31, 2015
21	Subsidiaries of Norwood Financial Corp. (see Item 1. Business, General and Subsidiary Activity)
23	Consent of S.R. Snodgrass, P.C.
31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO
31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO
32	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document

- 35 -

101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Labels Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

†	Management contract or compensatory plan or arrangement.
(1)	Incorporated by reference from the identically numbered exhibit to the Registrant’s current Report on Form 8-K filed with the Commission on March 10, 2016.
(2)	Incorporated herein by reference into this document from the Exhibits to Form 10, Registration Statement initially filed with the Commission on April 29, 1996, Registration No. 0-28364.
(3)	Incorporated by reference into this document from the identically numbered exhibit to the Registrant’s Form 10-Q filed with the Commission on August 8, 2014.
(4)	Incorporated herein by reference from the identically numbered exhibits to the Registrant’s Form 10-K filed with the Commission on March 15, 2010.
(5)	Incorporated herein by reference into this document from the Exhibits to the Registrant’s Form 10-K filed with the Commission on March 23, 2000, File No. 0-28364.
(6)	Incorporated by reference into this document from the identically numbered exhibits to the Registrant’s Form 10-K filed with the Commission on March 14, 2013.  File No 0-28364.
(7)	Incorporated herein by reference from the Exhibits to Form S-8 filed with the Commission on August 14, 1998, File No. 333-61487.
(8)	Incorporated by reference into this document from the identically numbered exhibits to the Registrant’s Form 10-K filed with the Commission on March 22, 2004, File No. 0-28364.
(9)	Incorporated herein by reference from Exhibit 4.1 to Registrant’s Registration Statement on Form S-8 (File No. 333-134831) filed with the Commission on June 8, 2006.
(10)	Incorporated herein by reference from the Exhibits to the Registrant’s Current Report on Form 8-K filed April 4, 2006.
(11)	Incorporated herein by reference from the identically numbered exhibit to the Registrant’s Form 10-Q filed with the Commission on November 7, 2013.
(12)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-195643) filed with the Commission on May 2, 2014.
(13)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 18, 2015.

- 36 -

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 15, 2016	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli President and Chief Executive Officer (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on March 15, 2016 on behalf of the Registrant and in the capacities indicated.
/s/ Lewis J. Critelli	/s/ William W. Davis, Jr.
Lewis J. Critelli President, Chief Executive Officer and Director (Principal Executive Officer )	William W. Davis, Jr. Director
/s/ Dr. Andrew A. Forte	/s/ Susan Gumble
Dr. Andrew A. Forte Director	Susan Gumble Director
/s/ Joseph W. Adams	/s/ John E. Marshall
Joseph W. Adams Director	John E. Marshall Director
/s/ Ralph A. Matergia	/s/ Dr. Kenneth A. Phillips
Ralph A. Matergia Director	Dr. Kenneth A. Phillips Director
/s/ Kevin M. Lamont	/s/ William S. Lance
Kevin M. Lamont Director	William S. Lance Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

- 37 -

EX-13

 

2015 CONSOLIDATED FINANCIAL REPORT
Management's Discussion & Analysis	8
Management's Report On Internal Control Over Financial Reporting	27
Reports Of Independent Registered Publc Accounting Firm	28
Consolicated Balance Sheets	30
Consolidated Statements of Income	31
Consolidated Statements Of Comprehensive Income	32
Consolidated Statements Of Stockholders' Equity	33
Consolidated Statements Of Cash Flows	34
Notes To Consolidated Financial Statements	36
Investor Information	77

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction

This Management’s Discussion and Analysis and related financial data are presented to assist in the understanding and evaluation of the financial condition and results of operations for Norwood Financial Corp (the Company) and its subsidiary Wayne Bank (the Bank) as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014, and 2013. This section should be read in conjunction with the consolidated financial statements and related footnotes.

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 Federal and State laws, changes in interest rates, the ability to control costs and expenses, demand for real estate, cybersecurity, changes in the  regulatory environment 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 Form 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, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments. 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.

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 and 2) the financial condition of the issuer. The Company does not have the intent to sell these securities and it is more likely than not that it will not sell the securities before recovery of their cost basis. The Company believes that any unrealized losses at December 31, 2015 and 2014 represent temporary impairment of the securities.

8

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

The fair value of financial instruments is based upon quoted market prices, when available.  For those instances where a quoted price is not available, fair values are based upon observable market based parameters as well as unobservable parameters.  Any such valuation is applied consistently over time.

In connection with the acquisition of North Penn Bancorp, Inc. in 2011, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.

Results of Operations – Summary

Net income for the Company for the year ended December 31, 2015 was $5,908,000 which was $1,749,000 lower than the $7,657,000 earned in 2014.  Basic and diluted earnings per share were $1.60 in 2015 compared to $2.10 per share in 2014.  The return on average assets (ROA) for the year ended December 31, 2015 was 0.80% and the return on average equity (ROE) was 5.83% compared to an ROA of 1.08% and an ROE of 7.92% in the prior year.  The reduction in earnings from the prior year was the result of increased provision for loan losses and a decrease in net gains recognized on the sale of loans and securities which was partially offset by a decrease in expenses related to foreclosed properties.

Net interest income (fully taxable equivalent, or fte) totaled $25,882,000 which was an increase of $64,000 from the 2014 total.  Average loans outstanding increased $29.0 million in 2015 but a 21 basis point decrease in the yield earned limited the increase in fte interest income to $288,000.  The reduced yield was due to loan production at current market rates.  Total average securities decreased $4.9 million in 2015 which contributed to a $178,000 decrease in fte interest income.  Average interest-bearing deposits with banks were $3.5 million higher in 2015 and interest income in this area increased $9,000.  Growth of the funding base led to a $50,000 increase in interest expense.  A 2 basis point reduction in the cost of interest-bearing deposits lead to reduced interest expense on deposits of $42,000 despite a $19.1 million increase in average total deposits.  The cost of borrowed funds increased $92,000 compared to the prior year due primarily to a $5.8 million increase in average long-term borrowings.  The resulting fte net interest margin decreased 15 basis points to 3.75% in 2015 as a 16 basis point reduction in the yield earned was only partially offset by a 1 basis point decrease in the cost of funds.

Loans receivable increased $58.8 million from the prior year-end due primarily to a $28.6 million increase in commercial loans which includes a $21.3 million increase in municipal financing.  Commercial real estate loans also increased $17.2 million in 2015.  Residential mortgage loans and construction loans increased $3.4 million, net, after the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management.  Consumer loans increased $9.5 million in 2015 due primarily to a $9.2 million increase in indirect auto and marine financing.  Total non-performing loans increased from $5.6 million and 1.12% of total loans at the end of 2014 to $7.1 million, or 1.27% of total loans on December 31, 2015.  Net charge-offs totaled $3,157,000 in 2015 which was an increase  from the $1,513,000 recorded in 2014.  Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to allocate $4,580,000 to the allowance for loan losses to reserve for potential future losses which resulted in an increase in the ratio of the allowance for loan losses to total loans outstanding to 1.30% compared to 1.17% on December 31, 2014.

9

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

Other income for the year ended December 31, 2015 totaled $4,699,000 compared to $5,110,000 in the prior year, a decrease of $411,000.  Gains on the sale of loans and investment securities decreased $572,000 in the aggregate, while all other items of other income increased $161,000, net.

Other expenses were $17,100,000 in 2015 compared to $17,727,000 for the similar period in 2014, a decrease of $627,000.  Salaries and benefits costs decreased $81,000 in 2015 due primarily to reduced incentive compensation.  Occupancy and equipment costs decreased $35,000. Foreclosed real estate costs decreased $644,000 from the prior period.  All other operating expenses increased $133,000, net.  Income tax expense for the year totaled $1,632,000 which was a decrease of $974,000 from the prior year.  The effective tax rate in 2015 was 21.6% compared to 25.4% in 2014 due primarily to a higher proportion of tax-exempt income.

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

Net income 2014	$	7,657
Net interest income		(39	)
Provision for loan losses		(2,900	)
Net gains on sales of loans and securities		(572	)
Other income		161
Salaries and employee benefits		81
Occupancy, furniture and equipment		35
Foreclosed real estate owned		644
Other expenses		(133	)
Income tax expense		974
Net income for 2015	$	5,908

Net income for the Company for the year ended December 31, 2014 was $7,657,000 which was $808,000 lower than the $8,465,000 earned in 2013.  Basic and diluted earnings per share were $2.10 in 2014 compared to $2.33 per share in 2013.  The return on average assets (ROA) for the year ended December 31, 2014 was 1.08% and the return on average equity (ROE) was 7.92% compared to an ROA of 1.23% and an ROE of 9.13% in the prior year.  The reduction in earnings from the prior year was the result of increased expenses related to foreclosed properties and a reduced level of proceeds from bank-owned life insurance policies which was partially offset by an increase in gains from the sale of loans and securities and a lower provision for loan losses.

Net interest income (fully taxable equivalent) totaled $25,818,000 which was a decrease of $39,000 from the 2013 total.  Average loans outstanding increased $17.9 million in 2014 but a 30 basis point decrease in the yield earned resulted in a $618,000 reduction in interest income.  The reduced yield was due to loan production at current market rates.  Total average securities grew $5.2 million in 2014 which contributed to a $208,000 increase in interest income.  Average interest-bearing deposits with banks were $7.2 million lower in 2014 and interest income in this area decreased $19,000.  The mix of the funding base led to a reduction in interest expense as a 9 basis point reduction in the cost of interest-bearing deposits lead to reduced interest expense on deposits of $385,000 in spite of $1.8 million increase in average deposits.  The cost of borrowed funds also decreased $5,000 compared to the prior year due to a reduced cost of long-term borrowings.  As a result of the change in the mix and benefits derived from the downward repricing of deposits and borrowed funds, total interest expense was reduced by $390,000.  The resulting net interest margin decreased 10 basis points to 3.90% in 2014 as a 17 basis point reduction in the yield earned was only partially offset by an 8 basis point decrease in the cost of funds.

10

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

 Loans receivable decreased $2.0 million from the prior year-end due primarily to an $11.2 million reduction in commercial real estate loans which was the result of several significant payoffs received in 2014 and the transfer of nonperforming loans to foreclosed real estate.  Other commercial loans increased $6.8 million in 2014 due to growth in municipal financing, while consumer installment loans increased $4.4 million.  Residential mortgage loans and construction loans decreased $2.0 million, but this decrease includes the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management.  Total non-performing loans were reduced from $9.5 million and 1.90% of total loans at the end of 2013 to $5.6 million, or 1.12% of total loans on December 31, 2014.  Net charge-offs totaled $1,513,000 in 2014 which was a reduction from the $2,194,000 recorded in 2013.  Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to allocate $1.7 million to the allowance for loan losses to reserve for potential future losses which resulted in an increase in the ratio of the allowance for loan losses to total loans outstanding to 1.17% compared to 1.13% on December 31, 2013.

 Other income for the year ended December 31, 2014 totaled $5,110,000 compared to $5,615,000 in the prior year, a decrease of $505,000.  Gains on the sale of loans and investment securities increased $309,000 in the aggregate but earnings and proceeds received on bank-owned life insurance policies decreased $701,000 while all other items of other income decreased $113,000, net.  During 2013, the Company recorded a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy.

 Other expenses were $17,727,000 in 2014 compared to $16,705,000 for the similar period in 2013, an increase of $1,022,000.  Salaries and benefits costs rose $169,000, or 2.0%, in 2014 due to merit increases.  Occupancy and equipment costs decreased $19,000. Foreclosed real estate costs increased $988,000 over the prior period as several properties were acquired through foreclosure resulting in real estate taxes, write-downs or losses on sales as well as regular maintenance.  All other operating expenses decreased $116,000, net.  Income tax expense for the year totaled $2,606,000 which was a decrease of $100,000 from the prior year.  The effective tax rate in 2014 was 25.4% compared to 24.2% in 2013 due primarily to the increase in earnings and proceeds received on bank owned life insurance policies in 2013.

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

Net income 2013	$	8,465
Net interest income		(101	)
Provision for loan losses		720
Net gains on sales of loans and securities		309
Earnings and proceeds on bank owned life insurance		(701	)
Other income		(113	)
Salaries and employee benefits		(169	)
Occupancy, furniture and equipment		19
Foreclosed real estate owned		(988	)
Other expenses		116
Income tax expense		100
Net income for 2014	$	7,657

11

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

FINANCIAL CONDITION

Total Assets

Total assets as of December 31, 2015, were $750.5 million compared to $711.6 million as of year-end 2014, an increase of $38.9 million.  Loans outstanding increased $58.8 million and total securities decreased $17.5 million.

Loans Receivable

As of December 31, 2015, loans receivable totaled $559.9 million compared to $501.1 million as of year-end 2014, an increase of $58.8 million.  Commercial loans grew $45.8 million, while retail loans increased $13.0 million during the year.

Residential real estate loans, which includes home equity lending, totaled $161.8 million as of December 31, 2015, compared to $158.1 million as of year-end 2014, an increase of $3.7 million.  The Company does not originate any non-traditional mortgage products such as interest-only loans or option adjustable rate mortgages and has no sub-prime mortgage exposure.  The Company evaluates sales of its long-term, fixed-rate residential loan production for interest rate risk management, with $4.3 million of long-term, fixed-rate loans sold into the secondary market during 2015.  In the current low interest rate environment, the Company expects to continue selling mortgage loans in 2016. The Company’s home equity loan portfolio, which is included in residential real estate loans,  increased $529,000 in 2015.

Commercial loans consist principally of loans made to small businesses within the Company’s market and are usually secured by real estate or other assets of the borrower. Commercial real estate loans totaled $279.1 million as of December 31, 2015, increasing from $262.0 million as of December 31, 2014.  The terms for commercial real estate loans are typically 15 to 20 years, with adjustable rates based on a spread to the prime rate or fixed for the initial three to five year period then adjusting to a spread to the prime rate. The majority of the Company’s commercial real estate portfolio is owner occupied and includes the personal guarantees of the principals. Commercial loans consisting principally of lines of credit and term loans secured by equipment or other assets increased $28.6 million to $71.1 million as of December 31, 2015 due to growth in municipal financing.

The Company’s indirect lending portfolio (included in consumer loans to individuals) increased  $9.2 million to $23.5 million as of December 31, 2015.

Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses totaled $7,298,000 as of December 31, 2015 and represented 1.30% of total loans receivable compared to $5,875,000 and 1.17% of total loans as of year-end 2014. Net charge-offs for 2015 totaled $3,157,000 and represented 0.60% of average loans compared to $1,513,000 and 0.30% of average loans in 2014.

Non-performing assets consist of non-performing loans and real estate owned as a result of foreclosure, which is held for sale. Loans are placed on non-accrual status when management believes that a borrower’s financial condition is such that collection of interest is doubtful. Commercial and real estate related loans are generally placed on non-accrual when interest is 90 days delinquent. When loans are placed on non-accrual, accrued interest is reversed from current earnings.

12

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

As of December 31, 2015, non-performing loans totaled $7,132,000 and represented 1.27% of total loans compared to $5,600,000 or 1.12% as of December 31, 2014.  The increase in the level of non-performing loans is due primarily to one credit in the amount of $5.0 million that was transferred to nonaccrual status during the year based upon the borrower’s inability to meet the original terms of the credit.   Based on the level of non-performing loans, actual charge-offs, a soft real estate market and a slow economy, the Company added $4,580,000 to the allowance for loan losses for the year ended December 31, 2015 compared to $1,680,000 in 2014.

Foreclosed real estate owned totaled $2,847,000 as of December 31, 2015 and $3,726,000 as of December 31, 2014. The decrease is due primarily  to the sale of two commercial properties with a carrying value of $3.0 million as of December 31, 2014 which was partially offset by the addition of two commercial properties with a carrying value of $2.2 million as of December 31, 2015.  During 2015, ten properties with a carrying value of $4,456,000 were disposed of through sales.  The Company recorded a net loss of $154,000 from the sale of the properties.

The Company’s loan review process assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes a review of the risks inherent in the loan portfolio. It includes an analysis of impaired loans and a historical review of losses. Other factors considered in the analysis include: concentrations of credit in specific industries in the commercial portfolio; the local and regional economic condition; trends in delinquencies, internal risk rating classifications, large dollar loans of over $2 million and growth in the portfolio.  For loans acquired, including those that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.

The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio. The Company has $9.0 million of junior lien home equity loans. For 2015, net charge-offs for this portfolio totaled $95,000.

As of December 31, 2015, the Company considered its concentration of credit risk profile to be acceptable. The highest concentrations are in the hospitality lodging industry and automobile dealers.

During 2015, the Company recognized a decrease in its adversely classified loans. The Company assesses a loss factor against the classified loans, which is based on prior experience. Classified loans which are considered impaired are measured on a loan by loan basis. The Company values such loans by either the present value of expected cash flows, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

At December 31, 2015, the recorded investment in impaired loans, not requiring an allowance for loan losses was $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) and those impaired loans requiring an allowance totaled $6,373,000. The recorded investment in impaired loans not requiring an allowance for loan losses was $8,632,000 (net of $158,000) and $2,973,000 for impaired loans requiring an allowance for loan losses as of December 31, 2014.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

As a result of its analysis, after applying these factors, management considers the allowance as of December 31, 2015, adequate. However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, that might be incurred in the future.

The following table sets forth information with respect to the Company’s allowance for loan losses at the dates indicated:

	Year ended December 31,
	(dollars in thousands)
	2015			2014			2013			2012			2011
Allowance balance at beginning of period	$	5,875		$	5,708		$	5,502		$	5,458		$	5,616
Charge-offs:
Commercial loans		-			-			(4	)		(24	)		(2	)
Real Estate		(3,107	)		(1,466	)		(2,131	)		(2,354	)		(1,735	)
Consumer loans		(91	)		(80	)		(90	)		(59	)		(109	)
Total		(3,198	)		(1,546	)		(2,225	)		(2,437	)		(1,846	)
Recoveries:
Commercial loans		-			-			-			-			5
Real Estate		20			2			9			7			51
Consumer loans		21			31			22			24			57
Total		41			33			31			31			113
Provision expense		4,580			1,680			2,400			2,450			1,575
Allowance balance at end of period	$	7,298		$	5,875		$	5,708		$	5,502		$	5,458
Allowance for loan losses as a percent
of total loans outstanding		1.30	%		1.17	%		1.13	%		1.15	%		1.19	%
Net loans charged off as a percent of
average loans outstanding		0.60	%		0.30	%		0.45	%		0.50	%		0.42	%
Allowance coverage of non-performing loans		1.0	x		1.1	x		0.6	x		0.4	x		0.7	x

The following table sets forth information regarding non-performing assets.

	December 31,
	(dollars in thousands)
	2015			2014			2013			2012			2011
Non-accrual loans:
Commercial	$	43		$	-		$	-		$	328		$	404
Real estate		7,089			5,596			9,547			12,872			7,411
Consumer		-			4			-			-			-
Total		7,132			5,600			9,547			13,200			7,815
Accruing loans which are contractually
past due 90 days or more		-			-			-			-			-
Total non-performing loans		7,132			5,600			9,547			13,200			7,815
Foreclosed real estate		2,847			3,726			1,009			852			2,910
Total non-performing assets	$	9,979		$	9,326		$	10,556		$	14,052		$	10,725
Non-performing loans to total loans		1.27	%		1.12	%		1.90	%		2.77	%		1.71	%
Non-performing loans to total assets		0.95	%		0.79	%		1.34	%		1.96	%		1.17	%
Non-performing assets to total assets		1.33	%		1.31	%		1.48	%		2.09	%		1.60	%

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

Securities

The securities portfolio consists of issues of United States Government agencies, including mortgage-backed securities, municipal obligations, and corporate debt. The Company classifies its investments into two categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity. As of December 31, 2015, there were no securities carried in the HTM portfolio. Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management. These securities are adjusted to and carried at their fair value with any unrealized gains or losses recorded net of deferred income taxes, as an adjustment to capital and reported in the equity section of the Consolidated Balance Sheet as other comprehensive income. As of December 31, 2015, $138.9 million of securities were so classified and carried at their fair value, with unrealized gains, net of tax, of $488,000 included in accumulated other comprehensive income as a component of stockholders’ equity.

As of December 31, 2015, the average life of the portfolio was 5.5 years. The Company has maintained a relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain liquidity levels.  During 2015, a portion of cash flow generated from the portfolio through principal reductions, calls and security sales was utilized to fund loan growth.  Purchases for the year totaled $50.6 million, while maturities and cash flow totaled $22.8 million and proceeds from sales were $45.0 million. The purchases were funded principally by cash flow generated from the portfolio and excess overnight liquidity.

The carrying value of the securities portfolio at December 31 is as follows:

	2015			2014
	(dollars in thousands)
	Carrying		% of	Carrying		% of
	Value		portfolio	Value		portfolio
U.S. Government agencies	$	9,169	6.6%	$	28,975	18.5%
States and political subdivisions		60,755	43.8%		54,332	34.7%
Corporate obligations		4,974	3.5%		6,486	4.2%
Mortgage-backed securities – government sponsored entities		63,569	45.8%		66,204	42.3%
Equity securities – financial services		384	0.3%		398	0.3%
Total	$	138,851	100.0%	$	156,395	100.0%

The portfolio had no adjustable-rate instruments as of December 31, 2015 and 2014. The portfolio contained no private label mortgage backed securities, collateralized debt obligations (CDOs), trust preferred securities, and no off-balance sheet derivatives were in use. The U.S. Government agency portfolio consists of both callable and non-callable notes with an average maturity of 3.9 years.   As of December 31, 2015, the portfolio did not contain any step-up bonds.  The mortgage backed securities includes pass-through bonds and collateralized mortgage obligations (CMO’s) with Fannie Mae, Freddie Mac and Government National Mortgage Association (GNMA).

The Company evaluates the securities in its portfolio for other-than-temporary-impairment (OTTI) as fair value declines below cost. In estimating OTTI management considers (1) the length of time and the extent of the decline in fair value and (2) the financial condition and near-term prospects of the issuer. As of December 31, 2015, the Company held 76 investment securities in a loss position which had a combined unrealized loss of $1.2 million. Management believes that these losses are principally due to changes in interest rates and represent temporary impairment as the Company does not have the intent to sell these securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis. The Company also holds a small

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

portfolio of equity securities of other financial institutions.  As of December 31, 2015, none of these equity securities were in an unrealized loss position.  No impairment charges have been recognized in 2015, 2014 and 2013.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures (see Note 14 of Notes to the Consolidated Financial Statements).

Approximately $138.9 million, which represents 18.5% of total assets at December 31, 2015,  consisted of financial instruments recorded at fair value on a recurring basis. This amount consists entirely of the Company’s available for sale securities portfolio. The Company uses valuation methodologies involving market-based or market derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no transfers into or out of Level 3 for any instruments for the years ending December 31, 2015 and 2014.

The Company utilizes a third party provider to perform valuations of the investments. Methods used to perform the valuations include:  pricing models that vary based on asset class, available trade and bid information, actual transacted prices, and proprietary models for valuations of state and municipal obligations. In addition, the Company has a sample of fixed-income securities valued by another independent source. The Company does not adjust values received from its providers, unless it is evident that fair value measurement is not consistent with the Company’s policies.

The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.  The fair value of mortgage servicing rights as of December 31, 2015 and 2014 was $291,000 and $277,000, respectively.

DEPOSITS

The Company, through the fifteen branches of the Bank, provides a full range of deposit products to its retail and business customers. These products include interest-bearing and non-interest bearing transaction accounts, statement savings and money market accounts. Time deposits consist of certificates of deposit (CDs) with terms of up to five years and include Individual Retirement Accounts. The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts, which are typically awarded on a competitive bid basis. The Company has no brokered deposits nor does it participate in the Certificate of Deposit Account Registry Service (CDARS).

Total deposits as of December 31, 2015, totaled $550.9 million, decreasing $9.0 million from year-end 2014. The decrease included a $25.1 million reduction in certificates of deposit as several local municipalities opted to maintain more liquid funds due to the Commonwealth of Pennsylvania’s budget impasse.  Non-interest bearing demand balances increased $9.8 million in 2015, interest bearing demand balances increased $4.0 million and savings deposits increased $2.3 million during the year.

Time deposits of $250,000 or more, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers with maturities generally less than one year, totaled $22.0 million as of December 31, 2015, compared to $42.0 million at year-end 2014.  These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources.

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As of December 31, 2015, non-interest bearing demand deposits totaled $107.8 million compared to $98.1 million at year-end 2014. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $33.6 million at year end 2015 compared to $25.7 million as of December 31, 2014. These balances represent commercial and municipal customers’ funds invested in overnight securities. The Company considers these accounts as a source of core funding.

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 the 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 should 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 December 31, 2015, the level of net interest income at risk in a ± 200 basis points increase was within the Company’s policy limit of a decline less than 8% of net interest income.

Imbalances in repricing opportunities at a given point in time reflect 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 indicators of potential interest rate exposures over specific intervals.

At December 31, 2015, the Bank had a positive 90-day interest sensitivity gap of $38.8­ million or 5.2% of total assets.  A positive gap indicates that the balance sheet has a higher level of rate-sensitive assets (RSA) than rate-sensitive liabilities (RSL) at the specific time interval. This would indicate that in an increasing 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 level of RSA and RSL for an interval is managed by ALCO strategies, including adjusting the average life of the investment portfolio through purchases and sales, pricing of deposit liabilities to attract long or short term time deposits, utilizing borrowings to fund loan growth, loan pricing to encourage variable rate products and evaluation of loan sales of long term fixed rate mortgages.

The Company analyzes and measures the time periods in which RSA and RSL will mature or reprice in accordance with their contractual terms and assumptions. Management believes that the assumptions used are reasonable. The interest rate sensitivity of assets and liabilities could vary substantially if differing assumptions were used or if actual experience differs from the assumptions used in the analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Interest rates may change at different rates changing the shape of the yield curve. The level of rates on the investment securities may also be affected by the spread relationship between different investments.  Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed. Finally, the ability of borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase. It should be noted that the operating results of the Company are not subject to foreign currency exchange or commodity price risk.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

The following table displays interest-sensitivity as of December 31, 2015 (in thousands):

	3 Months				3-12					Over
	Or Less			Months			1-3 Years			3 Years			Total
Federal funds sold and
interest-bearing deposits	$	266		$	-		$	-		$	-		$	266
Securities		3,983			9,088			23,672			102,108			138,851
Loans Receivable		129,418			128,652			153,528			148,327			559,925
Total Rate Sensitive Assets (RSA)	$	133,667		$	137,740		$	177,200		$	250,435		$	699,042
Non-maturity interest-bearing deposits	$	39,252		$	44,131		$	117,198		$	45,767		$	246,348
Time Deposits		26,352			63,715			78,289			28,391			196,747
Borrowings		29,246			18,280			38,827			8,008			94,361
Total Rate Sensitive Liabilities (RSL)	$	94,850		$	126,126		$	234,314		$	82,166		$	537,456
Interest sensitivity gap	$	38,817		$	11,614		$	(57,114	)	$	168,269		$	161,586
Cumulative gap		38,817			50,431			(6,683	)		161,586
RSA/RSL-cumulative		140.9	%		122.8	%		98.5	%		130.1	%
As of December 31, 2014
Interest sensitivity gap	$	64,389		$	(9,788	)	$	(40,674	)	$	138,122		$	152,049
Cumulative gap		64,389			54,601			13,927			152,049
RSA/RSL-cumulative		194.2	%		125.6	%		103.2	%		129.8	%

Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table above.  The balances allocated to the respective time periods represent an estimate of the total outstanding balance that has the potential to migrate either through withdrawal or transfer to time deposits, thereby impacting the interest-sensitivity position of the Company.  The estimates were derived from industry-wide statistical information and do not represent historic results.

LIQUIDITY

Liquidity is the ability to fund customers’ borrowing needs and their deposit withdrawal requests while supporting asset growth. The Company’s primary sources of liquidity include deposit generation, asset maturities, cash flow from payments on loans and securities and access to borrowing from the Federal Home Loan Bank and other correspondent banks.

As of December 31, 2015, the Company had cash and cash equivalents of $10.0 million in the form of cash, due from banks, balances with the Federal Reserve Bank, and short-term deposits with other institutions. In addition, the Company had total securities available for sale of $138.9 million, which could be used for liquidity needs. This totals $148.9 million and represents 19.8% of total assets compared to $168.8 million and 23.7% of total assets as of December 31, 2014. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of December 31, 2015. Based upon these measures, the Company believes its liquidity position is adequate.

The Company maintains established lines of credit with the Federal Home Loan Bank of Pittsburgh (FHLB), the Atlantic Community Bankers Bank (ACBB) and other correspondent banks, which support liquidity needs. The total available under all the lines was $321.5 million, with $19.7 million outstanding at December 31, 2015

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

and $0 outstanding at December 31, 2014. The maximum borrowing capacity from FHLB was $281.5 million. As of December 31, 2015, the Company had $41.1 million in term borrowings from the FHLB, compared to $22.2 million at December 31, 2014.

OFF-BALANCE SHEET ARRANGEMENTS

The Company’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. Unused commitments, as of December 31, 2015 totaled $73.7 million. They consisted of $19.7 million of commitments for residential and commercial real estate, construction and land developments loans, $18.5 million in unused home equity lines of credit, $5.4 million in performance and standby letters of credit and $30.1 million in other unused commitments, principally commercial lines of credit. Because these instruments have fixed maturity dates and many of them will expire without being drawn upon, they do not represent any significant liquidity risk.

Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.

The following table represents the aggregate of on and off-balance sheet contractual obligations to make future payments (in thousands):

CONTRACTUAL OBLIGATIONS

	December 31, 2015
		Total		Less than 1 year		1-3 years		4-5 years		Over 5 years
Time deposits	$	196,747	$	90,197	$	78,295	$	28,255	$	-
Long-term debt		41,126		-		21,701		14,033		5,392
Operating leases		3,666		352		726		744		1,844
	$	241,539	$	90,549	$	100,722	$	43,032	$	7,236

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the most significant source of revenue for the Company and represented 83.9% of total revenue for the year ended December 31, 2015.  Net interest income (fte) totaled $25,882,000 for the year ended December 31, 2015 compared to $25,818,000 for 2014, an increase of $64,000.  The resulting fte net interest spread and net interest margin were 3.61% and 3.75%, respectively, in 2015 compared to 3.76% and 3.90%, respectively, in 2014.

Interest income (fte) for the year ended December 31, 2015 totaled $29,140,000 compared to $29,026,000 in 2014.  The fte yield on average earning assets was 4.23%, decreasing 16 basis points from the 4.39% reported last year.  The continued low interest rate environment impacted the yield earned as new loan production was added at historically low rates.  This impacted loan yields which earned 4.61% in 2015 compared to 4.82% in the prior year.  The reduced yield was partially offset by a $29.0 million increase in average loans outstanding, resulting in a $288,000 increase in loan income.  The yield on securities decreased 2 basis points in 2015, and combined with a $4.8 million decrease in the average balance, resulted in a $178,000 decrease in interest income.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

 Interest expense was $3,258,000 in 2015 which resulted in an average cost of interest-bearing liabilities of 0.62% compared to total interest expense of $3,208,000 in 2014 with an average cost of 0.63%.  The continued low rate environment also impacted rates paid on deposits as the Company reduced rates paid on time deposits to market levels.  Total interest-bearing deposits cost 0.52% in 2015 which was 2 basis points lower than the 0.54% cost in the prior year due primarily to a 14 basis point reduction in time deposits as certificates repriced to current market rates upon maturity and new growth was added at the reduced levels.  Long term borrowings also repriced downward in 2015 reflecting a the impact from low cost borrowings originated in recent years.

 Net interest income represented 82.8% of total revenue for the year ended December 31, 2014.  Net interest income (fte) totaled $25,818,000 for the year ended December 31, 2014 compared to $25,857,000 for 2013, a decrease of $39,000.  The resulting fte net interest spread and net interest margin were 3.76% and 3.90%, respectively, in 2014 compared to 3.85% and 4.00%, respectively, in 2013.

 Interest income (fte) for the year ended December 31, 2014 totaled $29,026,000 compared to $29,455,000 in 2013.  The fte yield on average earning assets was 4.39%, decreasing 17 basis points from the 4.56% reported last year.  The continued low interest rate environment impacted the yield earned as new loan production was added at historically low rates.  This impacted loan yields which earned 4.82% in 2014 compared to 5.12% in the prior year.  The reduced yield was partially offset by a $17.9 million increase in average loans outstanding, resulting in a $618,000 decrease in loan income.  The yield on securities improved 3 basis points in 2014, and combined with a $5.2 million increase in the average balance, added $208,000 of interest income.

 Interest expense was $3,208,000 in 2014 which resulted in an average cost of interest-bearing liabilities of 0 .63% compared to total interest expense of $3,598,000 in 2013 with an average cost of 0.71%.  The continued low rate environment also impacted rates paid on deposits as the Company reduced rates paid on money market and time accounts to market levels.  Total interest-bearing deposits cost 0.54% in 2014 which was 9 basis points lower than the 0.63% cost in the prior year due primarily to a 12 basis point reduction in time deposits as certificates repriced to current market rates upon maturity and new growth was added at the reduced levels.  Long term borrowings also repriced downward in 2014 reflecting a full year effect of low cost borrowings originated in 2013.

OTHER INCOME

 Other income totaled $4,699,000 for the year ended December 31, 2015 compared to $5,110,000 in 2014, a decrease of $411,000.  Gains from the sales of loans and securities decreased $572,000 from the prior year, while all other items of other income increased $161,000, net.

 Other income totaled $5,110,000 for the year ended December 31, 2014 compared to $5,615,000 in 2013, a decrease of $505,000.  Gains from the sales of loans and securities increased $309,000 from the prior year but earnings and proceeds received on bank-owned life insurance policies decreased $701,000 while all other items of other income decreased $113,000, net.  During 2013, the Company recorded a non-recurring gain of $770,000 from proceeds on a bank-owned life insurance policy.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

Other Income (dollars in thousands)

For the year ended December 31

	2015		2014		2013
Service charges on deposit accounts	$	168	$	176	$	187
ATM Fees		220		206		196
NSF Fees		850		932		905
Safe deposit box rental		62		63		63
Loan related service fees		451		370		484
Debit card		660		620		635
Fiduciary activities		439		437		379
Commissions on mutual funds & annuities		143		94		187
Gain on sales of mortgage loans and servicing rights		104		132		112
Earnings on and proceeds from bank-owned life insurance		664		685		1,386
Other income		312		225		200
		4,073		3,940		4,734
Net realized gains on sales of securities		626		1,170		881
Total	$	4,699	$	5,110	$	5,615

OTHER EXPENSES

Other expenses totaled $17,100,000 for the year ended December 31, 2015 compared to $17,727,000 in the prior year.  The $627,000 decrease in costs includes a $644,000 decrease in expenses related to foreclosed real estate owned.  Salaries and benefits costs decreased $81,000  in 2015 while occupancy and equipment costs decreased $35,000.  All other operating expenses increased $133,000, net.  The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 55.9% in 2015 compared to 57.3% in 2014.

Other expenses totaled $17,727,000 for the year ended December 31, 2014 compared to $16,705,000 in the prior year.  The $1,022,000 increase in costs includes a $988,000 increase in expenses related to foreclosed real estate owned, including properties acquired through foreclosure in 2014.  Salaries and benefits costs increased $169,000, or 2.0%, in 2014 while occupancy and equipment costs decreased $19,000.  All other operating expenses decreased $116,000, net.  The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 57.3% in 2014 due to the increased costs of foreclosed real estate owned compared to 53.1% in 2013.

INCOME TAXES

Income tax expense for the year ended December 31, 2015 totaled $1,632,000 which resulted in an effective tax rate of 21.6% compared to $2,606,000 and 25.4% for 2014.  The decrease in the effective rate reflects a higher proportion of tax-exempt income.

Income tax expense for the year ended December 31, 2014 totaled $2,606,000 which resulted in an effective tax rate of 25.4% compared to $2,706,000 and 24.2% for 2013.  The increase in the effective rate reflects a decrease in tax-exempt income received from earnings and proceeds on bank-owned life insurance policies.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CAPITAL AND DIVIDENDS

 Total stockholders’ equity as of December 31, 2015, was $101.0 million, compared to $99.0 million as of year-end 2014.  The increase was due primarily to a $1.3 million increase from earnings retention after cash dividends declared of $4.6 million.  As of  December 31, 2015 the Company had a leverage capital ratio of 12.40%, common equity Tier 1 and Tier 1 risk-based capital ratio of 15.86% and total risk-based capital ratio of 17.09% compared to, 12.58%, 17.33% and 18.49%, respectively, at December 31, 2014.

 The Company’s stock is traded on the Nasdaq Global Market under the symbol, NWFL. As of December 31, 2015, there were approximately 2,200 shareholders based on transfer agent mailings.

 The following table sets forth the price range and cash dividends declared per share regarding common stock for the period indicated:

	Closing Price Range
	High		Low		Cash dividend
Year 2015					Declared per share
First Quarter	$	30.00	$	27.69	$	0.31
Second Quarter		30.90		27.88		0.31
Third Quarter		30.64		28.01		0.31
Fourth Quarter		29.30		27.69		0.31
Year 2014
First Quarter	$	29.88	$	27.25	$	0.30
Second Quarter		29.69		27.55		0.30
Third Quarter		29.46		27.55		0.30
Fourth Quarter		29.45		27.70		0.30

The book value of the common stock was $27.39 per share as of December 31, 2015 compared to $26.30 as of December 31, 2014.  As of year-end 2015, the stock price was $28.75 per share, compared to $29.05 as of December 31, 2014.

NON-GAAP FINANCIAL MEASURES

This annual report contains or references tax-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Tax-equivalent net interest income is reconciled to GAAP net interest income on page 25. Although the Company believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

STOCK PERFORMANCE GRAPH

Set forth below is a stock performance graph comparing the cumulative total shareholder return on the Common Stock with (a) the cumulative total stockholder return on stocks included in the Nasdaq Stock Market index and (b) the cumulative total stockholder return on stocks included in the Nasdaq Bank index, as prepared by Zack’s Investment Research, Inc. using data from the Center for Research in Securities Prices (CRSP) at the University of Chicago. All three investment comparisons assume the investment of $100 at the market close on December 31, 2010 and the reinvestment of dividends paid. The graph provides comparison at December 31, 2010 and each fiscal year through December 31, 2015.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NORWOOD FINANCIAL CORP

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

(Dollars in thousands, except per share amounts)

2015	December 31				September 30			June 30			March 31
Interest income		$	6,936			$	6,872		$	6,882		$	7,088
Interest expense			824				819			833			781
Net interest income			6,112				6,053			6,049			6,307
Provision for loan losses			2,820				720			420			620
Other income			1,098				1,008			99			968
Net realized gains on sales of securities			118				63			134			311
Other expense			4,674				4,070			4,168			4,187
Income (loss) before income taxes			(166	)			2,334			2,594			2,779
Income tax expense (benefit)			(294	)			557			631			738
NET INCOME		$	128			$	1,777		$	1,963		$	2,041
Basic earnings per share		$	0.04			$	0.48		$	0.53		$	0.55
Diluted earnings per share		$	0.04			$	0.48		$	0.53		$	0.55
2014
	December 31				September 30			June 30			March 31
Interest income		$	6,898			$	6,941		$	6,960		$	6,968
Interest expense			793				787			805			823
Net interest income			6,105				6,154			6,155			6,145
Provision for loan losses			420				420			420			420
Other income			1,062				961			959			958
Net realized gains on sales of securities			265				301			509			95
Other expense			4,997				4,124			4,473			4,132
Income before income taxes			2,015				2,872			2,730			2,646
Income tax expense			474				754			696			682
NET INCOME		$	1,541			$	2,118		$	2,034		$	1,964
Basic earnings per share		$	0.42			$	0.58		$	0.56		$	0.54
Diluted earnings per share		$	0.42			$	0.58		$	0.56		$	0.54

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NORWOOD FINANCIAL CORP CONSOLIDATED AVERAGE BALANCE SHEETS WITH

RESULTANT INTEREST AND RATES

(Tax-Equivalent Basis, dollars in thousands)

Year Ended December 31	2015						2014									2013
		Average			Average			Average			Average			Average			Average
		Balance		Interest	Rate			Balance		Interest	Rate			Balance		Interest	Rate
		(2)		(1)				(2)		(1)				(2)		(1)
ASSETS
Interest-earning assets:
Interest bearing deposits with banks	$	6,392	$	16	0.25	%	$	2,910	$	7	0.24	%	$	10,128	$	26	0.26	%
Securities held-to-maturity		-		-	-			57		5	8.77			174		14	8.05
Securities available for sale:
Taxable		93,294		1,918	2.06			100,393		2,032	2.02			93,133		1,663	1.79
Tax-exempt		59,659		2,792	4.68			57,362		2,856	4.98			59,260		3,008	5.08
Total securities available for sale		152,953		4,710	3.08			157,755		4,888	3.10			152,393		4,671	3.07
Loans receivable (3)(4)		529,989		24,414	4.61			500,960		24,126	4.82			483,041		24,744	5.12
Total interest earning assets		689,334		29,140	4.23			661,682		29,026	4.39			645,736		29,455	4.56
Non-interest earning assets:
Cash and due from banks		8,638						8,606						9,018
Allowance for loan losses		(5,945)						(5,832)						(5,751)
Other assets		44,794						45,278						41,697
Total non-interest earning assets		47,487						48,052						44,964
TOTAL ASSETS	$	736,821					$	709,734					$	690,700
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand and money market	$	177,104		301	0.17		$	174,558		304	0.17		$	172,448		395	0.23
Savings		74,753		37	0.05			71,612		35	0.05			69,282		44	0.06
Time		209,930		2,083	0.99			206,231		2,124	1.03			208,847		2,409	1.15
Total interest bearing deposits		461,787		2,421	0.52			452,401		2,463	0.54			450,577		2,848	0.63
Short-term borrowings		34,022		85	0.25			36,514		77	0.21			30,832		66	0.21
Other borrowings		28,742		752	2.62			22,987		668	2.91			22,076		684	3.10
Total interest bearing liabilities		524,551		3,258	0.62			511,902		3,208	0.63			503,485		3,598	0.71
Non-interest bearing liabilities:
Non-interest bearing demand deposits		106,601						96,870						90,331
Other liabilities		4,305						4,262						4,213
Total non-interest bearing liabilities		110,906						101,132						94,544
Stockholders’ equity		101,364						96,700						92,671
TOTAL LIABILITIES AND STOCKHOLDERS’  EQUITY	$	736,821					$	709,734					$	690,700
Net Interest Income
(tax equivalent basis)				25,882	3.61	%				25,818	3.76	%				25,857	3.85	%
Tax-equivalent basis adjustment				(1,361)						(1,258)						(1,196)
Net Interest Income			$	24,521					$	24,560					$	24,661
Net interest margin
(tax equivalent basis)					3.75	%					3.90	%					4.00	%

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

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

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

RATE/VOLUME ANALYSIS

The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense.

	Increase/(Decrease)
(dollars in thousands)	2015 compared to 2014						2014 compared to 2013
	Variance due to						Variance due to
	Volume		Rate		Net		Volume		Rate		Net
INTEREST EARNING ASSETS:
Interest bearing deposits	$	8	$	1	$	9	$	(17)	$	(2)	$	(19)
Securities held to maturity		-		-		-		(10)		1		(9)
Securities available for sale:
Taxable		(150)		36		(114)		136		233		369
Tax-exempt securities		109		(178)		(69)		(95)		(57)		(152)
Total securities available for sale		(41)		(142)		(183)		41		176		217
Loans receivable		1,372		(1,084)		288		897		(1,515)		(618)
Total interest earning assets		1,339		(1,225)		114		911		(1,340)		(429)
INTEREST BEARING LIABILITIES:
Interest-bearing demand and money market		(3)		-		(3)		5		(96)		(91)
Savings		2		-		2		1		(10)		(9)
Time		39		(80)		(41)		(30)		(255)		(285)
Total interest-bearing deposits		38		(80)		(42)		(24)		(361)		(385)
Short-term borrowings		(6)		14		8		12		(1)		11
Other borrowings		162		(78)		84		28		(44)		(16)
Total interest bearing liabilities		194		(144)		50		16		(406)		(390)
Net interest income (tax-equivalent basis)	$	1,145	$	(1,081)	$	64	$	895	$	(934)	$	(39)

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.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

 REPORT ON MANAGEMENT’S ASSESSMENT OF  INTERNAL CONTROL OVER FINANCIAL REPORTING

TO THE STOCKHOLDERS OF NORWOOD FINANCIAL CORP

Management of Norwood Financial Corp and its subsidiary (Norwood) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Norwood’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Norwood’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Norwood; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Norwood’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Norwood’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Norwood’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria established in Internal Control – Integrated Framework as set forth by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.  Based upon its assessment, management has concluded that, as of December 31, 2015, the Company’s internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with all federal and state laws and regulations, is effective based on the criteria established in Internal Control – Integrated Framework.

Norwood’s independent registered certified public accounting firm has audited the effectiveness of Norwood’s internal control over financial reporting. Their report appears on page 28.

Lewis J. Critelli	William S. Lance
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED BALANCE SHEETS

	December 31,
	2015			2014
	(In Thousands, Except Share and Per Share Data)
ASSETS
Cash and due from banks	$	9,744		$	8,081
Interest bearing deposits with banks		266			4,295
Cash and cash equivalents		10,010			12,376
Securities available for sale		138,851			156,395
Loans receivable (net of allowance for loan losses 2015: $7,298; 2014: $5,875)		552,627			495,260
Regulatory stock, at cost		3,412			1,714
Premises and equipment, net		6,472			6,734
Bank owned life insurance		18,820			18,284
Accrued interest receivable		2,363			2,339
Foreclosed real estate owned		2,847			3,726
Goodwill		9,715			9,715
Other intangibles		285			389
Deferred tax asset		3,669			3,285
Other assets		1,434			1,418
Total Assets	$	750,505		$	711,635
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand	$	107,814		$	98,064
Interest-bearing demand		52,040			46,441
Money market deposit accounts		119,028			120,603
Savings		75,280			73,004
Time		196,747			221,832
Total Deposits		550,909			559,944
Short-term borrowings		53,235			25,695
Other borrowings		41,126			22,200
Accrued interest payable		957			966
Other liabilities		3,280			3,789
Total Liabilities		649,507			612,594
STOCKHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares,
issued: 2015: 3,724,668 shares, 2014: 3,718,018 shares		373			372
Surplus		35,351			35,206
Retained  earnings		65,412			64,078
Treasury stock at cost: 2015: 23,311 shares, 2014: 40,576 shares		(626	)		(1,077	)
Accumulated other comprehensive income		488			462
Total Stockholders' Equity		100,998			99,041
Total Liabilities and Stockholders' Equity	$	750,505		$	711,635

See notes to consolidated financial statements

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2015		2014		2013
	(In Thousands, Except per Share Data)
INTEREST INCOME
Loans receivable, including fees	$	24,002	$	23,841	$	24,576
Securities
Taxable		1,918		2,032		1,662
Tax exempt		1,843		1,888		1,995
Other		16		7		26
Total Interest Income		27,779		27,768		28,259
INTEREST EXPENSE
Deposits		2,421		2,463		2,848
Short-term borrowings		85		77		66
Other borrowings		752		668		684
Total Interest Expense		3,258		3,208		3,598
Net Interest Income		24,521		24,560		24,661
PROVISION FOR LOAN LOSSES		4,580		1,680		2,400
Net Interest Income After
Provision for Loan Losses		19,941		22,880		22,261
OTHER INCOME
Service charges and fees		2,440		2,350		2,412
Income from fiduciary activities		439		437		379
Net realized gains on sales of securities		626		1,170		881
Net gain on sale of loans and servicing rights		104		132		112
Earnings and proceeds on life insurance policies		665		685		1,386
Other		425		336		445
Total Other Income		4,699		5,110		5,615
OTHER EXPENSES
Salaries and employee benefits		8,535		8,616		8,447
Occupancy		1,660		1,676		1,598
Furniture and equipment		422		441		538
Data processing related operations		943		929		891
Federal Deposit Insurance Corporation insurance assessment		411		420		444
Advertising		240		224		208
Professional fees		730		671		626
Postage and telephone		436		414		435
Taxes, other than income		711		649		710
Foreclosed real estate		911		1,555		567
Amortization of intangible assets		105		121		137
Other		1,996		2,011		2,104
Total Other Expenses		17,100		17,727		16,705
Income before Income Taxes		7,540		10,263		11,171
INCOME TAX EXPENSE		1,632		2,606		2,706
Net income	$	5,908	$	7,657	$	8,465
EARNINGS PER SHARE
BASIC	$	1.60	$	2.10	$	2.33
DILUTED	$	1.60	$	2.10	$	2.33

See notes to consolidated financial statements

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

	Years Ended December 31,
	2015			2014			2013
NET INCOME	$	5,908		$	7,657		$	8,465
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gains (losses)		656			5,820			(7,299	)
Tax Effect		(217	)		(1,984	)		2,481
Reclassification of gains from sale of securities		(626	)		(1,170	)		(881	)
Tax Effect		213			398			300
Net of tax amount		26			3,064			(5,399	)
COMPREHENSIVE INCOME	$	5,934		$	10,721		$	3,066

See notes to consolidated financial statements

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

		Years Ended December 31, 2015, 2014 and 2013
													Accumulated
													Other
		Common Stock						Retained	Treasury Stock				Comprehensive
		Shares		Amount		Surplus		Earnings	Shares		Amount		Income (Loss)		Total
	(Dollars in Thousands, Except per Share Data)
BALANCE - DECEMBER 31, 2012		3,371,849	$	337	$	24,737	$	66,742	75,426	$	(2,192)	$	2,797	$	92,421
Net Income		-		-		-		8,465	-		-		-		8,465
Other comprehensive loss		-		-		-		-	-		-		(5,399)		(5,399)
Cash dividends declared ($1.16 per share)		-		-		-		(4,216)	-		-		-		(4,216)
Acquisition of treasury  stock		-		-		-		-	10,712		(319)		-		(319)
Stock options exercised		-		-		(79)		-	(24,127)		654		-		575
Tax benefit on stock options exercised		-		-		39		-	-		-		-		39
Sale of treasury stock for ESOP		-		-		2		-	(5,426)		144		-		146
Compensation expense related to
stock options		-		-		162		-	-		-		-		162
Stock dividend declared-10%		336,869		34		10,149		(10,193)	8,043		-		-		(10)
BALANCE - DECEMBER 31, 2013		3,708,718		371		35,010		60,798	64,628		(1,713)		(2,602)		91,864
Net Income		-		-		-		7,657	-		-		-		7,657
Other comprehensive income		-		-		-		-	-		-		3,064		3,064
Cash dividends declared ($1.20 per share)		-		-		-		(4,377)	-		-		-		(4,377)
Acquisition of treasury stock		-		-		-		-	6,669		(179)		-		(179)
Stock options exercised		-		-		13		-	(25,577)		678		-		691
Tax benefit on stock options exercised		-		-		17		-	-		-		-		17
Sale of treasury stock for ESOP		-		-		13		-	(5,144)		137		-		150
Compensation expense related to
stock options		-		-		154		-	-		-		-		154
Restricted stock awards		9,300		1		(1)		-	-		-		-		-
BALANCE - DECEMBER 31, 2014		3,718,018		372		35,206		64,078	40,576		(1,077)		462		99,041
Net Income		-		-		-		5,908	-		-		-		5,908
Other comprehensive income		-		-		-		-	-		-		26		26
Cash dividends declared ($1.24 per share)		-		-		-		(4,574)	-		-		-		(4,574)
Acquisition of treasury  stock		-		-		-		-	4,374		(127)		-		(127)
Stock options exercised		-		-		(9)		-	(16,859)		450		-		441
Tax benefit on stock options exercised		-		-		16		-	-		-		-		16
Sale of treasury stock for ESOP		-		-		10		-	(5,060)		136		-		146
Compensation expense related to
stock options		-		-		66		-	-		-		-		66
Restricted stock awards		6,650		1		62		-	280		(8)		-		55
BALANCE - DECEMBER 31, 2015		3,724,668	$	373	$	35,351	$	65,412	23,311	$	(626)	$	488	$	100,998

See notes to consolidated financial statements.

33

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
		2015		2014		2013
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,908	$	7,657	$	8,465
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,580		1,680		2,400
Depreciation		551		572		594
Amortization of intangible assets		105		121		137
Deferred income taxes		(387)		(51)		140
Net amortization of securities premiums and discounts		936		860		1,057
Net realized gains on sales of securities		(626)		(1,170)		(881)
Earnings and proceeds on life insurance policies		(665)		(685)		(617)
Loss on sales of fixed assets and foreclosed real estate owned		427		920		347
Net gain on sale of mortgage loans		(113)		(150)		(112)
Mortgage loans originated for sale		(4,297)		(4,269)		(3,986)
Proceeds from sale of mortgage loans originated for sale		4,410		4,419		4,053
Compensation expense related to stock options		66		154		162
Compensation expense related to restricted stock		55		-		-
Decrease in accrued interest receivable and other assets		113		238		759
(Decrease)  increase in accrued interest payable and other liabilities		(565)		235		173
Net Cash Provided by Operating Activities		10,498		10,531		12,691
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales		44,976		66,263		42,348
Proceeds from maturities and principal reductions on mortgage-backed securities		22,853		14,859		21,142
Purchases		(50,565)		(74,426)		(84,589)
Proceeds from maturities on securities held-to-maturity		-		175		-
Purchase of regulatory stock		(4,095)		(1,963)		(741)
Redemption of  regulatory stock		2,397		3,126		494
Net increase in loans		(65,830)		(4,270)		(29,515)
Proceeds from bank-owned life insurance		-		75		1,089
Purchase of bank-owned life insurance		-		-		(3,000)
Purchase of premises and equipment		(290)		(193)		(393)
Proceeds from sales of foreclosed real estate owned and fixed assets		4,310		1,045		508
Net Cash (Used in) Provided by Investing Activities		(46,244)		4,691		(52,657)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits		(9,035)		18,762		16,757
Net increase (decrease)  in short-term borrowings		27,540		(24,219)		21,217
Repayments of other borrowings		(10,074)		(1,561)		(5,726)
Proceeds from other borrowings		29,000		-		7,000
Stock options exercised		441		691		575
Tax benefit of stock options exercised		16		17		39
ESOP purchase of shares from treasury stock		146		150		146
Purchase of treasury stock		(127)		(179)		(319)
Cash dividends paid		(4,527)		(4,370)		(4,155)
Net Cash Provided by (Used in) by Financing Activities		33,380		(10,709)		35,534
Net  (Decrease) Increase in Cash and Cash Equivalents		(2,366)		4,513		(4,432)
CASH AND CASH EQUIVALENTS - BEGINNING		12,376		7,863		12,295
CASH AND CASH EQUIVALENTS - ENDING	$	10,010	$	12,376	$	7,863

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years Ended December 31,
	2015	2014	2013
(In Thousands)

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid	$	3,267	$	3,264	$	3,818
Income taxes paid, net of refunds	$	2,315	$	2,645	$	2,417
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate owned and repossession of other assets	$	3,880	$	4,704	$	1,012
Dividends payable	$	1,147	$	1,100	$	1,093

See notes to consolidated financial statements

35

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Norwood Financial Corp (Company) is a one bank holding company. Wayne Bank (Bank) is a wholly-owned subsidiary of the Company. The Bank is a state-chartered bank located in Honesdale, Pennsylvania. The Company derives substantially all of its income from the bank related services which include interest earnings on commercial mortgages, residential real estate mortgages, commercial and consumer loans, as well as interest earnings on investment securities and fees from deposit services to its customers. The Company is subject to regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

 The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Significant Group Concentrations of Credit Risk

 Most of the Company’s activities are with customers located within northeastern Pennsylvania. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

 The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and, accordingly, 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. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of borrowers.

Securities

 Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each Consolidated Balance Sheet date.

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2015.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

 The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Troubled Debt Restructurings

 A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

Loans Acquired

 Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

 For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights

 Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2015 and 2014, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2015 and 2014, were $261,000 and $271,000, respectively.

Allowance for Loan Losses

 The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

 The allowance consists of specific and geneal components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

 A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment

 Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Transfers of Financial Assets

 Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreclosed Real Estate

 Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance

 The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill

 In connection with an acquisition the Company recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.

Intangible Assets

 At December 31, 2015, the Company had intangible assets of $285,000 which is net of accumulated amortization of $610,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2014, the Company had intangible assets of $389,000 which is net of accumulated amortization of $506,000.  Amortization expense related to intangible assets was $105,000, $121,000 and $137,000 for the years ended December 31, 2015, 2014 and 2013.

As of December 31, 2015, the estimated future amortization expense for the core deposit intangible was:

2016	$	88,000
2017		72,000
2018		56,000
2019		39,000
2020		23,000
2021		7,000
	$	285,000

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

 The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2015 or 2014 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs

 Advertising costs are expensed as incurred.

Earnings per Share

 Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Stock Option Plans

 The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

Restricted Stock

 The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

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.

Off-Balance Sheet Financial Instruments

 In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Trust Assets

 Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock

 Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income

 Accounting principles generally 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting

 The Company acts as an independent community financial service provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

 Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards

 In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014.  Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

 In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method.  The Company has included the disclosures related to this Update in Note 4.

 In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

 In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  The amendments also require enhanced disclosures.  The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014.  An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited.  The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The Company has included the disclosures related to this Update in Note 7.

 In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the 

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements.

 In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  This Update didnot have a significant impact on the Company’s financial statements.

 In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  This Update is not expected to have a significant impact on the Company’s financial statements.

 In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).  This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

 In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity.  An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from U.S. GAAP the concept of extraordinary items.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  This Update is not expected to have a significant impact on the Company’s financial statements.

 In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017.  This Update is not expected to have a significant impact on the Company’s financial statements.

 In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements.

 In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115.  This Update is not expected to have a significant impact on the Company’s financial statements.

 In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update.  This Update is not expected to have a significant impact on the Company’s financial statements.

 In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

 In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements.  This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.  The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position.  For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Earlier application is permitted for all entities as of the

46

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

beginning of an interim or annual reporting period.  The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

47

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES

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

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

	December 31, 2014
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	29,289	$	42	$	(356)	$	28,975
States and political subdivisions		52,685		1,750		(103)		54,332
Corporate obligations		6,387		110		(11)		6,486
Mortgage-backed securities-
government sponsored entities		67,032		109		(937)		66,204
Total debt securities		155,393		2,011		(1,407)		155,997
Equity securities-financial services		292		106		-		398
	$	155,685	$	2,117	$	(1,407)	$	156,395

48

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES (CONTINUED)

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

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government agencies	$	6,058	$	(71)	$	2,109	$	(37)	$	8,167	$	(108)
States and political subdivisions		9,086		(99)		1,417		(13)		10,503		(112)
Corporate obligations		2,221		(4)		-		-		2,221		(4)
Mortgage-backed securities-government sponsored entities		40,300		(432)		16,595		(513)		56,895		(945)
	$	57,665	$	(606)	$	20,121	$	(563)	$	77,786	$	(1,169)

	December 31, 2014
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
U.S. Government agencies	$	4,965	$	(17)	$	15,051	$	(339)	$	20,016	$	(356)
States and political subdivisions		3,195		(20)		4,633		(83)		7,828		(103)
Corporate obligations		-		-		1,144		(11)		1,144		(11)
Mortgage-backed securities-government sponsored entities		22,090		(189)		26,050		(748)		48,140		(937)
	$	30,250	$	(226)	$	46,878	$	(1,181)	$	77,128	$	(1,407)

The Company has 54 debt securities in the less than twelve month category and 22 debt securities in the twelve months or more category as of December 31, 2015.  In management’s opinion, the unrealized losses on securities reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2015.  Management believes that all other unrealized losses represent temporary impairment of the securities, and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The amortized cost and fair value of debt securities as of December 31, 2015 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.

	Amortized		Fair
	Cost		Value
	(In Thousands)
Due in one year or less	$	640	$	647
Due after one year through five years		13,044		13,003
Due after five years through ten years		8,437		8,529
Due after ten years		51,207		52,719
		73,328		74,898
Mortgage-backed securities - government sponsored entities		64,491		63,569
	$	137,819	$	138,467

49

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES (CONTINUED)

Gross realized gains and gross realized losses on sales of securities available for sale were $626,000 and $0, respectively, in 2015, compared to $1,199,000 and $29,000, respectively, in 2014, and $908,000 and $27,000, respectively, in 2013. The proceeds from the sales of securities totaled $44,976,000 $66,263,000 and$42,348,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

Securities with a carrying value of $97,671,000 and $102,994,000 at December 31, 2015 and 2014, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Set forth below is selected data relating to the composition of the loan portfolio at December 31:

	Types of loans (dollars in thousands)
	December 31, 2015					December 31, 2014
Real Estate:
Residential	$	161,820		28.9	%	$	158,139		31.5	%
Commercial		279,123		49.8			261,956		52.2
Construction		18,987		3.4			19,221		3.9
Commercial, financial and agricultural		71,090		12.7			42,514		8.5
Consumer loans to individuals		29,231		5.2			19,704		3.9
Total loans		560,251		100.0	%		501,534		100.0	%
Deferred fees, net		(326	)				(399	)
Total loans receivable		559,925					501,135
Allowance for loan losses		(7,298	)				(5,875	)
Net loans receivable	$	552,627				$	495,260

Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. The carrying value of purchased loans acquired with deteriorated credit quality was $498,000 at December 31, 2015. 

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended December 31:

	2015		2014		2013
(In thousands)
Balance at beginning of period	$	8	$	20	$	76
Accretion		(1)		(12)		(56)
Reclassification and other		(7)		-		-
Balance at end of period	$	-	$	8	$	20

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

	December 31, 2015		December 31, 2014
Outstanding Balance	$	498	$	1,057
Carrying Amount	$	498	$	1,049

There were no material increases or decreases in the expected cash flows of these loans  since the acquisition date. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality as of May 31, 2011. In addition, there has been no allowance for loan losses on these loans reversed.  As of December 31, 2015, for loans that were acquired with or without specific evidence of deterioration in credit quality, adjustments to the allowance for loan losses have been accounted for through the allowance for loan loss adequacy calculation.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  The system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans identified as impaired are evaluated independently.  The Company does not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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

	Real Estate Loans									Commercial			Consumer
	Residential			Commercial			Construction			Loans			Loans			Total
	(In thousands)
December 31, 2015
Individually evaluated for impairment		$	28		$	8,660		$	-		$	42		$	-		$	8,730
Loans acquired with deteriorated credit quality			140			358			-			-			-			498
Collectively evaluated for impairment			161,652			270,105			18,987			71,048			29,231			551,023
Total Loans		$	161,820		$	279,123		$	18,987		$	71,090		$	29,231		$	560,251

	Real Estate Loans									Commercial			Consumer
	Residential			Commercial			Construction			Loans			Loans			Total
	(In thousands)
December 31, 2014
Individually evaluated for impairment		$	-		$	10,556		$	-		$	-		$	-		$	10,556
Loans acquired with deteriorated credit quality			225			824			-			-			-			1,049
Collectively evaluated for impairment			157,914			250,576			19,221			42,514			19,704			489,929
Total Loans		$	158,139		$	261,956		$	19,221		$	42,514		$	19,704		$	501,534

52

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2014	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	225	$	233	$	-
Commercial		8,407		8,566		-
Subtotal		8,632		8,799		-
With an allowance recorded:
Real Estate Loans
Commercial		2,973		3,837		293
Subtotal		2,973		3,837		293
Total:
Real Estate Loans
Residential		225		233		-
Commercial		11,380		12,403		293
Total Impaired Loans	$	11,605	$	12,636	$	293

The following information for impaired loans is presented for the year ended December 31, 2015 and 2014:

	Average Recorded								Interest Income
	Investment								Recognized
	2015			2014			2013		2015			2014			2013
	(In thousands)
Total:
Real Estate Loans
Residential		$	159		$	233	$	252		$	4		$	5	$	5
Commercial			8,847			7,492		10,328			526			503		236
Commercial Loans			9			-		-			2			-		-
Total Loans		$	9,015		$	7,725	$	10,580		$	532		$	508	$	241

53

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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 December 31, 2015, troubled debt restructured loans totaled $6.8 million and resulted in specific reserves of $1,613,000.  During 2015, there were two new loan relationships identified as troubled debt restructurings totaling $176,000 based on executed modification agreements, while one loan with a balance of $1.7 million as of December 31, 2014 was transferred to Foreclosed Real Estate Owned during 2015 as a result of foreclosure on the property. During 2015, the Company recognized charge-offs totaling $1.3 million on loans classified as troubled debt restructurings.  Additionally, the Company recognized  expenses of $322,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

As of December 31, 2014, troubled debt restructured loans totaled $8.8 million and resulted in specific reserves of $293,000.  During 2014, there was one new loan relationship identified as troubled debt restructurings totaling $4.9 million based on extended deferrals of principal payments, while two loans with a balance of $4.7 million as of December 31, 2013 were transferred to Foreclosed Real Estate Owned during 2014 as a result of foreclosure on the properties. During 2014, the Company recognized charge-offs totaling $573,000 on loans classified as troubled debt restructurings in prior periods.  No losses were recognized on loans identified as troubled debt restructurings in 2014.  Additionally, the Company recognized a writedown of $680,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

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 December 31, 2015 and 2014, foreclosed real estate owned totaled $2,847,000 and $3,726,000, respectively.  As of December 31, 2015, included within foreclosed real estate owned is $267,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end.  As of December 31, 2015, the Company has initiated formal foreclosure proceedings on $110,000 of consumer residential mortgage loans.

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as non performance, repossession, or death occurs to raise awareness of a possible credit event.  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.  Loan Review also annually reviews relationships of $1,000,000 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.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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  December 31, 2015 and December 31, 2014 (in thousands):

				Special
	Pass			Mention			Substandard			Doubtful			Loss			Total
December 31, 2015
Commercial real estate loans		$	267,892		$	1,837		$	9,394		$	-		$	-		$	279,123
Commercial			71,047			-			43			-			-			71,090
Total		$	338,939		$	1,837		$	9,437		$	-		$	-		$	350,213

				Special
	Pass			Mention			Substandard			Doubtful			Loss			Total
December 31, 2014
Commercial real estate loans		$	246,629		$	1,983		$	13,344		$	-		$	-		$	261,956
Commercial			42,514			-			-			-			-			42,514
Total		$	289,143		$	1,983		$	13,344		$	-		$	-		$	304,470

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2015 and December 31, 2014 (in thousands):

	Performing			Nonperforming			Total
December 31, 2015
Residential real estate loans		$	161,380		$	440		$	161,820
Construction			18,987			-			18,987
Consumer loans to individuals			29,231			-			29,231
Total		$	209,598		$	440		$	210,038

	Performing			Nonperforming			Total
December 31, 2014
Residential real estate loans		$	156,464		$	1,675		$	158,139
Construction			19,221			-			19,221
Consumer loans to individuals			19,700			4			19,704
Total		$	195,385		$	1,679		$	197,064

55

NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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 December 31, 2015 and December 31, 2014 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2014
Real Estate loans
Residential	$	156,242	$	222	$	-	$	-	$	1,675	$	1,897	$	158,139
Commercial		252,495		5,100		440		-		3,921		9,461		261,956
Construction		19,221		-		-		-		-		-		19,221
Commercial  loans		42,500		14		-		-		-		14		42,514
Consumer  loans		19,606		94		-		-		4		98		19,704
Total	$	490,064	$	5,430	$	440	$	-	$	5,600	$	11,470	$	501,534

The following table presents changes in the allowance for loan losses by class:

	Year ended December 31,
	2015		2014			2013
	(In Thouasands)
Allowance at beginning of period	$	5,875	$	5,708	$	5,502
Charge-offs:
Real Estate loans
Residential		(224)		(270)		(603)
Commercial		(2,883)		(1,196)		(1,488)
Construction		-		-		(40)
Commercial  loans		-		-		(4)
Consumer  loans		(91)		(80)		(90)
Total		(3,198)		(1,546)		(2,225)
Recoveries:
Real Estate loans
Residential		20		-		9
Commercial		-		2		-
Construction		-		-		-
Commercial  loans		-		-		-
Consumer  loans		21		31		22
Total		41		33		31
Provision for loan losses		4,580		1,680		2,400
Allowance at end of period	$	7,298	$	5,875	$	5,708

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate			Commercial Real Estate			Construction			Commercial		Consumer			Total
Beginning balance, December 31, 2014	$	1,323		$	3,890		$	222		$	256	$	184		$	5,875
Charge Offs		(224	)		(2,883	)		-			-		(91	)		(3,198	)
Recoveries		20			-			-			-		21			41
Provision for loan losses		(50	)		4,499			(132	)		141		122			4,580
Ending balance, December 31, 2015	$	1,069		$	5,506		$	90		$	397	$	236		$	7,298
Ending balance individually  evaluated for impairment	$	-		$	1,613		$	-		$	-	$	-		$	1,613
Ending balance collectively evaluated for impairment	$	1,069		$	3,893		$	90		$	397	$	236		$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluated for impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) and $8,632,000 (net of charge-offs against the allowance for loan losses of $158,000) at December 31, 2015 and 2014, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $6,373,000 (net of a charge-off against the allowance for loan losses of $73,000) and $2,973,000 (net of a charge-off against the allowance for loan losses of $864,000) at December 31, 2015 and 2014, respectively. The specific reserve related to impaired loans was $1,613,000 for 2015 and $293,000 for 2014. For the years ended December 31, 2015 and 2014, the average recorded investment in these impaired loans was $9,015,000, and $7,725,000, respectively, and the interest income recognized on these impaired loans was $532,000 and $508,000, respectively.

During the period ended December 31, 2015, the allowance for residential real estate loans decreased from $1,323,000 to $1,069,000.  This $254,000 decrease in the required allowance was due primarily to a decrease in the historical loss factor from 0.30% at December 31, 2014 to 0.23% on December 31, 2015.  During the same period, the required allowance for commercial real estate loans increased from $3,890,000 at December 31, 2014

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NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

to $5,506,000 on December 31, 2015.  This increase can be attributed to a $1,320,000 increase in the specific reserve component.

 Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $515,000, $451,000 and $724,000 for 2015, 2014 and 2013, respectively.

 The Company’s primary business activity is with customers located in northeastern Pennsylvania. 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. The Company does not have any significant concentrations to any one customer.

 As of December 31, 2015 and 2014, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2015, the highest concentrations are in the hospitality lodging industry and automobile dealers, with loans outstanding of $52.6 million, or 56.8% of bank capital, to the hospitality lodging industry, and $27.5 million, or 29.7% of bank capital to the automobile dealer industry.  Charge-offs on loans within these concentrations were $643,000, $422,000 and $0 for the years ended December 31, 2015, 2014 and 2013, respectively.

 Gross realized gains and gross realized losses on sales of residential mortgage loans were $113,000 and $0, respectively, in 2015 compared to $150,000 and $0, respectively, in 2014 and $74,000 and $7,000, respectively, in 2013.  The proceeds from the sales of residential mortgage loans totaled $4.4 million, $4.4 million and $4.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.

NOTE 5 - PREMISES AND EQUIPMENT

 Components of premises and equipment at December 31 are as follows:

	2015				2014
	(In Thousands)
Land and improvements		$	2,316			$	2,275
Buildings and improvements			9,857				9,723
Furniture and equipment			4,415				4,332
			16,588				16,330
Accumulated depreciation			(10,116	)			(9,596	)
		$	6,472			$	6,734

 Depreciation expense totaled $551,000, $572,000 and $594,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

 Certain facilities are leased under various operating leases. Rental expense for these leases was $341,000, $338,000 and $325,000, respectively, for the years ended December 31, 2015, 2014 and 2013. Future minimum rental commitments under noncancellable leases as of December 31, 2015 were as follows (in thousands):

2016	$	352
2017		363
2018		363
2019		368
2020		376
Thereafter		1,844
	$	3,666

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $250,000 or more were $22,041,000 and $42,009,000 at December 31, 2015 and 2014, respectively. Included in deposit accounts are deposits of one customer relationship totaling $10,942,000 at December 31, 2015.

At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands):

2016	$	90,197
2017		54,846
2018		23,449
2019		20,926
2020		7,329
	$	196,747

NOTE 7 – BORROWINGS

Short-term borrowings at December 31 consist of the following:

	2015			2014
	(In Thousands)
Securities sold under agreements to repurchase		$	33,563		$	25,695
Federal Home Loan Bank short-term borrowings			19,672			-
		$	53,235		$	25,695

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2015			2014
	(Dollars In Thousands)
Average balance during the year	$	34,057		$	36,514
Average interest rate during the year		0.25	%		0.21	%
Maximum month-end balance during the year	$	55,183		$	49,634
Weighted average interest rate at the end of the year		0.36	%		0.20	%

Securities sold under agreements to repurchase generally mature within one day to one year from the transaction date. Securities with an amortized cost and fair value of $36,797,000 and $36,316,000 at December 31, 2015 and $28,914,000 and $28,437,000 at December 31, 2014, respectively, were pledged as collateral for these agreements. The securities underlying the agreements were under the Company’s control.

The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized as follows (in thousands):

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 7 – BORROWINGS (CONTINUED)

 The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $139,144,000 which expires in May, 2016.  At December 31, 2015, there were $19,672,000 of borrowings outstanding on this line.  There were no borrowings under this line of credit at December 31, 2014. The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires on June 30, 2016.  There were no borrowings under this line of credit at December 31, 2015 and 2014. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2015. There were no borrowings under this line of credit at December 31, 2015 and December 31, 2014.  The Company also has a line of credit commitment from Zion’s Bank for $17,000,000.  There were no borrowings under this line of credit at December 31, 2015 and December 31, 2014.

 Other borrowings consisted of the following at December 31, 2015 and 2014:

	2015		2014
	(In Thousands)
Notes with the FHLB:
Convertible note due July 2015 at 4.34%	$	-	$	7,111
Convertible note due January 2017 at 4.71%		10,000		10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		8,000		-
Amortizing fixed rate borrowing due January 2018 at 0.91%		1,267		1,866
Amortizing fixed rate borrowing due December 2018 at 1.42%		2,434		3,223
Amortizing fixed rate borrowing due June 2020 at 1.49%		9,033		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		5,392		-
	$	41,126	$	22,200

 The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the Bank to put the funds back to the FHLB at no charge.

 Contractual maturities of other borrowings at December 31, 2015 are as follows (in thousands):

2017	$	18,000
2018		3,701
2020		14,033
2022		5,392
	$	41,126

 The Bank’s maximum borrowing capacity with the FHLB was $281,493,000 of which $60,798,000 was outstanding at December 31, 2015. Advances from the FHLB are secured by qualifying assets of the Bank.

NOTE 8 – EMPLOYEE BENEFIT PLANS

 The Company has a defined contributory profit-sharing plan which includes provisions of a 401(k) plan. The plan permits employees to make pre-tax contributions up to 15% of the employee’s compensation, not to exceed the limits set by the Internal Revenue Service. The amount of contributions to the plan, including matching contributions, is at the discretion of the Board of Directors. All employees over the age of 21 are eligible to participate in the plan and receive Company contributions after one year of employment. Eligible employees are able to contribute to the Plan at the beginning of the first quarterly period after their date of employment.  Employee contributions vest immediately, and any Company contributions are fully vested after five years. The

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

Company’s contributions are expensed as the cost is incurred, funded currently, and amounted to $445,000, $445,000 and $440,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive officers. At December 31, 2015 and 2014, other liabilities include $1,427,000 and $1,443,000 accrued under the Plan. Compensation expense includes approximately $122,000, $124,000 and $126,000 relating to the supplemental executive retirement plan for 2015, 2014 and 2013, respectively. To fund the benefits under this plan, the Company is the owner of single premium life insurance policies on participants in the non-qualified retirement plan. At December 31, 2015 and 2014, the cash value of these policies was $18,820,000 and $18,284,000, respectively.

The Company provides post retirement benefits in the form of split-dollar life arrangements to employees who meet the eligibility requirements.

The net periodic post retirement benefit expense included in salaries and employee benefits was $89,000 and $87,000 for the years ended December 31, 2015 and 2014, respectively.

The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and Plan # 001) as a result of its acquisition of North Penn.  As of December 31, 2015 and 2014, the Company’s Plan was 79.9% and 98.9% funded, respectively, and total contributions made are not more than 5% of the total contributions to the Plan.  The Company’s expense related to the Plan was $48,000 in 2015, $17,000 in 2014 and $22,000 in 2013.  During the plan years ending December 31, 2015, 2014 and 2013, the Company made contributions of $48,000, $17,000 and $22,000, respectively.

NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:

	Years Ended December 31,
	2015				2014				2013
	(In Thousands)
Current		$	2,019			$	2,657			$	2,566
Deferred			(387	)			(51	)			140
		$	1,632			$	2,606			$	2,706

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 9 - INCOME TAXES

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2015		2014		2013
Tax at statutory rates	34.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(11.3)		(7.7)		(6.7)
Incentive stock options	0.3		0.4		0.4
Earnings and proceeds on life insurance	(1.8)		(1.5)		(3.7)
Other	0.4		0.2		0.2
	21.6	%	25.4	%	24.2	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:

	2015		2014
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,481	$	1,997
Deferred compensation		485		491
Purchase price adjustment		884		999
Other		182		201
Foreclosed real estate valuation allowance		305		280
Total Deferred Tax Assets		4,337		3,968
Deferred tax liabilities:
Premises and equipment		245		265
Deferred loan fees		172		170
Net unrealized gains on securities		251		248
Total Deferred Tax Liabilities		668		683
Net Deferred Tax Asset	$	3,669	$	3,285

The Company’s federal and state income tax returns for taxable years through 2011 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE  10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)

 Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2015 and 2014, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

 As of December 31, 2015, the most recent notification from the regulators has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 The Bank’s actual capital amounts and ratios are presented in the table:

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provisions
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	92,777	16.25	%	≥$45,672	≥8.00	%	≥$7,090	≥10.00	%
Tier 1 capital (to risk-weighted assets)		85,638	15.00		≥34,254	≥6.00		≥45,672	≥8.00
Common Equity Tier 1 capital      (to risk-weighted assets)		85,638	15.00		≥25,690	≥4.50		≥37,108	≥6.50
Tier 1 capital (to average assets)		85,638	11.73		≥29,203	≥4.00		≥36,504	≥5.00
As of December 31, 2014:
Total capital (to risk-weighted assets)	$	89,613	17.59	%	≥$40,767	≥8.00	%	≥$50,959	≥10.00	%
Tier 1 capital (to risk-weighted assets)		83,738	16.43		≥20,383	≥4.00		≥30,575	≥6.00
Tier 1 capital (to average assets)		83,738	11.93		≥28,069	≥4.00		≥35,086	≥5.00

The Company’s ratios do not differ significantly from the Bank’s ratios presented above.

Effective January 1, 2015, the Company and the Bank became subject to new regulatory capital rules which, among other things, impose a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk-weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The new rules also require unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is exercised, which the Company and the Bank have done.  The final rule limits a banking organization’s dividends, stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers, if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements.  The capital conservation buffer requirements will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer will be effective.  The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of December 31, 2015.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE  10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY (CONTINUED)

The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank. The amount of these restricted cash reserve balances at December 31, 2015 and 2014 was approximately $437,000 and $368,000, respectively.

Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2015, $65,777,000 of retained earnings were available for dividends without prior regulatory approval, subject to the regulatory capital requirements discussed above. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including the Company, unless such loans are collateralized by specific obligations.

NOTE 11 - STOCK BASED COMPENSATION

The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the Annual Meeting on April 26, 2006. An aggregate of 275,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 44,000 shares for awards to outside directors. Under this plan, the Company granted 7,423 options to employees in 2015, 12,500 options to employees in 2014, and 28,600 options, which included 4,000 options granted to outside directors in 2013.  As of December 31, 2015, there were 4,057 shares available for stock option awards to outside directors.

At the Annual Meeting held on April 22, 2014, the Company’s shareholders approved the Norwood Financial Corp 2014 Equity Incentive Plan. An aggregate of 250,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 40,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 42,000 shares of restricted stock awards for officers and 8,000 shares of restricted stock awards for outside directors. Under this plan, the Company granted 13,727 shares in 2015 which included 7,077 options to employees, 4,250 shares of restricted stock to officers and 2,400 shares of restricted stock to directors.  In 2014, the Company granted 9,300 shares, which included 2,800 shares to outside directors.  All shares granted in 2014 were for restricted stock.  The restricted shares vest over a five-year period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the company’s restricted stock plan.  Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.  As of December 31, 2015, there were 226,973 shares available for future awards under this plan, which included 192,173 shares available for officer awards and 34,800 shares available for awards to outside directors.  Included in these totals are 31,250 shares available for restricted stock awards to officers and 2,800 shares available for restricted stock awards to outside directors.

Total unrecognized compensation cost related to stock options was $71,000 as of December 31, 2015, $66,000 as of December 31, 2014, and $157,000 as of December 31, 2013.  Salaries and employee benefits expense includes $66,000, $154,000 and $162,000 of compensation costs related to options for the years ended December 31, 2015, 2014 and 2013, respectively.   Compensation costs related to restricted stock amounted to $55,000, $0 and $0 for the years ended December 31, 2015, 2014 and 2013,  respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2015 and 2014 was $398,000 and $271,000 respectively.  Net income was reduced by $92,000, $146,000 and $154,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE  11 - STOCK BASED COMPENSATION (CONTINUED)

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:

	2015					2014					2013
		Weighted					Weighted					Weighted
		Average		Average			Average		Average			Average		Aggregate
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	206,463	$	26.74			219,540	$	26.64			225,670	$	26.27
Granted	14,500		28.55			12,500		29.08			28,600		27.07
Exercised	(16,859)		26.19			(25,577)		27.05			(24,127)		23.83
Forfeited	(9,583)		27.02			-		-			(10,603)		28.92
Outstanding, end of year	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640	219,540	$	26.64	$	146,970
Exercisable, end of year	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640	190,940	$	26.58	$	146,900

Exercise prices for options outstanding as of December 31, 2015 ranged from $24.44 to $29.08 per share. The weighted average remaining contractual life is 5.2 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing with the following weighted average assumptions:

	Years Ended December 31,
	2015		2014		2013
Dividend yield		3.77%		3.57%		3.49%
Expected life		10 years		10 years		10 years
Expected volatility		24.35%		24.97%		25.91%
Risk-free interest rate		2.28%		2.17%		3.01%
Weighted average fair value of options granted	$	4.89	$	5.30	$	5.72

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Proceeds from stock option exercises totaled $441,000 in 2015. Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. During 2015, all the shares issued in connection with stock option exercises, 16,859 shares in total, were issued from available treasury shares.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE  11 - STOCK BASED COMPENSATION (CONTINUED)

All share and per share data have been adjusted to give retroactive effect to the 10% stock dividend declared in 2013.

As of December 31, 2015, outstanding stock options consist of the following:

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	16,174	$	27.62	0.3	16,174	$	27.62
	15,400		28.64	1.0	15,400		28.64
	15,400		28.41	2.0	15,400		28.41
	15,400		25.00	3.0	15,400		25.00
	14,397		25.99	4.0	14,397		25.99
	1,100		24.44	4.2	1,100		24.44
	18,700		25.25	5.0	18,700		25.25
	22,200		24.97	6.0	22,000		24.97
	23,100		27.05	7.0	23,100		27.05
	1,100		27.55	7.0	1,100		27.55
	2,000		28.95	7.7	2,000		28.95
	23,250		26.90	8.0	23,250		26.90
	12,000		29.08	9.0	12,000		29.08
	14,500		28.55	10.0	-		-
Total	194,521				180,021

A summary of the Company’s restricted stock activity and related information for the years ended December 31 is as follows:

	2015					2014
				Weighted-Average				Weighted-Average
	Number of			Grant Date		Number of		Grant Date
	Shares			Fair Value		Shares		Fair Value
Non-vested, beginning of year		9,300		$	29.08		-	$	-
Granted		6,650			28.55		9,300		29.08
Vested		(1,860	)		29.08		-		-
Forfeited		(280	)		29.08		-		-
Non-vested at December 31		13,810		$	28.82		9,300	$	29.08

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 12 - EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

	Years Ended December 31,
	2015		2014		2013
	(In Thousands, Except Per Share Data)
Numerator, net income	$	5,908	$	7,657	$	8,465
Denominator:
Weighted average shares outstanding		3,682		3,645		3,627
Less:  Weighted average unvested restricted shares		(9)		-		-
Denominator:  Basic earnings per share		3,673		3,645		3,627
Weighted average shares outstanding		3,682		3,645		3,627
Add:  Dilutive effect of stock options		9		12		5
Denominator:  Diluted earnings per share		3,691		3,657		3,632
Basic earnings per common share	$	1.60	$	2.10	$	2.33
Diluted earnings per common share	$	1.60	$	2.10	$	2.33

Stock options which had no intrinsic value because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 14,000, 12,500, and 129,000 for the years ended December 31, 2015, 2014 and 2013, respectively.  All share and per share data have been restated to give retroactive effect to the 10% stock dividend paid in 2013.

NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

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 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:

	December 31,
	2015		2014
	(In Thousands)
Commitments to grant loans	$	19,704	$	23,070
Unfunded commitments under lines of credit		48,641		45,269
Standby letters of credit		5,286		5,660
	$	73,631	$	73,999

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NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)

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.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.

The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e. supported with little or no market activity).

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NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

 An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (in thousands).

 For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2015 and 2014 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-
December 31, 2014
Available for Sale:
U.S. Government agencies	$	28,975	$	-	$	28,975	$	-
States and political subdivisions		54,332		-		54,332		-
Corporate obligations		6,486		-		6,486		-
Mortgage-backed securities-government
sponsored entities		66,204		-		66,204		-
Equity securities-financial services		398		398		-		-
Total available for sale	$	156,395	$	398	$	155,997	$	-

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2015 and 2014 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847
December 31, 2014
Impaired Loans	$	11,312	$	-	$	-	$	11,312
Foreclosed real estate		3,726		-		-		3,726

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NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

 The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10% (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7% (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

December 31, 2014
Impaired loans	$	11,312	Appraisal of collateral(1)	Appraisal adjustments(2)	6 - 33% (23.35%)
Foreclosed real estate owned	$	3,726	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.
(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. 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 December 31, 2015 and 2014.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities:

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence

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NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan’s collateral.  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 December 31, 2015, the fair value investment in impaired loans totaled $9,228,000 which included three loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and twenty loans for $2,855,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2015, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans.

As of December 31, 2014, the fair value investment in impaired loans totaled $11,605,000 which included three loans for $2,973,000 for which a valuation allowance of $293,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and fourteen loans for $8,632,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2014, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $1,022,000 over the life of the loans.

Mortgage servicing rights (generally carried at cost):

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is determined by estimating potential revenues and expenses of the various loan pools to arrive at a net cash flow stream, and then utilize present value methodologies on the cash flow stream at a current market yield.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

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NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Restricted investment in Federal Home Loan Bank stock (carried at cost):

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Bank owned life insurance (carried at cost):

The fair value is equal to the cash surrender value of the Bank owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost except certificates of deposit which are at fair value):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

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NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

 The estimated fair values of the Bank’s financial instruments were as follows at December 31, 2015 and December 31, 2014. (In thousands)

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		566,714
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and  outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	12,376	$	12,376	$	12,376	$	-	$	-
Securities		156,395		156,395		398		155,997		-
Loans receivable, net		495,260		507,833		-		-		507,833
Mortgage servicing rights		271		277		-		-		277
Regulatory stock		1,714		1,714		1,714		-		-
Bank owned life insurance		18,284		18,284		18,284		-		-
Accrued interest receivable		2,339		2,339		2,339		-		-
Financial liabilities:
Deposits		559,944		560,243		338,112		-		222,131
Short-term borrowings		25,695		25,695		25,695		-		-
Other borrowings		22,200		23,228		-		-		23,228
Accrued interest payable		966		966		966		-		-
Off-balance sheet financial instruments:
Commitments to extend credit an outstanding letters of credit		-		-		-		-		-

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NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income (loss) (in thousands) by component, net of tax, for the years ended December 31, 2015 and 2014:

	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488
	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2013	$	(2,602)
Other comprehensive income before reclassification		3,836
Amount reclassified from accumulated other comprehensive income		(772)
Total other comprehensive income		3,064
Balance as of December 31, 2014	$	462

(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 year ended December 31, 2015:

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2015		2014
Unrealized gains on available for sale securities	$	626	$	1,170	Net realized gains on sales of securities
		(213)		(398)	Income tax expense
	$	413	$	772	Net of tax

(a)    Amounts in parentheses indicate debits to net income.

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NORWOOD FINANCIAL CORP - 2015 CONSOLIDATED FINANCIAL REPORT

NOTE 16 – PROPOSED ACQUISITION OF DELAWARE BANCSHARES, INC.

On March 10, 2016, Norwood Financial Corp. (“Norwood Financial”) and its wholly owned subsidiary, Wayne Bank, and Delaware Bancshares, Inc. (“Delaware Bancshares”), and its wholly owned subsidiary, The National Bank of Delaware County (“NBDC Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Delaware Bancshares will merge with and into Norwood Financial, with Norwood Financial as the surviving corporation. Concurrent with the merger, it is expected that NBDC Bank will merge with and into Wayne Bank.

Under the terms of the Merger Agreement, each outstanding share of Delaware Bancshares common stock will be converted into either the right to receive $16.68 in cash or 0.6221 shares of Norwood Financial common stock or a combination of both.  Not more than 25% of the merger consideration shall be paid in cash and the remainder will be paid in Norwood Financial common stock.   In the event of a greater than 20% decline in market value of Norwood Financial common stock, Delaware Bancshares may, in certain circumstances, be able to terminate the Merger Agreement unless Norwood Financial increases the number of shares into which Delaware Bancshares common stock may be converted.

The senior management of Norwood Financial and Wayne Bank will remain the same following the merger.  The directors of NBDC Bank will be invited to join a newly formed regional advisory board.  Within 18 months of the merger, Norwood Financial and Wayne Bank will invite one member of the advisory board to join their boards.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Delaware Bancshares.  The merger is currently expected to be completed in the third quarter of 2016.

Each of the directors and executive officers of Delaware Bancshares have agreed to vote their shares in favor of the approval of the Merger Agreement at the shareholders’ meeting to be held to vote on the proposed transaction. If the merger is not consummated under certain circumstances, Delaware Bancshares has agreed to pay Norwood Financial a termination fee of $615,000.

The Merger Agreement also contains usual and customary representations and warranties that Norwood Financial and Delaware Bancshares made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract between Norwood Financial and Delaware Bancshares, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used to allocate risk between Norwood Financial and Delaware Bancshares rather than establishing matters as facts.

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NOTE 17 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2015		2014
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,151	$	1,846
Securities available for sale		384		398
Investment in bank subsidiary		95,895		94,268
Other assets		4,113		3,900
Total assets	$	102,543	$	100,412
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	1,545	$	1,371
Stockholders’ equity		100,998		99,041
Total liabilities and stockholders' equity	$	102,543	$	100,412

STATEMENTS OF INCOME

	Years Ended December 31,
	2015		2014		2013
Income:	(In Thousands)
Dividends from bank subsidiary	$	4,574	$	4,377	$	4,216
Other interest income		11		10		9
		4,585		4,387		4,225
Expenses		313		346		267
		4,272		4,041		3,958
Income tax benefit		(103)		(114)		(88)
		4,375		4,155		4,046
Equity in undistributed earnings of subsidiary		1,533		3,502		4,419
Net Income	$	5,908	$	7,657	$	8,465
Comprehensive Income	$	5,934	$	10,721	$	3,066

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,908	$	7,657	$	8,465
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(1,533)		(3,502)		(4,419)
Other, net		(19)		177		(247)
Net Cash Provided by Operating Activities		4,356		4,332		3,799
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		441		691		575
Tax benefit of stock options exercised		16		17		39
ESOP purchase of shares from treasury stock		146		150		146
Acquisition of treasury stock		(127)		(179)		(319)
Cash dividends paid		(4,527)		(4,370)		(4,155)
Net Cash Used in Financing Activities		(4,051)		(3,691)		(3,714)
Net Increase (Decrease) in Cash and Cash Equivalents		305		641		85
CASH AND CASH EQUIVALENTS - BEGINNING		1,846		1,205		1,120
CASH AND CASH EQUIVALENTS - ENDING	$	2,151	$	1,846	$	1,205

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INVESTOR INFORMATION

STOCK LISTING

Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. The following firms are known to make a market in the Company’s stock:

Boenning & Scattergood, Inc. West Conshohocken, PA  19428 800-883-1212	RBC Capital Markets Philadelphia, PA  19103 888-848-4677
Janney Montgomery Scott, LLC Scranton, PA  18503 800-638-4417	Stifel Nicolaus St,. Louis, MO                                63102 314-342-2000

TRANSFER AGENT

Computershare, P.O. Box 30170, College Station, TX  77842.   Stockholders who may have questions regarding their stock ownership should contact the Transfer Agent at 800-662-7232.

DIVIDEND CALENDAR

Dividends on Norwood Financial Corp common stock, if approved by the Board of Directors are customarily paid on or about February 1, May 1, August 1 and November 1.

AUTOMATIC DIVIDEND REINVESTMENT PLAN

The Plan, open to all shareholders, provides the opportunity to have dividends automatically reinvested into Norwood stock. Participants in the Plan may also elect to make cash contributions to purchase additional shares of common stock. Please contact the transfer agent for additional information.

SEC REPORTS AND ADDITIONAL INFORMATION

A copy of the Company’s annual report on Form 10-K for its fiscal year ended December 31, 2015 including financial statements and schedules thereto, required to be filed with the Securities and Exchange Commission is available on the Company’s website at www.waynebank.com under the Stockholder Services tab.  A copy of the report may be obtained upon written request of any stockholder, investor or analyst by contacting William S. Lance, Executive Vice President, Chief Financial Officer and Secretary, Norwood Financial Corp., 717 Main Street, PO Box 269, Honesdale, PA  18431, 570-253-1455.

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EX-23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement File Nos. 333-61487, 333-134831, and 333-195643 on Form S-8 of Norwood Financial Corp. of our reports dated March 15, 2016, relating to our audits of the consolidated financial statements and internal control over financial reporting, which appear in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K of Norwood Financial Corp. for the year ended December 31, 2015.

Wexford, Pennsylvania

March 15, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Lewis J. Critelli, certify that:

1. I have reviewed this annual report on Form 10-K 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-14(e) and 15d-14(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for  external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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 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:  March 15, 2016	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, William S. Lance, certify that:

1. I have reviewed this annual report on Form 10-K 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-14(e) and 15d-14(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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 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:  March 15, 2016	By:	/s/ William S. Lance
		William S. Lance Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

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 Annual Report of Norwood Financial Corp. (the Company) on Form 10-K for the year ending December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Lewis J. Critelli, President and Chief Executive Officer and William S. Lance, 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/ Lewis J. Critelli	/s/ William S. Lance
Lewis J. Critelli	William S. Lance
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

March 15, 2016

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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Mar. 01, 2016	Jun. 30, 2015
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2015
Entity Registrant Name	NORWOOD FINANCIAL CORP
Entity Central Index Key	0001013272
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		3,702,357
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Entity Current Reporting Status	Yes
Entity Public Float			$ 102.1
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No

XML

Consolidated Balance Sheets - USD ($) $ in Thousands		Dec. 31, 2015	Dec. 31, 2014
ASSETS
Cash and due from banks		$ 9,744	$ 8,081
Interest bearing deposits with banks		266	4,295
Cash and cash equivalents		10,010	12,376
Securities available for sale		138,851	156,395
Loans receivable (net of allowance for loan losses 2015: $7,298; 2014: $5,875)		552,627	495,260
Regulatory stock, at cost		3,412	1,714
Premises and equipment, net		6,472	6,734
Bank owned life insurance		18,820	18,284
Accrued interest receivable		2,363	2,339
Foreclosed real estate owned		2,847	3,726
Goodwill		9,715	9,715
Other intangibles		285	389
Deferred tax asset		3,669	3,285
Other assets		1,434	1,418
Total Assets		750,505	711,635
LIABILITIES
Deposits: Non-interest bearing demand		107,814	98,064
Deposits: Interest-bearing demand		52,040	46,441
Deposits: Money market deposit accounts		119,028	120,603
Deposits: Savings		75,280	73,004
Deposits: Time		196,747	221,832
Total deposits		550,909	559,944
Short-term borrowings		53,235	25,695
Other borrowings		41,126	22,200
Accrued interest payable		957	966
Other liabilities		3,280	3,789
Total Liabilities		649,507	612,594
STOCKHOLDERS' EQUITY
Common stock, $.10 par value per share, authorized 10,000,000 shares, issued: 2015: 3,724,668 shares, 2014: 3,718,018 shares		373	372
Surplus		35,351	35,206
Retained earnings		65,412	64,078
Treasury stock at cost: 2015: 23,311 shares, 2014: 40,576 shares		(626)	(1,077)
Accumulated other comprehensive income	[1]	488	462
Total Stockholders' Equity		100,998	99,041
Total Liabilities and Stockholders' Equity		$ 750,505	$ 711,635

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Balance Sheets (parenthetical) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Consolidated Balance Sheets [Abstract]
Allowance for loan losses	$ 7,298	$ 5,875
Common Stock, Par or Stated Value Per Share	$ 0.10	$ 0.10
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	3,724,668	3,718,018
Treasury Stock, Shares	23,311	40,576

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
INTEREST INCOME
Loans receivable, including fees	$ 24,002	$ 23,841	$ 24,576
Securities: Taxable	1,918	2,032	1,662
Securities: Tax exempt	1,843	1,888	1,995
Other	16	7	26
Total interest income	27,779	27,768	28,259
INTEREST EXPENSE
Deposits	2,421	2,463	2,848
Short-term borrowings	85	77	66
Other borrowings	752	668	684
Total interest expense	3,258	3,208	3,598
Net Interest Income	24,521	24,560	24,661
Provision for loan losses	4,580	1,680	2,400
Net interest income after provision for loan losses	19,941	22,880	22,261
OTHER INCOME
Service charges and fees	2,440	2,350	2,412
Income from fiduciary activities	439	437	379
Net realized gains on sales of securities	626	1,170	881
Net gain on sale of loans and servicing rights	104	132	112
Earnings and proceeds on life insurance policies	665	685	1,386
Other	425	336	445
Total other income	4,699	5,110	5,615
OTHER EXPENSES
Salaries and employee benefits	8,535	8,616	8,447
Occupancy	1,660	1,676	1,598
Furniture and equipment	422	441	538
Data processing related operations	943	929	891
Federal Deposit Insurance Corporation insurance assessment	411	420	444
Advertising	240	224	208
Professional fees	730	671	626
Postage and telephone	436	414	435
Taxes, other than income	711	649	710
Foreclosed real estate expense	911	1,555	567
Amortization of intangible assets	105	121	137
Other	1,996	2,011	2,104
Total other expenses	17,100	17,727	16,705
Income before Income Taxes	7,540	10,263	11,171
Income tax expense	1,632	2,606	2,706
Net Income	$ 5,908	$ 7,657	$ 8,465
EARNINGS PER SHARE
BASIC EARNINGS PER SHARE	$ 1.60	$ 2.10	$ 2.33
DILUTED EARNINGS PER SHARE	$ 1.60	$ 2.10	$ 2.33

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Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015		Dec. 31, 2014		Dec. 31, 2013
Consolidated Statement of Comprehensive Income [Abstract]
Net Income	$ 5,908		$ 7,657		$ 8,465
Other comprehensive income (loss):
Investment securities available for sale: Unrealized holding gains (losses)	656		5,820		(7,299)
Investment securities available for sale: Tax effect	(217)		(1,984)		2,481
Reclassification of gains from sale of securities	(626)		(1,170)		(881)
Reclassification of gains from sale of securities: Tax effect	213		398		300
Other comprehensive income (loss), net of tax amount	26	[1]	3,064	[1]	(5,399)
Comprehensive Income	$ 5,934		$ 10,721		$ 3,066

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Beginning balance at Dec. 31, 2012	$ 337	$ 24,737	$ 66,742	$ (2,192)	$ 2,797	$ 92,421
Common Stock, Beginning Balance at Dec. 31, 2012	3,371,849			75,426
Net Income	$ 0	0	8,465	$ 0	0	8,465
Other comprehensive loss	0	0	0	0	(5,399)	(5,399)
Cash dividends declared	0	0	(4,216)	0	0	(4,216)
Acquisition of treasury stock	0	0	0	$ (319)	0	(319)
Acquisition of treasury stock, shares				10,712
Stock options exercised	0	(79)	0	$ 654	0	$ 575
Stock options exercised, shares				(24,127)		(24,127)
Tax benefit of stock options exercised	0	39	0	$ 0	0	$ 39
Sale of treasury stock for ESOP	0	2	0	$ 144	0	146
Sale of treasury stock for ESOP, shares				(5,426)
Compensation expense related to stock options	0	162	0	$ 0	0	162
Stock dividend declared-10%	$ 34	10,149	(10,193)	$ 0	0	(10)
Stock dividend declared, shares	336,869			8,043
Common Stock, Ending Balance at Dec. 31, 2013	3,708,718			64,628
Ending balance at Dec. 31, 2013	$ 371	35,010	60,798	$ (1,713)	(2,602)	91,864
Net Income	0	0	7,657	0	0	7,657
Other comprehensive loss	0	0	0	0	3,064	3,064	[1]
Cash dividends declared	0	0	(4,377)	0	0	(4,377)
Acquisition of treasury stock	0	0	0	$ (179)	0	(179)
Acquisition of treasury stock, shares				6,669
Stock options exercised	0	13	0	$ 678	0	$ 691
Stock options exercised, shares				(25,577)		(25,577)
Tax benefit of stock options exercised	0	17	0	$ 0	0	$ 17
Sale of treasury stock for ESOP	0	13	0	$ 137	0	150
Sale of treasury stock for ESOP, shares				(5,144)
Compensation expense related to stock options	0	154	0	$ 0	0	154
Restricted stock awards	$ 1	(1)	0	$ 0	0	0
Restricted stock awards, shares	9,300			0
Common Stock, Ending Balance at Dec. 31, 2014	3,718,018			40,576
Ending balance at Dec. 31, 2014	$ 372	35,206	64,078	$ (1,077)	462	99,041
Net Income	0	0	5,908	0	0	5,908
Other comprehensive loss	0	0	0	0	26	26	[1]
Cash dividends declared	0	0	(4,574)	0	0	(4,574)
Acquisition of treasury stock	0	0	0	$ (127)	0	(127)
Acquisition of treasury stock, shares				4,374
Stock options exercised	0	(9)	0	$ 450	0	$ 441
Stock options exercised, shares				(16,859)		(16,859)
Tax benefit of stock options exercised	0	16	0	$ 0	0	$ 16
Sale of treasury stock for ESOP	0	10	0	$ 136	0	146
Sale of treasury stock for ESOP, shares				(5,060)
Compensation expense related to stock options	0	66	0	$ 0	0	66
Restricted stock awards	$ 1	62	0	$ (8)	0	55
Restricted stock awards, shares	6,650			280
Common Stock, Ending Balance at Dec. 31, 2015	3,724,668			23,311
Ending balance at Dec. 31, 2015	$ 373	$ 35,351	$ 65,412	$ (626)	$ 488	$ 100,998

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Statements of Changes in Stockholders' Equity (parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Cash dividends declared	$ 1.24	$ 1.20	$ 1.16
Common Stock, Dividend Rate, Percentage			10.00%

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$ 5,908	$ 7,657	$ 8,465
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,580	1,680	2,400
Depreciation	551	572	594
Amortization of intangible assets	105	121	137
Deferred income taxes	(387)	(51)	140
Net amortization of securities premiums and discounts	936	860	1,057
Net realized gains on sales of securities	(626)	(1,170)	(881)
Earnings and proceeds on life insurance policies	(665)	(685)	(617)
Loss on sales of fixed assets and foreclosed real estate owned	427	920	347
Net gain on sale of mortgage loans	(113)	(150)	(112)
Mortgage loans originated for sale	(4,297)	(4,269)	(3,986)
Proceeds from sale of mortgage loans originated for sale	4,410	4,419	4,053
Compensation expense related to stock options	66	154	162
Compensation expense related to restricted stock	55	0	0
(Increase) decrease in accrued interest receivable and other assets	113	238	759
(Decrease) increase in accrued interest payable and other liabilities	(565)	235	173
Net cash provided by operating activities	10,498	10,531	12,691
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale: Proceeds from sales	44,976	66,263	42,348
Securities available for sale: Proceeds from maturities and principal reductions on mortgage-backed securities	22,853	14,859	21,142
Securities available for sale: Purchases	(50,565)	(74,426)	(84,589)
Proceeds from maturities on securities held-to-maturity	0	175	0
Purchase of regulatory stock	(4,095)	(1,963)	(741)
Redemption of regulatory stock	2,397	3,126	494
Net increase in loans	(65,830)	(4,270)	(29,515)
Proceeds from bank-owned life insurance	0	75	1,089
Purchase of bank-owned life insurance	0	0	(3,000)
Purchase of premises and equipment	(290)	(193)	(393)
Proceeds from sales of foreclosed real estate owned and fixed assets	4,310	1,045	508
Net cash (used in) provided by investing activities	(46,244)	4,691	(52,657)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits	(9,035)	18,762	16,757
Net increase (decrease) in short-term borrowings	27,540	(24,219)	21,217
Repayments of other borrowings	(10,074)	(1,561)	(5,726)
Proceeds from other borrowings	29,000	0	7,000
Stock options exercised	441	691	575
Tax benefit of stock options exercised	16	17	39
ESOP purchase of shares from treasury stock	146	150	146
Purchase of treasury stock	(127)	(179)	(319)
Cash dividends paid	(4,527)	(4,370)	(4,155)
Net cash provided by (used in) financing activities	33,380	(10,709)	35,534
Net (Decrease) increase in cash and cash equivalents	(2,366)	4,513	(4,432)
CASH AND CASH EQUIVALENTS - BEGINNING	12,376	7,863	12,295
CASH AND CASH EQUIVALENTS - ENDING	10,010	12,376	7,863
Supplemental Disclosure of Cash Flow Information
Cash payments for: Interest paid	3,267	3,264	3,818
Cash payments for: Income taxes paid, net of refunds	2,315	2,645	2,417
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate and repossession of other assets	3,880	4,704	1,012
Dividends payable	$ 1,147	$ 1,100	$ 1,093

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Nature of Operations

12 Months Ended

Dec. 31, 2015

Nature of Operations [Abstract]

NATURE OF OPERATIONS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Norwood Financial Corp (Company) is a one bank holding company. Wayne Bank (Bank) is a

wholly-owned subsidiary of the Company. The Bank is a state-chartered bank located in Honesdale, Pennsylvania. The Company derives substantially all of its income from the bank related services which include interest earnings on commercial mortgages, residential real estate mortgages, commercial and consumer loans, as well as interest earnings on investment securities and fees from deposit services to its customers. The Company is subject to regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located within northeastern Pennsylvania. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and, accordingly, 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. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of borrowers.

Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each Consolidated Balance Sheet date.

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2015.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. 

Loans Acquired

Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2015 and 2014, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2015 and 2014, were $261,000 and $271,000, respectively.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance

The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill

In connection with an acquisition the Company recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.

Intangible Assets

At December 31, 2015, the Company had intangible assets of $285,000 which is net of accumulated amortization of $610,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2014, the Company had intangible assets of $389,000 which is net of accumulated amortization of $506,000.  Amortization expense related to intangible assets was $105,000,  $121,000 and $137,000 for the years ended December 31, 2015, 2014 and 2013. 

As of December 31, 2015, the estimated future amortization expense for the core deposit intangible was:

2016	$	88,000
2017		72,000
2018		56,000
2019		39,000
2020		23,000
2021		7,000
	$	285,000

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2015 or 2014 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs

Advertising costs are expensed as incurred.

Earnings per Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Stock Option Plans

The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

Restricted Stock

The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

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.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

Trust Assets

Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income

Accounting principles generally 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting

The Company acts as an independent community financial service provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014.  Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method.  The Company has included the disclosures related to this Update in Note 4.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  The amendments also require enhanced disclosures.  The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014.  An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited.  The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The Company has included the disclosures related to this Update in Note 7.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period.  The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.ThisUpdateis not expected to have a significant impact on the Company’s financialstatements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  This Update didnot have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).  This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity.  An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from U.S. GAAP the concept of extraordinary items.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017.  This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expectedto have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115.  This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers  (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.  This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements.  This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.  The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position.  For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.  The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Securities

12 Months Ended

Dec. 31, 2015

Securities [Abstract]

Securities

NOTE 3 - SECURITIES

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

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

	December 31, 2014
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	29,289	$	42	$	(356)	$	28,975
States and political subdivisions		52,685		1,750		(103)		54,332
Corporate obligations		6,387		110		(11)		6,486
Mortgage-backed securities-
government sponsored entities		67,032		109		(937)		66,204
Total debt securities		155,393		2,011		(1,407)		155,997
Equity securities-financial services		292		106		-		398
	$	155,685	$	2,117	$	(1,407)	$	156,395

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

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	6,058	$	(71)	$	2,109	$	(37)	$	8,167	$	(108)
States and political subdivisions		9,086		(99)		1,417		(13)		10,503		(112)
Corporate obligations		2,221		(4)		-		-		2,221		(4)
Mortgage-backed securities-government sponsored entities		40,300		(432)		16,595		(513)		56,895		(945)
	$	57,665	$	(606)	$	20,121	$	(563)	$	77,786	$	(1,169)

	December 31, 2014
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	4,965	$	(17)	$	15,051	$	(339)	$	20,016	$	(356)
States and political subdivisions		3,195		(20)		4,633		(83)		7,828		(103)
Corporate obligations		-		-		1,144		(11)		1,144		(11)
Mortgage-backed securities-government sponsored entities		22,090		(189)		26,050		(748)		48,140		(937)
	$	30,250	$	(226)	$	46,878	$	(1,181)	$	77,128	$	(1,407)

The Company has 54 debt securities in the less than twelve month category and 22 debt securities in the twelve months or more category as of December 31, 2015.  In management’s opinion, the unrealized losses on securities reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2015.  Management believes that all other unrealized losses represent temporary impairment of the securities, and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The amortized cost and fair value of debt securities as of December 31, 2015 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.

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	640	$	647
Due after one year through five years		13,044		13,003
Due after five years through ten years		8,437		8,529
Due after ten years		51,207		52,719
		73,328		74,898
Mortgage-backed securities - government sponsored entities		64,491		63,569
	$	137,819	$	138,467

Gross realized gains and gross realized losses on sales of securities available for sale were $626,000 and $0, respectively, in 2015, compared to $1,199,000 and $29,000, respectively, in 2014, and $908,000 and $27,000, respectively, in 2013. The proceeds from the sales of securities totaled $44,976,000$66,263,000 and$42,348,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

Securities with a carrying value of $97,671,000 and $102,994,000 at December 31, 2015 and 2014, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

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Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Loans Receivable and Allowance for Loan Losses [Abstract]

Loans Receivable and Allowance for Loan Losses

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Set forth below is selected data relating to the composition of the loan portfolio at December 31:

	December 31, 2015				December 31, 2014
Real Estate:
Residential	$	161,820	28.9	%	$	158,139	31.5	%
Commercial		279,123	49.8			261,956	52.2
Construction		18,987	3.4			19,221	3.9
Commercial, financial and agricultural		71,090	12.7			42,514	8.5
Consumer loans to individuals		29,231	5.2			19,704	3.9
Total loans		560,251	100.0	%		501,534	100.0	%
Deferred fees, net		(326)				(399)
Total loans receivable		559,925				501,135
Allowance for loan losses		(7,298)				(5,875)
Net loans receivable	$	552,627			$	495,260

Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. The carrying value of purchased loans acquired with deteriorated credit quality was $498,000 at December 31, 2015. 

Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended December 31:

(In thousands)

	2015		2014		2013
Balance at beginning of period	$	8	$	20	$	76
Accretion		(1)		(12)		(56)
Reclassification and other		(7)		-		-
Balance at end of period	$	-	$	8	$	20

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

	December 31, 2015		December 31, 2014
Outstanding Balance	$	498	$	1,057
Carrying Amount	$	498	$	1,049

There were no material increases or decreases in the expected cash flows of these loans  since the acquisition date. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality as of May 31, 2011. In addition, there has been no allowance for loan losses on these loans reversed.  As of December 31, 2015, for loans that were acquired with or without specific evidence of deterioration in credit quality, adjustments to the allowance for loan losses have been accounted for through the allowance for loan loss adequacy calculation.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  The system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans identified as impaired are evaluated independently.  The Company does not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

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

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2015
Individually evaluated for  impairment	$	28	$	8,660	$	-	$	42	$	-	$	8,730
Loans acquired with deteriorated credit quality		140		358		-		-		-		498
Collectively evaluated for impairment		161,652		270,105		18,987		71,048		29,231		551,023
Total Loans	$	161,820	$	279,123	$	18,987	$	71,090	$	29,231	$	560,251

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2014
Individually evaluated for  impairment	$	-	$	10,556	$	-	$	-	$	-	$	10,556
Loans acquired with deteriorated credit quality		225		824		-		-		-		1,049
Collectively evaluated for impairment		157,914		250,576		19,221		42,514		19,704		489,929
Total Loans	$	158,139	$	261,956	$	19,221	$	42,514	$	19,704	$	501,534

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

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2014	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	225	$	233	$	-
Commercial		8,407		8,566		-
Subtotal		8,632		8,799		-
With an allowance recorded:
Real Estate Loans
Commercial		2,973		3,837		293
Subtotal		2,973		3,837		293
Total:
Real Estate Loans
Residential		225		233		-
Commercial		11,380		12,403		293
Total Impaired Loans	$	11,605	$	12,636	$	293

The following information for impaired loans is presented for the year ended December 31, 2015 and 2014:

	Average Recorded	Average Recorded					Interest Income
		Investment					Recognized
	2015		2014			2013	2015		2014			2013
	(In thousands)
Total:
Real Estate Loans
Residential	$	159	$	233	$	252	$	4	$	5	$	5
Commercial		8,847		7,492		10,328		526		503		236
Commercial Loans		9		-		-		2		-		-
Total Loans	$	9,015	$	7,725	$	10,580	$	532	$	508	$	241

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 December 31, 2015, troubled debt restructured loans totaled $6.8 million and resulted in specific reserves of $1,613,000.  During 2015, there were two new loan relationships identified as troubled debt restructurings totaling $176,000 based on executed modification agreements, while one loan with a balance of $1.7 million as of December 31, 2014 was transferred to Foreclosed Real Estate Owned during 2015 as a result of foreclosure on the property. During 2015, the Company recognized charge-offs totaling $1.3 million on loans classified as troubled debt restructurings.  Additionally, the Company recognized  expenses of $322,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

As of December 31, 2014, troubled debt restructured loans totaled $8.8 million and resulted in specific reserves of $293,000.  During 2014, there was one new loan relationship identified as troubled debt restructurings totaling $4.9 million based on extended deferrals of principal payments, while two loans with a balance of $4.7 million as of December 31, 2013 were transferred to Foreclosed Real Estate Owned during 2014 as a result of foreclosure on the properties. During 2014, the Company recognized charge-offs totaling $573,000 on loans classified as troubled debt restructurings in prior periods.  No losses were recognized on loans identified as troubled debt restructurings in 2014.  Additionally, the Company recognized a writedown of $680,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

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 December 31, 2015 and 2014, foreclosed real estate owned totaled $2,847,000 and $3,726,000, respectively.  As of December 31, 2015, included within foreclosed real estate owned is $267,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end.  As of December 31, 2015, the Company has initiated formal foreclosure proceedings on $110,000 of consumer residential mortgage loans.

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as non performance, repossession, or death occurs to raise awareness of a possible credit event.  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.  Loan Review also annually reviews relationships of $1,000,000 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  December 31, 2015 and December 31, 2014 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Commercial real estate loans	$	267,892	$	1,837	$	9,394	$	-	$	-	$	279,123
Commercial		71,047		-		43		-		-		71,090
Total	$	338,939	$	1,837	$	9,437	$	-	$	-	$	350,213

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2014
Commercial real estate loans	$	246,629	$	1,983	$	13,344	$	-	$	-	$	261,956
Commercial		42,514		-		-		-		-		42,514
Total	$	289,143	$	1,983	$	13,344	$	-	$	-	$	304,470

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2015 and December 31, 2014 (in thousands):

	Performing		Nonperforming		Total
December 31, 2015
Residential real estate loans	$	161,380	$	440	$	161,820
Construction		18,987		-		18,987
Consumer loans to individuals		29,231		-		29,231
Total	$	209,598	$	440	$	210,038

	Performing		Nonperforming		Total
December 31, 2014
Residential real estate loans	$	156,464	$	1,675	$	158,139
Construction		19,221		-		19,221
Consumer loans to individuals		19,700		4		19,704
Total	$	195,385	$	1,679	$	197,064

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 December 31, 2015 and December 31, 2014 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2014
Real Estate loans
Residential	$	156,242	$	222	$	-	$	-	$	1,675	$	1,897	$	158,139
Commercial		252,495		5,100		440		-		3,921		9,461		261,956
Construction		19,221		-		-		-		-		-		19,221
Commercial  loans		42,500		14		-		-		-		14		42,514
Consumer  loans		19,606		94		-		-		4		98		19,704
Total	$	490,064	$	5,430	$	440	$	-	$	5,600	$	11,470	$	501,534

The following table presents changes in the allowance for loan losses by class:

	Year ended December 31,
	(dollars in thousands)
	2015		2014			2013
Allowance at beginning of period	$	5,875	$	5,708	$	5,502
Charge-offs:
Real Estate loans
Residential		(224)		(270)		(603)
Commercial		(2,883)		(1,196)		(1,488)
Construction		-		-		(40)
Commercial  loans		-		-		(4)
Consumer  loans		(91)		(80)		(90)
Total		(3,198)		(1,546)		(2,225)
Recoveries:
Real Estate loans
Residential		20		-		9
Commercial		-		2		-
Construction		-		-		-
Commercial  loans		-		-		-
Consumer  loans		21		31		22
Total		41		33		31
Provision for loan losses		4,580		1,680		2,400
Allowance at end of period	$	7,298	$	5,875	$	5,708

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Charge Offs		(224)		(2,883)		-		-		(91)		(3,198)
Recoveries		20		-		-		-		21		41
Provision for loan losses		(50)		4,499		(132)		141		122		4,580
Ending balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Ending balance individually evaluated for impairment	$	-	$	1,613	$	-	$	-	$	-	$	1,613
Ending balance collectively evaluated for impairment	$	1,069	$	3,893	$	90	$	397	$	236	$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluated for impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) and $8,632,000 (net of charge-offs against the allowance for loan losses of $158,000) at December 31, 2015 and 2014, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $6,373,000 (net of a charge-off against the allowance for loan losses of $73,000) and $2,973,000 (net of a charge-off against the allowance for loan losses of $864,000) at December 31, 2015 and 2014, respectively. The specific reserve related to impaired loans was $1,613,000 for 2015 and $293,000 for 2014. For the years ended December 31, 2015 and 2014, the average recorded investment in these impaired loans was $9,015,000, and $7,725,000, respectively, and the interest income recognized on these impaired loans was $532,000 and $508,000, respectively.

During the period ended December 31, 2015, the allowance for residential real estate loans decreased from $1,323,000 to $1,069,000.  This $254,000 decrease in the required allowance was due primarily to a decrease in the historical loss factor from 0.30% at December 31, 2014 to 0.23% on December 31, 2015.  During the same period, the required allowance for commercial real estate loans increased from $3,890,000 at December 31, 2014 to $5,506,000 on December 31, 2015.  This increase can be attributed to a $1,320,000 increase in the specific reserve component.

 Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $515,000,  $451,000 and $724,000 for 2015, 2014 and 2013, respectively.

The Company’s primary business activity is with customers located in northeastern Pennsylvania. 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. The Company does not have any significant concentrations to any one customer.

As of December 31, 2015 and 2014, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2015, the highest concentrations are in the hospitality lodging industry and automobile dealers, with loans outstanding of $52.6 million, or 56.8% of bank capital, to the hospitality lodging industry, and $27.5 million, or 29.7% of bank capital to the automobile dealer industry.  Charge-offs on loans within these concentrations were $643,000,  $422,000 and $0 for the years ended December 31, 2015, 2014 and 2013, respectively.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $113,000 and $0, respectively, in 2015 compared to $150,000 and $0, respectively, in 2014 and $74,000 and $7,000, respectively, in 2013.  The proceeds from the sales of residential mortgage loans totaled $4.4 million, $4.4 million and $4.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.

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Premises and Equipment

12 Months Ended

Dec. 31, 2015

Premises and Equipment [Abstract]

PREMISES AND EQUIPMENT

NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at December 31 are as follows:

	2015		2014
	(In Thousands)
Land and improvements	$	2,316	$	2,275
Buildings and improvements		9,857		9,723
Furniture and equipment		4,415		4,332
		16,588		16,330
Accumulated depreciation		(10,116)		(9,596)
	$	6,472	$	6,734

Depreciation expense totaled $551,000,  $572,000 and $594,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

Certain facilities are leased under various operating leases. Rental expense for these leases was $341,000,  $338,000 and $325,000, respectively, for the years ended December 31, 2015, 2014 and 2013. Future minimum rental commitments under noncancellable leases as of December 31, 2015 were as follows (in thousands):

2016	$	352
2017		363
2018		363
2019		368
2020		376
Thereafter		1,844
	$	3,666

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Deposits

12 Months Ended

Dec. 31, 2015

Deposits [Abstract]

DEPOSITS

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $250,000 or more were $22,041,000 and $42,009,000 at December 31, 2015 and 2014, respectively. Included in deposit accounts are deposits of one customer relationship totaling $10,942,000 at December 31, 2015.

At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands):

2016	$	90,197
2017		54,846
2018		23,449
2019		20,926
2020		7,329
	$	196,747

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Borrowings

12 Months Ended

Dec. 31, 2015

Borrowings [Abstract]

BORROWINGS

NOTE 7 – BORROWINGS

Short-term borrowings at December 31 consist of the following:

	2015		2014
	( In Thousands)
Securities sold under agreements to repurchase	$	33,563	$	25,695
Federal Home Loan Bank short-term borrowings		19,672		-
	$	53,235	$	25,695

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2015			2014
	(Dollars In Thousands)
Average balance during the year	$	34,057		$	36,514
Average interest rate during the year		0.25	%		0.21	%
Maximum month-end balance during the year	$	55,183		$	49,634
Weighted average interest rate at the end of the year		0.36	%		0.20	%

Securities sold under agreements to repurchase generally mature within one day to one year from the transaction date. Securities with an amortized cost and fair value of $36,797,000 and $36,316,000 at December 31, 2015 and $28,914,000 and $28,437,000 at December 31, 2014, respectively, were pledged as collateral for these agreements. The securities underlying the agreements were under the Company’s control.

The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized as follows:

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $139,144,000 which expires in May, 2016.  At December 31, 2015, there were $19,672,000 of borrowings outstanding on this line.  There were no borrowings under this line of credit at December 31, 2014. The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires on June 30, 2016.  There were no borrowings under this line of credit at December 31, 2015 and 2014. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2015. There were no borrowings under this line of credit at December 31, 2015 and December 31, 2014.  The Company also has a line of credit commitment from Zion’s Bank for $17,000,000.  There were no borrowings under this line of credit at December 31, 2015 and December 31, 2014.

Other borrowings consisted of the following at December 31, 2015 and 2014:

	2015		2014
	(In Thousands)
Notes with the FHLB:
Convertible note due July 2015 at 4.34%	$	-	$	7,111
Convertible note due January 2017 at 4.71%		10,000		10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		8,000		-
Amortizing fixed rate borrowing due January 2018 at 0.91%		1,267		1,866
Amortizing fixed rate borrowing due December 2018 at 1.42%		2,434		3,223
Amortizing fixed rate borrowing due June 2020 at 1.49%		9,033		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		5,392		-
	$	41,126	$	22,200

The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the Bank to put the funds back to the FHLB at no charge.

Contractual maturities of other borrowings at December 31, 2015 are as follows (in thousands):

2017	$	18,000
2018		3,701
2020		14,033
2022		5,392
	$	41,126

The Bank’s maximum borrowing capacity with the FHLB was $281,493,000 of which $60,798,000 was outstanding at December 31, 2015. Advances from the FHLB are secured by qualifying assets of the Bank.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2015

Employee Benefit Plans [Abstract]

EMPLOYEE BENEFIT PLANS

The Company has a defined contributory profit-sharing plan which includes provisions of a 401(k) plan. The plan permits employees to make pre-tax contributions up to 15% of the employee’s compensation, not to exceed the limits set by the Internal Revenue Service. The amount of contributions to the plan, including matching contributions, is at the discretion of the Board of Directors. All employees over the age of 21 are eligible to participate in the plan and receive Company contributions after one year of employment. Eligible employees are able to contribute to the Plan at the beginning of the first quarterly period after their date of employment.  Employee contributions vest immediately, and any Company contributions are fully vested after five years. The Company’s contributions are expensed as the cost is incurred, funded currently, and amounted to $445,000,  $445,000 and $440,000 for the years ended December 31, 2015, 2014 and 2013, respectively. 

The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive officers. At December 31, 2015 and 2014, other liabilities include $1,427,000 and $1,443,000 accrued under the Plan. Compensation expense includes approximately $122,000,  $124,000 and $126,000 relating to the supplemental executive retirement plan for 2015, 2014 and 2013, respectively. To fund the benefits under this plan, the Company is the owner of single premium life insurance policies on participants in the non-qualified retirement plan. At December 31, 2015 and 2014, the cash value of these policies was $18,820,000 and $18,284,000, respectively.

The Company provides post retirement benefits in the form of split-dollar life arrangements to employees who meet the eligibility requirements.

The net periodic post retirement benefit expense included in salaries and employee benefits was $89,000 and $87,000 for the years ended December 31, 2015 and 2014, respectively.

The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and Plan # 001) as a result of its acquisition of North Penn.  As of December 31, 2015 and 2014, the Company’s Plan was 79.9% and 98.9% funded, respectively, and total contributions made are not more than 5% of the total contributions to the Plan.  The Company’s expense related to the Plan was $48,000 in 2015,$17,000 in 2014 and $22,000 in 2013.  During the plan years ending December 31, 2015, 2014 and 2013, the Company made contributions of $48,000,  $17,000 and $22,000, respectively.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

INCOME TAXES

NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:

	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
Current	$	2,019	$	2,657	$	2,566
Deferred		(387)		(51)		140
	$	1,632	$	2,606	$	2,706

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2015		2014		2013
Tax at statutory rates	34.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(11.3)		(7.7)		(6.7)
Incentive stock options	0.3		0.4		0.4
Earnings and proceeds on life insurance	(1.8)		(1.5)		(3.7)
Other	0.4		0.2		0.2
	21.6	%	25.4	%	24.2	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:

	2015		2014
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,481	$	1,997
Deferred compensation		485		491
Purchase price adjustment		884		999
Other		182		201
Foreclosed real estate valuation allowance		305		280
Total Deferred Tax Assets		4,337		3,968
Deferred tax liabilities:
Premises and equipment		245		265
Deferred loan fees		172		170
Net unrealized gains on securities		251		248
Total Deferred Tax Liabilities		668		683
Net Deferred Tax Asset	$	3,669	$	3,285

The Company’s federal and state income tax returns for taxable years through 2011 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

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Regulatory Matters and Stockholders' Equity

12 Months Ended

Dec. 31, 2015

Regulatory Matters and Stockholders' Equity [Abstract]

REGULATORY MATTERS AND STOCKHOLDERS' EQUITY

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2015 and 2014, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2015, the most recent notification from the regulators has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are presented in the table:

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provision
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	92,777	16.25	%	≥$45,672	≥8.00	%	≥$7,090	≥10.00	%
Tier 1 capital (to risk-weighted assets)		85,638	15.00		≥34,254	≥6.00		≥45,672	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		85,638	15.00		≥25,690	≥4.50		≥37,108	≥6.50
Tier 1 capital (to average assets)		85,638	11.73		≥29,203	≥4.00		≥36,504	≥5.00
As of December 31, 2014:
Total capital (to risk-weighted assets)	$	89,613	17.59	%	≥$40,767	≥8.00	%	≥$50,959	≥10.00	%
Tier 1 capital (to risk-weighted assets)		83,738	16.43		≥20,383	≥4.00		≥30,575	≥6.00
Tier 1 capital (to average assets)		83,738	11.93		≥28,069	≥4.00		≥35,086	≥5.00

The Company’s ratios do not differ significantly from the Bank’s ratios presented above.

Effective January 1, 2015, the Company and the Bank became subject to new regulatory capital rules which, among other things, impose a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk-weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The new rules also require unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is exercised, which the Company and the Bank have done.  The final rule limits a banking organization’s dividends, stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers, if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements.  The capital conservation buffer requirements will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer will be effective.  The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of December 31, 2015.

The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank. The amount of these restricted cash reserve balances at December 31, 2015 and 2014 was approximately $437,000 and $368,000, respectively.

Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2015, $65,777,000 of retained earnings were available for dividends without prior regulatory approval, subject to the regulatory capital requirements discussed above. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including the Company, unless such loans are collateralized by specific obligations.

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Stock Based Compensation

12 Months Ended

Dec. 31, 2015

Stock-Based Compensation [Abstract]

STOCK BASED COMPENSATION

NOTE 11 - STOCK BASED COMPENSATION

The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the Annual Meeting on April 26, 2006. An aggregate of 275,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 44,000 shares for awards to outside directors. Under this plan, the Company granted 7,423 options to employees in 2015, 12,500 options to employees in 2014, and 28,600 options, which included 4,000 options granted to outside directors in 2013.  As of December 31, 2015, there were 4,057 shares available for stock option awards to outside directors.

At the Annual Meeting held on April 22, 2014, the Company’s shareholders approved the Norwood Financial Corp 2014 Equity Incentive Plan. An aggregate of 250,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 40,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 42,000 shares of restricted stock awards for officers and 8,000 shares of restricted stock awards for outside directors. Under this plan, the Company granted 13,727 shares in 2015 which included 7,077 options to employees, 4,250 shares of restricted stock to officers and 2,400 shares of restricted stock to directors.  In 2014, the Company granted 9,300 shares, which included 2,800 shares to outside directors.  All shares granted in 2014 were for restricted stock.  The restricted shares vest over a five-year period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the company’s restricted stock plan.  Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.  As of December 31, 2015, there were 226,973 shares available for future awards under this plan, which includes 192,173 shares available for officer awards and 34,800 shares available for awards to outside directors.  Included in these totals are 31,250 shares available for restricted stock awards to officers and 2,800 shares available for restricted stock awards to outside directors.

Total unrecognized compensation cost related to stock options was $71,000 as of December 31, 2015, $66,000 as of December 31, 2014, and $157,000 as of December 31, 2013.  Salaries and employee benefits expense includes $66,000,  $154,000 and $162,000 of compensation costs related to options for the years ended December 31, 2015, 2014 and 2013, respectively.   Compensation costs related to restricted stock amounted to $55,000,  $0 and $0 for the years ended December 31, 2015, 2014 and 2013,  respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2015 and 2014 was $398,000 and $271,000 respectively.  Net income was reduced by $92,000,  $146,000 and $154,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:

	2015					2014					2013
		Weighted					Weighted					Weighted
		Average		Average			Average		Average			Average		Aggregate
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	206,463	$	26.74			219,540	$	26.64			225,670	$	26.27
Granted	14,500		28.55			12,500		29.08			28,600		27.07
Exercised	(16,859)		26.19			(25,577)		27.05			(24,127)		23.83
Forfeited	(9,583)		27.02			-		-			(10,603)		28.92
Outstanding, end of year	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640	219,540	$	26.64	$	146,970
Exercisable, end of year	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640	190,940	$	26.58	$	146,900

Exercise prices for options outstanding as of December 31, 2015 ranged from $24.44 to $29.08 per share. The weighted average remaining contractual life is 5.2 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing with the following weighted average assumptions:

	Years Ended December 31,
	2015		2014		2013
Dividend yield		3.77%		3.57%		3.49%
Expected life		10 years		10 years		10 years
Expected volatility		24.35%		24.97%		25.91%
Risk-free interest rate		2.28%		2.17%		3.01%
Weighted average fair value of options granted	$	4.89	$	5.30	$	5.72

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Proceeds from stock option exercises totaled $441,000 in 2015. Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. During 2015, all the shares issued in connection with stock option exercises, 16,859 shares in total, were issued from available treasury shares.

All share and per share data have been adjusted to give retroactive effect to the 10% stock dividend declared in 2013.

As of December 31, 2015, outstanding stock options consist of the following:

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	16,174		27.62	0.3	16,174		27.62
	15,400		28.64	1.0	15,400		28.64
	15,400		28.41	2.0	15,400		28.41
	15,400		25.00	3.0	15,400		25.00
	14,397		25.99	4.0	14,397		25.99
	1,100		24.44	4.2	1,100		24.44
	18,700		25.25	5.0	18,700		25.25
	22,200		24.97	6.0	22,000		24.97
	23,100		27.05	7.0	23,100		27.05
	1,100		27.55	7.0	1,100		27.55
	2,000		28.95	7.7	2,000		28.95
	23,250		26.90	8.0	23,250		26.90
	12,000		29.08	9.0	12,000		29.08
	14,500		28.55	10.0	-		-
Total	194,521				180,021

A summary of the Company’s restricted stock activity and related information for the years ended December 31 is as follows:

	2015		2014
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	9,300	$29.08	-	$0.00
Granted	6,650	28.55	9,300	29.08
Vested	(1,860)	29.08	-	-
Forfeited	(280)	29.08	-	-
Non-vested at December 31	13,810	$28.82	9,300	$29.08

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Earnings Per Share

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 12 - EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

	Years Ended December 31,
	2015		2014		2013
	(In Thousands, Except Per Share Data
Numerator, net income	$	5,908	$	7,657	$	8,465
Denominator:
Weighted average shares outstanding		3,682		3,645		3,627
Less:  Weighted average unvested restricted shares		(9)		-		-
Denominator:  Basic earnings per share		3,673		3,645		3,627
Weighted average shares outstanding		3,682		3,645		3,627
Add:  Dilutive effect of stock options		9		12		5
Denominator:  Diluted earnings per share		3,691		3,657		3,632
Basic earnings per common share	$	1.60	$	2.10	$	2.33
Diluted earnings per common share	$	1.60	$	2.10	$	2.33

Stock options which had no intrinsic value because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 14,000,  12,500, and 129,000 for the years ended December 31, 2015, 2014 and 2013, respectively.  All share and per share data have been restated to give retroactive effect to the 10% stock dividend paid in 2013.

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Off-Balance Sheet Financial Instruments

12 Months Ended

Dec. 31, 2015

Off-Balance Sheet Financial Instruments [Abstract]

Off-Balance Sheet Financial Instruments

NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

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 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:

	December 31,
	2015		2014
	(In Thousands)
Commitments to grant loans	$	19,704	$	23,070
Unfunded commitments under lines of credit		48,641		45,269
Standby letters of credit		5,286		5,660
	$	73,631	$	73,999

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.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. 

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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2015

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.

The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e. supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2015 and 2014 are as follows:

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-
December 31, 2014
Available for Sale:
U.S. Government agencies	$	28,975	$	-	$	28,975	$	-
States and political subdivisions		54,332		-		54,332		-
Corporate obligations		6,486		-		6,486		-
Mortgage-backed securities-government
sponsored entities		66,204		-		66,204		-
Equity securities-financial services		398		398		-		-
Total available for sale	$	156,395	$	398	$	155,997	$	-

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2015 and 2014 are as follows:

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847
December 31, 2014
Impaired Loans	$	11,312	$	-	$	-	$	11,312
Foreclosed real estate		3,726		-		-		3,726

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7%  (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2014
Impaired loans	$	11,312	Appraisal of collateral(1)	Appraisal adjustments(2)	6 - 33%  (23.35%)
Foreclosed real estate owned	$	3,726	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. 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 December 31, 2015 and 2014.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities:

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan’s collateral.  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 December 31, 2015, the fair value investment in impaired loans totaled $9,228,000 which included three loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and twenty loans for $2,855,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2015, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans.

As of December 31, 2014, the fair value investment in impaired loans totaled $11,605,000 which included three loans for $2,973,000 for which a valuation allowance of $293,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and fourteen loans for $8,632,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2014, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $1,022,000 over the life of the loans.

Mortgage servicing rights (generally carried at cost):

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is determined by estimating potential revenues and expenses of the various loan pools to arrive at a net cash flow stream, and then utilize present value methodologies on the cash flow stream at a current market yield.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

Restricted investment in Federal Home Loan Bank stock (carried at cost):

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Bank owned life insurance (carried at cost): 

The fair value is equal to the cash surrender value of the Bank owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost except certificates of deposit which are at fair value):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair values of the Bank’s financial instruments were as follows at December 31, 2015 and December 31, 2014. (In thousands)

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		559,416
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	12,376	$	12,376	$	12,376	$	-	$	-
Securities		156,395		156,395		398		155,997		-
Loans receivable, net		495,260		507,833		-		-		507,833
Mortgage servicing rights		271		277		-		-		277
Regulatory stock		1,714		1,714		1,714		-		-
Bank owned life insurance		18,284		18,284		18,284		-		-
Accrued interest receivable		2,339		2,339		2,339		-		-
Financial liabilities:
Deposits		559,944		560,243		338,112		-		222,131
Short-term borrowings		25,695		25,695		25,695		-		-
Other borrowings		22,200		23,228		-		-		23,228
Accrued interest payable		966		966		966		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2015

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income (loss) (in thousands) by component, net of tax, for the years ended December 31, 2015 and 2014:

	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488
	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2013	$	(2,602)
Other comprehensive income before reclassification		3,836
Amount reclassified from accumulated other comprehensive income		(772)
Total other comprehensive income		3,064
Balance as of December 31, 2014	$	462

(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 year ended December 31, 2015:

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2015		2014
Unrealized gains on available for sale securities	$	626	$	1,170	Net realized gains on sales of securities
		(213)		(398)	Income tax expense
	$	413	$	772	Net of tax

Amounts in parentheses indicate debits to net income.

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Proposed Acquisition of Delaware Bancshares, Inc.

12 Months Ended

Dec. 31, 2015

Subsequent Events [Abstract]

Proposed Acquisition of Delaware Bancshares, Inc.

NOTE 16 – PROPOSED ACQUISITION OF DELAWARE BANCSHARES, INC.

On March 10, 2016, Norwood Financial Corp. (“Norwood Financial”) and its wholly owned subsidiary, Wayne Bank, and Delaware Bancshares, Inc. (“Delaware Bancshares”), and its wholly owned subsidiary, The National Bank of Delaware County (“NBDC Bank”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which Delaware Bancshares will merge with and into Norwood Financial, with Norwood Financial as the surviving corporation. Concurrent with the merger, it is expected that NBDC Bank will merge with and into Wayne Bank.

Under the terms of the Merger Agreement, each outstanding share of Delaware Bancshares common stock will be converted into either the right to receive $16.68 in cash or 0.6221 shares of Norwood Financial common stock or a combination of both.  Not more than 25% of the merger consideration shall be paid in cash and the remainder will be paid in Norwood Financial common stock.   In the event of a greater than 20% decline in market value of Norwood Financial common stock, Delaware Bancshares may, in certain circumstances, be able to terminate the Merger Agreement unless Norwood Financial increases the number of shares into which Delaware Bancshares common stock may be converted.

The senior management of Norwood Financial and Wayne Bank will remain the same following the merger.  The directors of NBDC Bank will be invited to join a newly formed regional advisory board.  Within 18 months of the merger, Norwood Financial and Wayne Bank will invite one member of the advisory board to join their boards.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Delaware Bancshares.  The merger is currently expected to be completed in the third quarter of 2016.

Each of the directors and executive officers of Delaware Bancshares have agreed to vote their shares in favor of the approval of the Merger Agreement at the shareholders’ meeting to be held to vote on the proposed transaction. If the merger is not consummated under certain circumstances, Delaware Bancshares has agreed to pay Norwood Financial a termination fee of $615,000.

The Merger Agreement also contains usual and customary representations and warranties that Norwood Financial and Delaware Bancshares made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract between Norwood Financial and Delaware Bancshares, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used to allocate risk between Norwood Financial and Delaware Bancshares rather than establishing matters as facts. 

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Norwood Financial Corp (Parent Company Only) Financial Information

12 Months Ended

Dec. 31, 2015

Norwood Financial Corp (Parent Company Only) Financial Information [Abstract]

NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

NOTE 17 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2015		2014
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,151	$	1,846
Securities available for sale		384		398
Investment in bank subsidiary		95,895		94,268
Other assets		4,113		3,900
Total assets	$	102,543	$	100,412
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	1,545	$	1,371
Stockholders’ equity		100,998		99,041
Total liabilities and stockholders' equity	$	102,543	$	100,412

STATEMENTS OF INCOME

	Years Ended December 31,
	2015		2014		2013
Income:	(In Thousands)
Dividends from bank subsidiary	$	4,574	$	4,377	$	4,216
Other interest income		11		10		9
		4,585		4,387		4,225
Expenses		313		346		267
		4,272		4,041		3,958
Income tax benefit		(103)		(114)		(88)
		4,375		4,155		4,046
Equity in undistributed earnings of subsidiary		1,533		3,502		4,419
Net Income	$	5,908	$	7,657	$	8,465
Comprehensive Income	$	5,934	$	10,721	$	3,066

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,908	$	7,657	$	8,465
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(1,533)		(3,502)		(4,419)
Other, net		(19)		177		(247)
Net Cash Provided by Operating Activities		4,356		4,332		3,799
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		441		691		575
Tax benefit of stock options exercised		16		17		39
ESOP purchase of shares from treasury stock		146		150		146
Acquisition of treasury stock		(127)		(179)		(319)
Cash dividends paid		(4,527)		(4,370)		(4,155)
Net Cash Used in Financing Activities		(4,051)		(3,691)		(3,714)
Net Increase (Decrease) in Cash and Cash Equivalents		305		641		85
CASH AND CASH EQUIVALENTS - BEGINNING		1,846		1,205		1,120
CASH AND CASH EQUIVALENTS - ENDING	$	2,151	$	1,846	$	1,205

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Principles of Consolidation [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates [Policy Text Block]

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Concentrations of Credit Risk [Policy Text Block]

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located within northeastern Pennsylvania. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and, accordingly, 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. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of borrowers.

Securities [Policy Text Block]

Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each Consolidated Balance Sheet date.

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2015.

Loans Receivable [Policy Text Block]

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructurings [Policy Text Block]

Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. 

Loans Acquired [Policy Text Block]

Loans Acquired

Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights [Policy Text Block]

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2015 and 2014, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2015 and 2014, were $261,000 and $271,000, respectively.

Allowance for Loan Losses [Policy Text Block]

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment [Policy Text Block]

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Transfers of Financial Assets [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Foreclosed Real Estate [Policy Text Block]

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance [Policy Text Block]

Bank Owned Life Insurance

The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill [Policy Text Block]

Goodwill

In connection with an acquisition the Company recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.

Intangible Assets [Policy Text Block]

Intangible Assets

At December 31, 2015, the Company had intangible assets of $285,000 which is net of accumulated amortization of $610,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2014, the Company had intangible assets of $389,000 which is net of accumulated amortization of $506,000.  Amortization expense related to intangible assets was $105,000,  $121,000 and $137,000 for the years ended December 31, 2015, 2014 and 2013. 

As of December 31, 2015, the estimated future amortization expense for the core deposit intangible was:

2016	$	88,000
2017		72,000
2018		56,000
2019		39,000
2020		23,000
2021		7,000
	$	285,000

Income Taxes [Policy Text Block]

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2015 or 2014 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred.

Earnings per Share [Policy Text Block]

Earnings per Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Stock Option Plans [Policy Text Block]

Stock Option Plans

The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

Restricted Stock

The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

Cash Flow Information [ Policy Text Block]

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.

Off-Balance Sheet Financial Instruments [Policy Text Block]

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

Trust Assets [Policy Text Block]

Trust Assets

Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock [Policy]

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income [Policy Text Block]

Comprehensive Income

Accounting principles generally 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting [Policy Text Block]

Segment Reporting

The Company acts as an independent community financial service provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards [Policy Text Block]

New Accounting Standards

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014.  Early adoption is permitted. This Update did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method.  The Company has included the disclosures related to this Update in Note 4.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting.  For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.  The amendments also require enhanced disclosures.  The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014.  An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited.  The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The Company has included the disclosures related to this Update in Note 7.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period.  The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.ThisUpdateis not expected to have a significant impact on the Company’s financialstatements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  This Update didnot have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).  This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity.  An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from U.S. GAAP the concept of extraordinary items.  The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017.  This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), as part of its initiative to reduce complexity in accounting standards.  To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expectedto have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-08, Business Combinations – Pushdown Accounting – Amendment to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This Update was issued to amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115.  This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contract with Customers  (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year.  Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effect of adopting this new accounting Update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.  This Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements.  This Update is not expected to have a significant impact on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805).  The amendments in this Update require that an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.  The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position.  For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.  The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies [Abstract]

Premises and Equipment, Schedule of Useful Life [Table Text Block]

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2016	$	88,000
2017		72,000
2018		56,000
2019		39,000
2020		23,000
2021		7,000
	$	285,000

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Securities (Tables)

12 Months Ended

Dec. 31, 2015

Securities [Abstract]

Amortized Cost and Fair Values of Securities [Table Text Block]

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

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

	December 31, 2014
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	29,289	$	42	$	(356)	$	28,975
States and political subdivisions		52,685		1,750		(103)		54,332
Corporate obligations		6,387		110		(11)		6,486
Mortgage-backed securities-
government sponsored entities		67,032		109		(937)		66,204
Total debt securities		155,393		2,011		(1,407)		155,997
Equity securities-financial services		292		106		-		398
	$	155,685	$	2,117	$	(1,407)	$	156,395

Investments' Gross Unrealized Losses and Fair Value [Table Text Block]

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	6,058	$	(71)	$	2,109	$	(37)	$	8,167	$	(108)
States and political subdivisions		9,086		(99)		1,417		(13)		10,503		(112)
Corporate obligations		2,221		(4)		-		-		2,221		(4)
Mortgage-backed securities-government sponsored entities		40,300		(432)		16,595		(513)		56,895		(945)
	$	57,665	$	(606)	$	20,121	$	(563)	$	77,786	$	(1,169)

	December 31, 2014
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	4,965	$	(17)	$	15,051	$	(339)	$	20,016	$	(356)
States and political subdivisions		3,195		(20)		4,633		(83)		7,828		(103)
Corporate obligations		-		-		1,144		(11)		1,144		(11)
Mortgage-backed securities-government sponsored entities		22,090		(189)		26,050		(748)		48,140		(937)
	$	30,250	$	(226)	$	46,878	$	(1,181)	$	77,128	$	(1,407)

Securities by Contractual Maturity [Table Text Block]

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	640	$	647
Due after one year through five years		13,044		13,003
Due after five years through ten years		8,437		8,529
Due after ten years		51,207		52,719
		73,328		74,898
Mortgage-backed securities - government sponsored entities		64,491		63,569
	$	137,819	$	138,467

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Loans Receivable and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2015

Loans Receivable and Allowance for Loan Losses [Abstract]

Composition of Loans Receivable [Table Text Block]

	December 31, 2015				December 31, 2014
Real Estate:
Residential	$	161,820	28.9	%	$	158,139	31.5	%
Commercial		279,123	49.8			261,956	52.2
Construction		18,987	3.4			19,221	3.9
Commercial, financial and agricultural		71,090	12.7			42,514	8.5
Consumer loans to individuals		29,231	5.2			19,704	3.9
Total loans		560,251	100.0	%		501,534	100.0	%
Deferred fees, net		(326)				(399)
Total loans receivable		559,925				501,135
Allowance for loan losses		(7,298)				(5,875)
Net loans receivable	$	552,627			$	495,260

Changes In The Accretable Yield For Purchased Credit Impaired Loans [Table Text Block]

	2015		2014		2013
Balance at beginning of period	$	8	$	20	$	76
Accretion		(1)		(12)		(56)
Reclassification and other		(7)		-		-
Balance at end of period	$	-	$	8	$	20

Additional Information Regarding Loans Acquired and Accounted for in Accordance with ASC 310-30 [Table Text Block]

	December 31, 2015		December 31, 2014
Outstanding Balance	$	498	$	1,057
Carrying Amount	$	498	$	1,049

Schedule of Loans Individually and Collectively Evaluated for Impairment [Table Text Block]

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2015
Individually evaluated for  impairment	$	28	$	8,660	$	-	$	42	$	-	$	8,730
Loans acquired with deteriorated credit quality		140		358		-		-		-		498
Collectively evaluated for impairment		161,652		270,105		18,987		71,048		29,231		551,023
Total Loans	$	161,820	$	279,123	$	18,987	$	71,090	$	29,231	$	560,251

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2014
Individually evaluated for  impairment	$	-	$	10,556	$	-	$	-	$	-	$	10,556
Loans acquired with deteriorated credit quality		225		824		-		-		-		1,049
Collectively evaluated for impairment		157,914		250,576		19,221		42,514		19,704		489,929
Total Loans	$	158,139	$	261,956	$	19,221	$	42,514	$	19,704	$	501,534

Impaired Loans and Related Interest Income by Loan Portfolio Class [Table Text Block]

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2014	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	225	$	233	$	-
Commercial		8,407		8,566		-
Subtotal		8,632		8,799		-
With an allowance recorded:
Real Estate Loans
Commercial		2,973		3,837		293
Subtotal		2,973		3,837		293
Total:
Real Estate Loans
Residential		225		233		-
Commercial		11,380		12,403		293
Total Impaired Loans	$	11,605	$	12,636	$	293

The following information for impaired loans is presented for the year ended December 31, 2015 and 2014:

	Average Recorded	Average Recorded					Interest Income
		Investment					Recognized
	2015		2014			2013	2015		2014			2013
	(In thousands)
Total:
Real Estate Loans
Residential	$	159	$	233	$	252	$	4	$	5	$	5
Commercial		8,847		7,492		10,328		526		503		236
Commercial Loans		9		-		-		2		-		-
Total Loans	$	9,015	$	7,725	$	10,580	$	532	$	508	$	241

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating [Table Text Block]

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Commercial real estate loans	$	267,892	$	1,837	$	9,394	$	-	$	-	$	279,123
Commercial		71,047		-		43		-		-		71,090
Total	$	338,939	$	1,837	$	9,437	$	-	$	-	$	350,213

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2014
Commercial real estate loans	$	246,629	$	1,983	$	13,344	$	-	$	-	$	261,956
Commercial		42,514		-		-		-		-		42,514
Total	$	289,143	$	1,983	$	13,344	$	-	$	-	$	304,470

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2015 and December 31, 2014 (in thousands):

	Performing		Nonperforming		Total
December 31, 2015
Residential real estate loans	$	161,380	$	440	$	161,820
Construction		18,987		-		18,987
Consumer loans to individuals		29,231		-		29,231
Total	$	209,598	$	440	$	210,038

	Performing		Nonperforming		Total
December 31, 2014
Residential real estate loans	$	156,464	$	1,675	$	158,139
Construction		19,221		-		19,221
Consumer loans to individuals		19,700		4		19,704
Total	$	195,385	$	1,679	$	197,064

Loan Portfolio Summarized by the Past Due Status [Table Text Block]

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2014
Real Estate loans
Residential	$	156,242	$	222	$	-	$	-	$	1,675	$	1,897	$	158,139
Commercial		252,495		5,100		440		-		3,921		9,461		261,956
Construction		19,221		-		-		-		-		-		19,221
Commercial  loans		42,500		14		-		-		-		14		42,514
Consumer  loans		19,606		94		-		-		4		98		19,704
Total	$	490,064	$	5,430	$	440	$	-	$	5,600	$	11,470	$	501,534

Allowance for Loan Losses and Recorded Investment in Financing Receivables [Table Text Block]

	Year ended December 31,
	(dollars in thousands)
	2015		2014			2013
Allowance at beginning of period	$	5,875	$	5,708	$	5,502
Charge-offs:
Real Estate loans
Residential		(224)		(270)		(603)
Commercial		(2,883)		(1,196)		(1,488)
Construction		-		-		(40)
Commercial  loans		-		-		(4)
Consumer  loans		(91)		(80)		(90)
Total		(3,198)		(1,546)		(2,225)
Recoveries:
Real Estate loans
Residential		20		-		9
Commercial		-		2		-
Construction		-		-		-
Commercial  loans		-		-		-
Consumer  loans		21		31		22
Total		41		33		31
Provision for loan losses		4,580		1,680		2,400
Allowance at end of period	$	7,298	$	5,875	$	5,708

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Charge Offs		(224)		(2,883)		-		-		(91)		(3,198)
Recoveries		20		-		-		-		21		41
Provision for loan losses		(50)		4,499		(132)		141		122		4,580
Ending balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Ending balance individually evaluated for impairment	$	-	$	1,613	$	-	$	-	$	-	$	1,613
Ending balance collectively evaluated for impairment	$	1,069	$	3,893	$	90	$	397	$	236	$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluated for impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2015

Premises and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Components of premises and equipment at December 31 are as follows:

	2015		2014
	(In Thousands)
Land and improvements	$	2,316	$	2,275
Buildings and improvements		9,857		9,723
Furniture and equipment		4,415		4,332
		16,588		16,330
Accumulated depreciation		(10,116)		(9,596)
	$	6,472	$	6,734

Operating Leases of Lessee Disclosure [Table Text Block]

2016	$	352
2017		363
2018		363
2019		368
2020		376
Thereafter		1,844
	$	3,666

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Deposits (Tables)

12 Months Ended

Dec. 31, 2015

Deposits [Abstract]

Schedule of Maturities of Time Deposits [Table Text Block]

Aggregate time deposits in denominations of $250,000 or more were $22,041,000 and $42,009,000 at December 31, 2015 and 2014, respectively. Included in deposit accounts are deposits of one customer relationship totaling $10,942,000 at December 31, 2015.

At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands):

2016	$	90,197
2017		54,846
2018		23,449
2019		20,926
2020		7,329
	$	196,747

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2015

Borrowings [Abstract]

Schedule of Short-term Debt [Table Text Block]

Short-term borrowings at December 31 consist of the following:

	2015		2014
	( In Thousands)
Securities sold under agreements to repurchase	$	33,563	$	25,695
Federal Home Loan Bank short-term borrowings		19,672		-
	$	53,235	$	25,695

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2015			2014
	(Dollars In Thousands)
Average balance during the year	$	34,057		$	36,514
Average interest rate during the year		0.25	%		0.21	%
Maximum month-end balance during the year	$	55,183		$	49,634
Weighted average interest rate at the end of the year		0.36	%		0.20	%

Schedule of remaining contractual maturity of repurchase agreements [Table Text Block]

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]

	2015		2014
	(In Thousands)
Notes with the FHLB:
Convertible note due July 2015 at 4.34%	$	-	$	7,111
Convertible note due January 2017 at 4.71%		10,000		10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		8,000		-
Amortizing fixed rate borrowing due January 2018 at 0.91%		1,267		1,866
Amortizing fixed rate borrowing due December 2018 at 1.42%		2,434		3,223
Amortizing fixed rate borrowing due June 2020 at 1.49%		9,033		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		5,392		-
	$	41,126	$	22,200

Schedule of Contractual Maturities of Other Borrowings [Table Text Block]

The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the Bank to put the funds back to the FHLB at no charge.

Contractual maturities of other borrowings at December 31, 2015 are as follows (in thousands):

2017	$	18,000
2018		3,701
2020		14,033
2022		5,392
	$	41,126

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Taxes [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
Current	$	2,019	$	2,657	$	2,566
Deferred		(387)		(51)		140
	$	1,632	$	2,606	$	2,706

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2015		2014		2013
Tax at statutory rates	34.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(11.3)		(7.7)		(6.7)
Incentive stock options	0.3		0.4		0.4
Earnings and proceeds on life insurance	(1.8)		(1.5)		(3.7)
Other	0.4		0.2		0.2
	21.6	%	25.4	%	24.2	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	2015		2014
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,481	$	1,997
Deferred compensation		485		491
Purchase price adjustment		884		999
Other		182		201
Foreclosed real estate valuation allowance		305		280
Total Deferred Tax Assets		4,337		3,968
Deferred tax liabilities:
Premises and equipment		245		265
Deferred loan fees		172		170
Net unrealized gains on securities		251		248
Total Deferred Tax Liabilities		668		683
Net Deferred Tax Asset	$	3,669	$	3,285

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Regulatory Matters and Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2015

Regulatory Matters and Stockholders' Equity [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provision
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	92,777	16.25	%	≥$45,672	≥8.00	%	≥$7,090	≥10.00	%
Tier 1 capital (to risk-weighted assets)		85,638	15.00		≥34,254	≥6.00		≥45,672	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		85,638	15.00		≥25,690	≥4.50		≥37,108	≥6.50
Tier 1 capital (to average assets)		85,638	11.73		≥29,203	≥4.00		≥36,504	≥5.00
As of December 31, 2014:
Total capital (to risk-weighted assets)	$	89,613	17.59	%	≥$40,767	≥8.00	%	≥$50,959	≥10.00	%
Tier 1 capital (to risk-weighted assets)		83,738	16.43		≥20,383	≥4.00		≥30,575	≥6.00
Tier 1 capital (to average assets)		83,738	11.93		≥28,069	≥4.00		≥35,086	≥5.00

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Stock Based Compensation (Tables)

12 Months Ended

Dec. 31, 2015

Stock-Based Compensation [Abstract]

Summary of Stock Option Activity [Table Text Block]

	2015					2014					2013
		Weighted					Weighted					Weighted
		Average		Average			Average		Average			Average		Aggregate
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	206,463	$	26.74			219,540	$	26.64			225,670	$	26.27
Granted	14,500		28.55			12,500		29.08			28,600		27.07
Exercised	(16,859)		26.19			(25,577)		27.05			(24,127)		23.83
Forfeited	(9,583)		27.02			-		-			(10,603)		28.92
Outstanding, end of year	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640	219,540	$	26.64	$	146,970
Exercisable, end of year	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640	190,940	$	26.58	$	146,900

Schedule of Fair Value Assumptions [Table Text Block]

	Years Ended December 31,
	2015		2014		2013
Dividend yield		3.77%		3.57%		3.49%
Expected life		10 years		10 years		10 years
Expected volatility		24.35%		24.97%		25.91%
Risk-free interest rate		2.28%		2.17%		3.01%
Weighted average fair value of options granted	$	4.89	$	5.30	$	5.72

Schedule of Outstanding Stock Options [Table Text Block]

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	16,174		27.62	0.3	16,174		27.62
	15,400		28.64	1.0	15,400		28.64
	15,400		28.41	2.0	15,400		28.41
	15,400		25.00	3.0	15,400		25.00
	14,397		25.99	4.0	14,397		25.99
	1,100		24.44	4.2	1,100		24.44
	18,700		25.25	5.0	18,700		25.25
	22,200		24.97	6.0	22,000		24.97
	23,100		27.05	7.0	23,100		27.05
	1,100		27.55	7.0	1,100		27.55
	2,000		28.95	7.7	2,000		28.95
	23,250		26.90	8.0	23,250		26.90
	12,000		29.08	9.0	12,000		29.08
	14,500		28.55	10.0	-		-
Total	194,521				180,021

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	2015		2014
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	9,300	$29.08	-	$0.00
Granted	6,650	28.55	9,300	29.08
Vested	(1,860)	29.08	-	-
Forfeited	(280)	29.08	-	-
Non-vested at December 31	13,810	$28.82	9,300	$29.08

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

Earnings Per Share [Table Text Block]

	Years Ended December 31,
	2015		2014		2013
	(In Thousands, Except Per Share Data
Numerator, net income	$	5,908	$	7,657	$	8,465
Denominator:
Weighted average shares outstanding		3,682		3,645		3,627
Less:  Weighted average unvested restricted shares		(9)		-		-
Denominator:  Basic earnings per share		3,673		3,645		3,627
Weighted average shares outstanding		3,682		3,645		3,627
Add:  Dilutive effect of stock options		9		12		5
Denominator:  Diluted earnings per share		3,691		3,657		3,632
Basic earnings per common share	$	1.60	$	2.10	$	2.33
Diluted earnings per common share	$	1.60	$	2.10	$	2.33

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Off-Balance Sheet Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Off-Balance Sheet Financial Instruments [Abstract]

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

	December 31,
	2015		2014
	(In Thousands)
Commitments to grant loans	$	19,704	$	23,070
Unfunded commitments under lines of credit		48,641		45,269
Standby letters of credit		5,286		5,660
	$	73,631	$	73,999

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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Fair Value of Financial Instruments [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-
December 31, 2014
Available for Sale:
U.S. Government agencies	$	28,975	$	-	$	28,975	$	-
States and political subdivisions		54,332		-		54,332		-
Corporate obligations		6,486		-		6,486		-
Mortgage-backed securities-government
sponsored entities		66,204		-		66,204		-
Equity securities-financial services		398		398		-		-
Total available for sale	$	156,395	$	398	$	155,997	$	-

Fair Value, Assets Measured on Nonrecurring Basis [Table Text Block]

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847
December 31, 2014
Impaired Loans	$	11,312	$	-	$	-	$	11,312
Foreclosed real estate		3,726		-		-		3,726

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7%  (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2014
Impaired loans	$	11,312	Appraisal of collateral(1)	Appraisal adjustments(2)	6 - 33%  (23.35%)
Foreclosed real estate owned	$	3,726	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		559,416
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	12,376	$	12,376	$	12,376	$	-	$	-
Securities		156,395		156,395		398		155,997		-
Loans receivable, net		495,260		507,833		-		-		507,833
Mortgage servicing rights		271		277		-		-		277
Regulatory stock		1,714		1,714		1,714		-		-
Bank owned life insurance		18,284		18,284		18,284		-		-
Accrued interest receivable		2,339		2,339		2,339		-		-
Financial liabilities:
Deposits		559,944		560,243		338,112		-		222,131
Short-term borrowings		25,695		25,695		25,695		-		-
Other borrowings		22,200		23,228		-		-		23,228
Accrued interest payable		966		966		966		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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Accumulated Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2015

Accumulated Other Comprehensive Income (Loss) [Abstract]

Components of Accumulated Other Comprehensive Income [Table Text Block]

	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488
	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2013	$	(2,602)
Other comprehensive income before reclassification		3,836
Amount reclassified from accumulated other comprehensive income		(772)
Total other comprehensive income		3,064
Balance as of December 31, 2014	$	462

Items Reclassified Out of Each Component of OCI [Table Text Block]

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2015		2014
Unrealized gains on available for sale securities	$	626	$	1,170	Net realized gains on sales of securities
		(213)		(398)	Income tax expense
	$	413	$	772	Net of tax

Amounts in parentheses indicate debits to net income

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Norwood Financial Corp (Parent Company Only) Financial Information (Tables) - Parent Company [Member]

12 Months Ended

Dec. 31, 2015

Condensed Financial Statements, Captions [Line Items]

Parent Company Only - Balance Sheets [Table Text Block]

	December 31,
	2015		2014
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,151	$	1,846
Securities available for sale		384		398
Investment in bank subsidiary		95,895		94,268
Other assets		4,113		3,900
Total assets	$	102,543	$	100,412
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	1,545	$	1,371
Stockholders’ equity		100,998		99,041
Total liabilities and stockholders' equity	$	102,543	$	100,412

Parent Company Only - Statements of Income [Table Text Block]

STATEMENTS OF INCOME

	Years Ended December 31,
	2015		2014		2013
Income:	(In Thousands)
Dividends from bank subsidiary	$	4,574	$	4,377	$	4,216
Other interest income		11		10		9
		4,585		4,387		4,225
Expenses		313		346		267
		4,272		4,041		3,958
Income tax benefit		(103)		(114)		(88)
		4,375		4,155		4,046
Equity in undistributed earnings of subsidiary		1,533		3,502		4,419
Net Income	$	5,908	$	7,657	$	8,465
Comprehensive Income	$	5,934	$	10,721	$	3,066

Parent Company Only - Statements of Cash Flows [Table Text Block]

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2015		2014		2013
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,908	$	7,657	$	8,465
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(1,533)		(3,502)		(4,419)
Other, net		(19)		177		(247)
Net Cash Provided by Operating Activities		4,356		4,332		3,799
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		441		691		575
Tax benefit of stock options exercised		16		17		39
ESOP purchase of shares from treasury stock		146		150		146
Acquisition of treasury stock		(127)		(179)		(319)
Cash dividends paid		(4,527)		(4,370)		(4,155)
Net Cash Used in Financing Activities		(4,051)		(3,691)		(3,714)
Net Increase (Decrease) in Cash and Cash Equivalents		305		641		85
CASH AND CASH EQUIVALENTS - BEGINNING		1,846		1,205		1,120
CASH AND CASH EQUIVALENTS - ENDING	$	2,151	$	1,846	$	1,205

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Nature of Operations (Details)	12 Months Ended
	Dec. 31, 2015 segment
Nature of Operations [Abstract]
Number of Reportable Segments	1

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Summary of Significant Accounting Policies (Mortgage Servicing Rights) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Servicing Assets	$ 261	$ 271

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Summary of Significant Accounting Policies (Useful Life of Premises and Equipment) (Details)	12 Months Ended
	Dec. 31, 2015
Minimum [Member] | Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years
Minimum [Member] | Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Maximum [Member] | Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	40 years
Maximum [Member] | Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years

XML

Summary of Significant Accounting Policies (Goodwill) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of Significant Accounting Policies [Abstract]
Goodwill	$ 9,715	$ 9,715
Goodwill, Impairment Loss	$ 0	$ 0	$ 0

XML

Summary of Significant Accounting Policies (Intangible Assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of Significant Accounting Policies [Abstract]
Intangible Assets, Net (Excluding Goodwill)	$ 285	$ 389
Finite-Lived Intangible Assets, Accumulated Amortization	$ 610	506
Finite-Lived Intangible Assets, Amortization Method	sum-of-the-years digits method
Finite-Lived Intangible Asset, Useful Life	10 years
Amortization of Intangible Assets	$ 105	$ 121	$ 137
2016	88
2017	72
2018	56
2019	39
2020	23
2021	7
Amortization Expense for the Core Deposit Intangible, Total	$ 285

XML

Summary of Significant Accounting Policies (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Impairment of Investments	$ 0
Unrecognized Tax Benefits	0	$ 0
Unrecognized tax benefits expected within next twelve months	$ 0

XML

Securities (Amortized Cost and Fair Values of Securities) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 138,111	$ 155,685
Available-for-sale Securities, Gross Unrealized Gains	1,909	2,117
Available for Sale, Gross Unrealized Losses	(1,169)	(1,407)
Available for Sale, Fair Value	138,851	156,395
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	137,819	155,393
Available-for-sale Securities, Gross Unrealized Gains	1,817	2,011
Available for Sale, Gross Unrealized Losses	(1,169)	(1,407)
Available for Sale, Fair Value	138,467	155,997
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	9,275	29,289
Available-for-sale Securities, Gross Unrealized Gains	2	42
Available for Sale, Gross Unrealized Losses	(108)	(356)
Available for Sale, Fair Value	9,169	28,975
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	59,120	52,685
Available-for-sale Securities, Gross Unrealized Gains	1,747	1,750
Available for Sale, Gross Unrealized Losses	(112)	(103)
Available for Sale, Fair Value	60,755	54,332
Corporate obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	4,933	6,387
Available-for-sale Securities, Gross Unrealized Gains	45	110
Available for Sale, Gross Unrealized Losses	(4)	(11)
Available for Sale, Fair Value	4,974	6,486
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	64,491	67,032
Available-for-sale Securities, Gross Unrealized Gains	23	109
Available for Sale, Gross Unrealized Losses	(945)	(937)
Available for Sale, Fair Value	63,569	66,204
Equity securities-financial services [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	292	292
Available-for-sale Securities, Gross Unrealized Gains	92	106
Available for Sale, Gross Unrealized Losses	0	0
Available for Sale, Fair Value	$ 384	$ 398

XML

Securities (Investments' Gross Unrealized Losses and Fair Value) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) security	Dec. 31, 2014 USD ($)
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year | security	54
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year | security	22
Impairment of Investments	$ 0
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	6,058	$ 4,965
Less than 12 Months, Unrealized Losses	(71)	(17)
12 Months or More, Fair Value	2,109	15,051
12 Months or More, Unrealized Losses	(37)	(339)
Total, Fair Value	8,167	20,016
Total, Unrealized Losses	(108)	(356)
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	9,086	3,195
Less than 12 Months, Unrealized Losses	(99)	(20)
12 Months or More, Fair Value	1,417	4,633
12 Months or More, Unrealized Losses	(13)	(83)
Total, Fair Value	10,503	7,828
Total, Unrealized Losses	(112)	(103)
Corporate obligations [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	2,221	0
Less than 12 Months, Unrealized Losses	(4)	0
12 Months or More, Fair Value	0	1,144
12 Months or More, Unrealized Losses	0	(11)
Total, Fair Value	2,221	1,144
Total, Unrealized Losses	(4)	(11)
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	40,300	22,090
Less than 12 Months, Unrealized Losses	(432)	(189)
12 Months or More, Fair Value	16,595	26,050
12 Months or More, Unrealized Losses	(513)	(748)
Total, Fair Value	56,895	48,140
Total, Unrealized Losses	(945)	(937)
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	57,665	30,250
Less than 12 Months, Unrealized Losses	(606)	(226)
12 Months or More, Fair Value	20,121	46,878
12 Months or More, Unrealized Losses	(563)	(1,181)
Total, Fair Value	77,786	77,128
Total, Unrealized Losses	$ (1,169)	$ (1,407)

XML

Securities (Securities by Contractual Maturity) (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Securities [Abstract]
Available for Sale, Amortized Cost, Due in one year or less	$ 640
Available for Sale, Amortized Cost, Due after one year through five years	13,044
Available for Sale, Amortized Cost, Due after five years through ten years	8,437
Available for Sale, Amortized Cost, Due after ten years	51,207
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	73,328
Available for Sale, Amortized Cost, Mortgage-backed securities- government sponsored agencies	64,491
Available for Sale, Amortized Cost, Total	137,819
Available for Sale, Fair Value, Due in one year or less	647
Available for Sale, Fair Value, Due after one year through five years	13,003
Available for Sale, Fair Value, Due after five years through ten years	8,529
Available for Sale, Fair Value, Due after ten years	52,719
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Total	74,898
Available for Sale, Fair Value, Mortgage-backed securities- government sponsored agencies	63,569
Available for Sale, Fair Value, Total	$ 138,467

XML

Securities (Gross Realized Gains and Losses on Sales of Securities Available-for-Sale) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Securities [Abstract]
Gross realized gains	$ 626,000	$ 1,199,000	$ 908,000
Gross realized losses	0	29,000	27,000
Proceeds from sale of securities	44,976,000	66,263,000	$ 42,348,000
Available-for-sale Securities Pledged as Collateral	$ 97,671,000	$ 102,994,000

XML

Loans Receivable and Allowance for Loan Losses (Composition of Loans Receivable) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 560,251	$ 501,534
Deferred fees (net)	(326)	(399)
Total loans receivable	559,925	501,135
Allowance for loan losses	7,298	5,875	$ 5,708	$ 5,502
Net loans receivable	$ 552,627	$ 495,260
Percent of Loans	100.00%	100.00%
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 161,820	$ 158,139
Allowance for loan losses	$ 1,069	$ 1,323	1,441
Percent of Loans	28.90%	31.50%
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 279,123	$ 261,956
Allowance for loan losses	$ 5,506	$ 3,890	3,025
Percent of Loans	49.80%	52.20%
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 18,987	$ 19,221
Allowance for loan losses	$ 90	$ 222	898
Percent of Loans	3.40%	3.90%
Commercial, financial and agricultural loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 71,090	$ 42,514
Allowance for loan losses	$ 397	$ 256	184
Percent of Loans	12.70%	8.50%
Consumer loans to individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 29,231	$ 19,704
Allowance for loan losses	$ 236	$ 184	$ 160
Percent of Loans	5.20%	3.90%

XML

Loans Receivable and Allowance for Loan Losses (Changes in the Accretable Yield for Purchased Credit Impaired Loans) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Loans Receivable and Allowance for Loan Losses [Abstract]
Balance at beginning of period	$ 8	$ 20	$ 76
Accretion	(1)	(12)	(56)
Reclassification and other	(7)	0	0
Balance at end of period	$ 0	$ 8	$ 20

XML

Loans Receivable and Allowance for Loan Losses (Loans Acquired and Accounted for in Accordance with ASC 310-30) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Loans Receivable and Allowance for Loan Losses [Abstract]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Outstanding Balance	$ 498	$ 1,057
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	498	$ 1,049
Certain Loans and Debt Securities Acquired in Transfer, Allowance for Credit Losses Due to Subsequent Impairment	$ 0

XML

Loans Receivable and Allowance for Loan Losses (Loans Individually and Collectively Evaluated for Impairment) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 8,730	$ 10,556
Loans acquired with deteriorated credit quality	498	1,049
Collectively evaluated for impairment	551,023	489,929
Total Loans	560,251	501,534
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	28	0
Loans acquired with deteriorated credit quality	140	225
Collectively evaluated for impairment	161,652	157,914
Total Loans	161,820	158,139
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	8,660	10,556
Loans acquired with deteriorated credit quality	358	824
Collectively evaluated for impairment	270,105	250,576
Total Loans	279,123	261,956
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0	0
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	18,987	19,221
Total Loans	18,987	19,221
Commercial, financial and agricultural loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	42	0
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	71,048	42,514
Total Loans	71,090	42,514
Consumer loans to individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0	0
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	29,231	19,704
Total Loans	$ 29,231	$ 19,704

XML

Loans Receivable and Allowance for Loan Losses (Impaired Loans and Related Interest Income by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 2,855	$ 8,632
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Impaired Financing Receivable, Recorded Investment	9,228	11,605
Unpaid Principal Balance, With no related allowance recorded	4,826	8,799
Unpaid Principal Balance, With an allowance recorded	6,446	3,837
Unpaid Principal Balance, Total	11,272	12,636
Associated Allowance	1,613	293
Average Recorded Investment, Total	9,015	7,725	$ 10,580
Interest Income Recognized, Total	532	508	241
Residential Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	168	225
Impaired Financing Receivable, Recorded Investment	168	225
Unpaid Principal Balance, With no related allowance recorded	173	233
Unpaid Principal Balance, Total	173	233
Associated Allowance	0	0
Average Recorded Investment, Total	159	233	252
Interest Income Recognized, Total	4	5	5
Commercial Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,644	8,407
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Impaired Financing Receivable, Recorded Investment	9,017	11,380
Unpaid Principal Balance, With no related allowance recorded	4,610	8,566
Unpaid Principal Balance, With an allowance recorded	6,446	3,837
Unpaid Principal Balance, Total	11,056	12,403
Associated Allowance	1,613	293
Average Recorded Investment, Total	8,847	7,492	10,328
Interest Income Recognized, Total	526	503	236
Commercial, financial and agricultural loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	43
Impaired Financing Receivable, Recorded Investment	43
Unpaid Principal Balance, With no related allowance recorded	43
Unpaid Principal Balance, Total	43
Associated Allowance	0
Average Recorded Investment, Total	9	0	0
Interest Income Recognized, Total	$ 2	$ 0	$ 0

XML

Loans Receivable and Allowance for Loan Losses (Troubled Debt Restructurings) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($) loan	Dec. 31, 2013 USD ($)
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Impaired Financing Receivable, Related Allowance	$ 1,613	$ 293
Mortgage Loans on Real Estate, Foreclosures	$ 1,700	$ 4,700
Mortgage Loans on Real Estate, Number of Foreclosures | loan	1	2
Foreclosed real estate expense	$ 911	$ 1,555	$ 567
Foreclosed real estate owned	2,847	3,726
Residential Real Estate Loans [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Foreclosed real estate owned	267
Mortgage Loans in Process of Foreclosure, Amount	110
Troubled Debt Restructured Loans [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Financing Receivable, Modifications, Post-Modification Recorded Investment	6,800	8,800
New Loans Identified as Troubled Debt Restructurings	$ 176	$ 4,900
New Loans Identified as Troubled Debt Restructurings, Number of Loans | loan	2	1
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	$ 1,300	$ 573
Impaired Financing Receivable, Related Allowance	1,613	293
Gains (Losses) on Sales of Other Real Estate		$ 680
Foreclosed real estate expense	$ 322

XML

Loans Receivable and Allowance for Loan Losses (Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	$ 350,213	$ 304,470
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	338,939	289,143
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	1,837	1,983
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	9,437	13,344
Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	210,038	197,064
Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	209,598	195,385
Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	440	1,679
Commercial Real Estate Loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	279,123	261,956
Commercial Real Estate Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	267,892	246,629
Commercial Real Estate Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	1,837	1,983
Commercial Real Estate Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	9,394	13,344
Commercial Real Estate Loans [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial Real Estate Loans [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial, financial and agricultural loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	71,090	42,514
Commercial, financial and agricultural loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	71,047	42,514
Commercial, financial and agricultural loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial, financial and agricultural loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	43	0
Commercial, financial and agricultural loans [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial, financial and agricultural loans [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Residential Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	161,820	158,139
Residential Real Estate Loans [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	161,380	156,464
Residential Real Estate Loans [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	440	1,675
Construction Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	18,987	19,221
Construction Real Estate Loans [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	18,987	19,221
Construction Real Estate Loans [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Consumer loans to individuals [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	29,231	19,704
Consumer loans to individuals [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	29,231	19,700
Consumer loans to individuals [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	$ 0	$ 4

XML

Loans Receivable and Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 551,989	$ 490,064
Non-Accrual	7,132	5,600
Total Past Due and Non-Accrual	8,262	11,470
Total Loans	560,251	501,534
Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,029	5,430
Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	101	440
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	160,683	156,242
Non-Accrual	440	1,675
Total Past Due and Non-Accrual	1,137	1,897
Total Loans	161,820	158,139
Residential Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	646	222
Residential Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	51	0
Residential Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	272,125	252,495
Non-Accrual	6,649	3,921
Total Past Due and Non-Accrual	6,998	9,461
Total Loans	279,123	261,956
Commercial Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	310	5,100
Commercial Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	39	440
Commercial Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	18,959	19,221
Non-Accrual	0	0
Total Past Due and Non-Accrual	28	0
Total Loans	18,987	19,221
Construction Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	28	0
Construction Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial, financial and agricultural loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	71,043	42,500
Non-Accrual	43	0
Total Past Due and Non-Accrual	47	14
Total Loans	71,090	42,514
Commercial, financial and agricultural loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4	14
Commercial, financial and agricultural loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial, financial and agricultural loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Consumer loans to individuals [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	29,179	19,606
Non-Accrual	0	4
Total Past Due and Non-Accrual	52	98
Total Loans	29,231	19,704
Consumer loans to individuals [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	41	94
Consumer loans to individuals [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	11	0
Consumer loans to individuals [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 0	$ 0

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Loans Receivable and Allowance for Loan Losses (Allowance for Loan Losses and Recorded Investment in Financing Receivables) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	$ 5,875	$ 5,708	$ 5,502
Charge Offs	(3,198)	(1,546)	(2,225)
Recoveries	41	33	31
Provision for loan losses	4,580	1,680	2,400
Allowance at end of period	7,298	5,875	5,708
Ending balance individually evaluated for impairment	1,613	293
Ending balance collectively evaluated for impairment	5,685	5,582
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	1,323	1,441
Charge Offs	(224)	(270)	(603)
Recoveries	20	0	9
Provision for loan losses	(50)	152
Allowance at end of period	1,069	1,323	1,441
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	1,069	1,323
Commercial Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	3,890	3,025
Charge Offs	(2,883)	(1,196)	(1,488)
Recoveries	0	2	0
Provision for loan losses	4,499	2,059
Allowance at end of period	5,506	3,890	3,025
Ending balance individually evaluated for impairment	1,613	293
Ending balance collectively evaluated for impairment	3,893	3,597
Construction Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	222	898
Charge Offs	0	0	(40)
Recoveries	0	0	0
Provision for loan losses	(132)	(676)
Allowance at end of period	90	222	898
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	90	222
Commercial, financial and agricultural loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	256	184
Charge Offs	0	0	(4)
Recoveries	0	0	0
Provision for loan losses	141	72
Allowance at end of period	397	256	184
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	397	256
Consumer loans to individuals [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	184	160
Charge Offs	(91)	(80)	(90)
Recoveries	21	31	22
Provision for loan losses	122	73
Allowance at end of period	236	184	$ 160
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	$ 236	$ 184

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Loans Receivable and Allowance for Loan Losses (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Real Estate Acquired Through Foreclosure	$ 2,847	$ 3,726
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,855	8,632
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	515	451	$ 724
Loans and Leases Receivable, Gross	560,251	501,534
Financing Receivable, Allowance for Credit Losses, Write-downs	3,198	1,546	2,225
Impaired Financing Receivable, Related Allowance	1,613	293
Proceeds from Sale of Mortgage Loans Held-for-sale	4,410	4,419	4,053
Customer Concentration Risk [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Allowance for Credit Losses, Write-downs	643	422	0
Hospitality Lodging Industry [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 52,600
Concentration Risk, Percentage	56.80%
Automobile Dealers [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 27,500
Concentration Risk, Percentage	29.70%
Troubled Debt Restructured Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Related Allowance	$ 1,613	293
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	1,300	573
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	168	225
Allowance for Loan and Lease Losses, Adjustments, Other	(254)
Loans and Leases Receivable, Gross	161,820	158,139
Financing Receivable, Allowance for Credit Losses, Write-downs	224	270	603
Allowance for Loan and Lease Losses, Real Estate	1,069	1,323
Impaired Financing Receivable, Related Allowance	$ 0	$ 0
Historical loss factor	0.23%	0.30%
Gross Realized Gains on Loans	$ 113	$ 150	74
Gross Realized Losses on Loans	0	0	7
Proceeds from Sale of Mortgage Loans Held-for-sale	4,410	4,419	4,053
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,644	8,407
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Allowance for Loan and Lease Losses, Adjustments, Other	1,320
Loans and Leases Receivable, Gross	279,123	261,956
Financing Receivable, Allowance for Credit Losses, Write-downs	2,883	1,196	$ 1,488
Allowance for Loan and Lease Losses, Real Estate	5,506	3,890
Impaired Financing Receivable, Related Allowance	1,613	293
Impaired Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,855	8,632
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Impaired Financing Receivable, Related Allowance	1,613	293
Impaired Loans Not Requiring an Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,855	8,632
Financing Receivable, Allowance for Credit Losses, Write-downs	1,971	158
Impaired Loans Requiring an Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	6,373	2,973
Financing Receivable, Allowance for Credit Losses, Write-downs	$ 73	$ 864

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Premises and Equipment (Schedule of Premises and Equipment) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 16,588	$ 16,330
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(10,116)	(9,596)
Property, Plant and Equipment, Net, Total	6,472	6,734
Depreciation Premises and Equipment	551	572	$ 594
Land and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	2,316	2,275
Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	9,857	9,723
Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 4,415	$ 4,332

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Premises and Equipment (Schedule of Future Minimum Rental Payments of Operating Leases) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Premises and Equipment [Abstract]
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 352,000
Operating Leases, Future Minimum Payments, Due in Two Years	363,000
Operating Leases, Future Minimum Payments, Due in Three Years	363,000
Operating Leases, Future Minimum Payments, Due in Four Years	368,000
Operating Leases, Future Minimum Payments, Due in Five Years	376,000
Operating Leases, Future Minimum Payments, Due Thereafter	1,844,000
Operating Leases, Future Minimum Payments Due, Total	3,666,000
Operating Leases, Rent Expense, Net	$ 341,000	$ 338,000	$ 325,000

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Deposits (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Time Deposit Maturities, Next Twelve Months	$ 90,197,000
Time Deposit Maturities, Year Two	54,846,000
Time Deposit Maturities, Year Three	23,449,000
Time Deposit Maturities, Year Four	20,926,000
Time Deposit Maturities, Year Five	7,329,000
Time Deposits, Total	196,747,000	$ 221,832,000
Time Deposits, $250,000 or More	22,041,000	$ 42,009,000
Major Customer Deposits [Member]
Deposits of one customer relationship	$ 10,942,000

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Borrowings (Narrative) (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Available-for-sale Securities Pledged as Collateral	$ 97,671,000	$ 102,994,000
FHLB of Pittsburgh [Member]
Long-term Line of Credit	19,672,000	0
Line of Credit Facility, Maximum Borrowing Capacity	139,144,000
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	281,493,000
Advances from Federal Home Loan Banks	60,798,000
Atlantic Central Bankers Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	7,000,000
PNC Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	16,000,000
Zion Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	17,000,000
Securities Sold under Agreements to Repurchase [Member]
Available-for-sale securities pledged as collateral, amortized cost	36,797,000	28,914,000
Available-for-sale Securities Pledged as Collateral	$ 36,316,000	$ 28,437,000

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Borrowings (Short-Term Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Short-term Debt [Line Items]
Short-term Borrowings	$ 53,235	$ 25,695
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Short-term Borrowings	33,563	25,695
FHLB of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member]
Short-term Debt [Line Items]
Short-term Borrowings	$ 19,672	$ 0

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Borrowings (Outstanding Balances and Related Information) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Borrowings [Abstract]
Short-term Debt, Average Outstanding Amount	$ 34,057	$ 36,514
Short-term Debt, Average Interest Rate During the Year	0.25%	0.21%
Short-term Debt, Maximum Month-end Outstanding Amount	$ 55,183	$ 49,634
Short-term Debt, Weighted Average Interest Rate	0.36%	0.20%

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Borrowings (Other Borrowings) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Long-term Federal Home Loan Bank Advances	$ 41,126	$ 22,200
Convertible note due July 2015 at 4.34% [Member]
Long-term Federal Home Loan Bank Advances	$ 0	7,111
Debt Instrument, Interest Rate, Stated Percentage	4.34%
Debt Instrument, Basis Spread on Variable Rate	0.17%
Debt Instrument, Description of Variable Rate Basis	three-month LIBOR
Convertible note due January 2017 at 4.71% [Member]
Long-term Federal Home Loan Bank Advances	$ 10,000	10,000
Debt Instrument, Interest Rate, Stated Percentage	4.71%
Amortizing fixed rate borrowing due December 2017 at 1.27% [Member]
Long-term Federal Home Loan Bank Advances	$ 8,000	0
Debt Instrument, Interest Rate, Stated Percentage	1.27%
Amortizing fixed rate borrowing due January 2018 at 0.91% [Member]
Long-term Federal Home Loan Bank Advances	$ 1,267	1,866
Debt Instrument, Interest Rate, Stated Percentage	0.91%
Amortizing fixed rate borrowing due December 2018 at 1.42% [Member]
Long-term Federal Home Loan Bank Advances	$ 2,434	3,223
Debt Instrument, Interest Rate, Stated Percentage	1.42%
Amortizing fixed rate borrowing due June 2020 at 1.49% [Member]
Long-term Federal Home Loan Bank Advances	$ 9,033	0
Debt Instrument, Interest Rate, Stated Percentage	1.49%
Amortizing fixed rate borrowing due December 2020 at 1.71% [Member]
Long-term Federal Home Loan Bank Advances	$ 5,000	0
Debt Instrument, Interest Rate, Stated Percentage	1.71%
Amortizing fixed rate borrowing due March 2022 at 1.75% [Member]
Long-term Federal Home Loan Bank Advances	$ 5,392	$ 0
Debt Instrument, Interest Rate, Stated Percentage	1.75%

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Borrowings (Contractual Maturities of Other Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Borrowings [Abstract]
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Two	$ 18,000
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Three	3,701
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Five	14,033
Federal Home Loan Bank, Advances, Maturities Summary, Due after Year Five	5,392
Long-term Federal Home Loan Bank Advances, Total	$ 41,126	$ 22,200

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Borrowings (Collateral Pledged for Repurchase Agreements) (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 97,671,000	$ 102,994,000
Short-term Borrowings	53,235,000	25,695,000
US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	36,316,000
Maturity Overnight [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	35,515,000
Maturity Less than 30 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	139,000
Maturity 30 to 90 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	277,000
Maturity Greater than 90 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	385,000
Securities Sold under Agreements to Repurchase [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	36,316,000	28,437,000
Short-term Borrowings	$ 33,563,000	$ 25,695,000

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Employee Benefit Plans (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Defined Benefit Plan Disclosure [Line Items]
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	15.00%
Defined Contribution Plan, Employer Contributions, Vesting Period	5 years
Defined Contribution Plan, Cost Recognized	$ 445,000	$ 445,000	$ 440,000
Defined Benefit Plan, Percentage of Plan Funded	79.90%	98.90%
Defined Benefit Plan, Contribution Percentage	5.00%
Supplemental Employee Retirement Plan, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	$ 1,427,000	$ 1,443,000
Pension and Other Postretirement Benefit Expense	122,000	124,000	126,000
Cash Surrender Value of Life Insurance	18,820,000	18,284,000
Defined Benefit Plan, Net Periodic Benefit Cost	89,000	87,000
Multiemployer Plans, Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Net Periodic Benefit Cost	48,000	17,000	22,000
Defined Benefit Plan, Contributions by Employer	$ 48,000	$ 17,000	$ 22,000

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Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Current Income Tax Expense (Benefit)	$ 2,019	$ 2,657	$ 2,566
Earliest Tax Year [Member]
Open Tax Year	2011

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Income Taxes (Components of Federal Income Tax Provision) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Current Income Tax Expense (Benefit)	$ 2,019	$ 2,657	$ 2,566
Deferred Income Tax Expense (Benefit)	(387)	(51)	140
Current Income Tax Expense (Benefit), Total	1,632	2,606	2,706
Parent Company [Member]
Current Income Tax Expense (Benefit), Total	$ (103)	$ (114)	$ (88)

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Income Taxes (Income Tax Rate Reconciliation) (Details)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Taxes [Abstract]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%	34.00%	34.00%
Effective Income Tax Rate Reconciliation, Tax Exempt Income	(11.30%)	(7.70%)	(6.70%)
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Share-based Compensation Cost, Percent	0.30%	0.40%	0.40%
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Life Insurance, Percent	(1.80%)	(1.50%)	(3.70%)
Effective Income Tax Rate Reconciliation, Other Adjustments, Percent	0.40%	0.20%	0.20%
Effective Income Tax Rate, Continuing Operations, Total	21.60%	25.40%	24.20%

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Income Taxes (Schedule of Deferred Tax Assets and Liabilties) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Deferred tax assets, Allowance for loan losses	$ 2,481	$ 1,997
Deferred tax assets, Deferred compensation	485	491
Deferred Tax Assets, Purchase Price Adjustment	884	999
Deferred Tax Assets, Other	182	201
Deferred Tax Assets, Foreclosed real estate	305	280
Deferred Tax Assets, Gross, Total	4,337	3,968
Deferred tax liabilities, Premises and equipment	245	265
Deferred tax liablities, Deferred loan fees	172	170
Deferred tax liabilties, Net unrealized gains on securities	251	248
Deferred Tax Liabilities, Gross, Total	668	683
Deferred Tax Assets, Net, Total	$ 3,669	$ 3,285

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Regulatory Matters and Stockholders' Equity (Narrative) (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Regulatory Matters and Stockholders' Equity [Abstract]
Restricted Cash and Cash Equivalents	$ 437,000	$ 368,000
Statutory Accounting Practices, Statutory Amount Available for Dividend Payments without Regulatory Approval	$ 65,777,000

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Regulatory Matters and Stockholders' Equity (Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Regulatory Matters and Stockholders' Equity [Abstract]
Total capital (to risk weighted assets), Amount	$ 92,777	$ 89,613
Total capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	45,672	40,767
Total capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 7,090	$ 50,959
Total capital (to risk weighted assets), Ratio	16.25%	17.59%
Total capital (to risk weighted assets) For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Total capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 capital (to risk weighted assets), Amount	$ 85,638	$ 83,738
Tier 1 capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	34,254	20,383
Tier 1 capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 45,672	$ 30,575
Tier 1 capital (to risk weighted assets), Ratio	15.00%	16.43%
Tier 1 capital (to risk weighted assets) For Capital Adequacy Purposes, Ratio	6.00%	4.00%
Tier 1 capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00%	6.00%
Common Equity Tier 1 capital (to risk-weighted assets), amount	$ 85,638
Common Equity Tier 1 capital (to risk-weighted assets), for Capital Adequacy Purposes, amount	25,690
Common Equity Tier 1 capital (to risk-weighted assets) to be Well Capitalized under Prompt Corrective Action Provision, amount	$ 37,108
Common Equity Tier 1 capital (to risk-weighted assets), Ratio	15.00%
Common Equity Tier 1 capital (to risk-weighted assets) For Capital Adequacy Purposes, Ratio	4.50%
Common Equity Tier 1 capital (to risk-weighted assets) to be Well Capitalized under Prompt Corrective Action Provision	6.50%
Tier 1 capital (to average assets), Amount	$ 85,638	$ 83,738
Tier 1 capital (to average assets) For Capital Adequacy Purposes, Amount	29,203	28,069
Tier 1 capital (to average assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 36,504	$ 35,086
Tier 1 capital (to average assets), Ratio	11.73%	11.93%
Tier 1 capital (to average assets) For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 capital (to average assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%	5.00%
Risk weight assigned to exposures	150.00%
Capital conservation buffer	2.50%

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Stock Based Compensation (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Apr. 22, 2014	Dec. 31, 2012	Apr. 26, 2006
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	14,500	12,500	28,600
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 55,000	$ 0
Options, Exercised	(16,859)	(25,577)	(24,127)
Proceeds from Stock Options Exercised	$ 441,000	$ 691,000	$ 575,000
Remaining Life, Years	5 years 2 months 12 days
Average Exercise Price	$ 26.91	$ 26.74	$ 26.64		$ 26.27
Allocated Share-based Compensation Expense	$ 66,000	$ 154,000	$ 162,000
Future compensation expense of non-vested restricted stock outstanding	398,000	271,000
Unrecognized Salaries And Employee Benefits Expense	$ 71,000	$ 66,000	$ 157,000
Common Stock, Dividend Rate, Percentage			10.00%
Stock Issued During Period Shares Stock Options Exercised	16,859	25,577	24,127
Common Stock, Dividend Rate, Percentage			10.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	14,500	12,500	28,600
Net Income Reduction	$ 92,000	$ 146,000	$ 154,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Price	$ 24.44
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Price	$ 29.08
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 55,000	$ 0	$ 0
Norwood Financial Corp 2006 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						275,000
Options, Granted	7,423	12,500	28,600
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	7,423	12,500	28,600
Norwood Financial Corp 2006 Stock Option Plan [Member] | Outside Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						44,000
Options, Granted			4,000
Shares available for awards	4,057
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			4,000
Norwood Financial Corp 2014 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				250,000
Options, Granted	13,727
Shares available for awards	226,973
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	13,727
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	7,077
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	7,077
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				42,000
Stock Issued During Period, Value, Restricted Stock Award, Gross		$ 9,300
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for awards	192,173
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for awards	31,250
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 4,250
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Outside Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				40,000
Shares available for awards	34,800
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Outside Directors [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				8,000
Shares available for awards	2,800
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 2,400	$ 2,800

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Stock Based Compensation (Summary of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Stock-Based Compensation [Abstract]
Options, Outstanding, beginning of period	206,463	219,540	225,670
Options, Granted	14,500	12,500	28,600
Options, Exercised	(16,859)	(25,577)	(24,127)
Options, Forfeited	(9,583)		(10,603)
Options, Outstanding, end of period	194,521	206,463	219,540
Options, Exercisable, end of period	180,021	193,963	190,940
Weighted Average Exercise Price Per Share, Outstanding, beginning of period	$ 26.74	$ 26.64	$ 26.27
Weighted Average Exercise Price Per Share, Granted	28.55	29.08	27.07
Weighted Average Exercise Price Per Share, Exercised	26.19	27.05	23.83
Weighted Average Exercise Price Per Share, Forfeited	27.02		28.92
Weighted Average Exercise Price Per Share, Outstanding, end of period	26.91	26.74	26.64
Weighted Average Exercise Price Per Share, Exercisable, end of period	$ 26.78	$ 26.59	$ 26.58
Weighted Average Remaining Contractual Term, Outstanding	5 years 2 months 12 days
Aggregate Intrinsic Value, Outstanding, end of period	$ 362,754	$ 477,640	$ 146,970
Aggregate Intrinsic Value, Exercisable at end of period	$ 359,854	$ 477,640	$ 146,900

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Stock Based Compensation (Schedule of Fair Value Assumptions) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Stock-Based Compensation [Abstract]
Dividend yield	3.77%	3.57%	3.49%
Expected life	10 years	10 years	10 years
Expected volatility	24.35%	24.97%	25.91%
Risk-free interest rate	2.28%	2.17%	3.01%
Weighted average fair value of options granted	$ 4.89	$ 5.30	$ 5.72

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Stock Based Compensation (Schedule of Outstanding Stock Options) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	194,521	206,463	219,540	225,670
Average Exercise Price	$ 26.91	$ 26.74	$ 26.64	$ 26.27
Remaining Life, Years	5 years 2 months 12 days
Options Exercisable	180,021	193,963	190,940
Average Exercise Price	$ 26.78	$ 26.59	$ 26.58
Average Exercise Price - $27.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	16,174
Average Exercise Price	$ 27.62
Remaining Life, Years	3 months 18 days
Options Exercisable	16,174
Average Exercise Price	$ 27.62
Average Exercise Price - $28.64 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	15,400
Average Exercise Price	$ 28.64
Remaining Life, Years	1 year
Options Exercisable	15,400
Average Exercise Price	$ 28.64
Average Exercise Price - $28.41 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	15,400
Average Exercise Price	$ 28.41
Remaining Life, Years	2 years
Options Exercisable	15,400
Average Exercise Price	$ 28.41
Average Exercise Price - $25.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	15,400
Average Exercise Price	$ 25.00
Remaining Life, Years	3 years
Options Exercisable	15,400
Average Exercise Price	$ 25.00
Average Exercise Price - $25.99 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	14,397
Average Exercise Price	$ 25.99
Remaining Life, Years	4 years
Options Exercisable	14,397
Average Exercise Price	$ 25.99
Average Exercise Price - $24.44 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	1,100
Average Exercise Price	$ 24.44
Remaining Life, Years	4 years 2 months 12 days
Options Exercisable	1,100
Average Exercise Price	$ 24.44
Average Exercise Price - $25.25 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	18,700
Average Exercise Price	$ 25.25
Remaining Life, Years	5 years
Options Exercisable	18,700
Average Exercise Price	$ 25.25
Average Exercise Price - $24.97 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	22,200
Average Exercise Price	$ 24.97
Remaining Life, Years	6 years
Options Exercisable	22,000
Average Exercise Price	$ 24.97
Average Exercise Price - $27.05 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	23,100
Average Exercise Price	$ 27.05
Remaining Life, Years	7 years
Options Exercisable	23,100
Average Exercise Price	$ 27.05
Average Exercise Price - $27.55 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	1,100
Average Exercise Price	$ 27.55
Remaining Life, Years	7 years
Options Exercisable	1,100
Average Exercise Price	$ 27.55
Average Exercise Price - $28.95 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	2,000
Average Exercise Price	$ 28.95
Remaining Life, Years	7 years 8 months 12 days
Options Exercisable	2,000
Average Exercise Price	$ 28.95
Average Exercise Price - $26.90 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	23,250
Average Exercise Price	$ 26.90
Remaining Life, Years	8 years
Options Exercisable	23,250
Average Exercise Price	$ 26.90
Average Exercise Price 29.08 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	12,000
Average Exercise Price	$ 29.08
Remaining Life, Years	9 years
Options Exercisable	12,000
Average Exercise Price	$ 29.08
Average Exercise Price - $28.55 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	14,500
Average Exercise Price	$ 28.55
Remaining Life, Years	10 years
Options Exercisable	0
Average Exercise Price	$ 0.00

XML

Stock Based Compensation (Restricted Stock Rollforward) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Future compensation expense of non-vested restricted stock outstanding	$ 398	$ 271
Restricted Stock or Unit Expense	$ 55	$ 0	$ 0
Restricted Stock [Member]
Restricted stock outstanding, beginning balance	9,300	0
Restricted stock, granted	6,650	9,300
Restricted stock, vested	(1,860)	0
Restricted stock, forfeited	(280)	0
Restricted stock outstanding, ending balance	13,810	9,300	0
Restricted stock outstanding, weighted-average grant date fair value, beginning balance	$ 29.08
Restricted stock, granted, weighted-average grant date fair value	28.55	$ 29.08
Restricted stock, vested, weighted-average grant date fair value	29.08
Restricted stock, forfeited, weighted-average grant date fair value	29.08
Restricted stock outstanding, weighted-average grant date fair value, ending balance	$ 28.82	$ 29.08

XML

Earnings Per Share (Narrative) (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share [Abstract]
Common Stock, Dividend Rate, Percentage			10.00%
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	14,000	12,500	129,000

XML

Earnings Per Share (Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share [Abstract]
Numerator, net income	$ 5,908	$ 7,657	$ 8,465
Weighted average shares outstanding	3,682	3,645	3,627
Less: Weighted average unvested restricted shares	(9)	0	0
Weighted Average Number of Shares Outstanding, Basic, Total	3,673	3,645	3,627
Add: Dilutive effect of stock options	9	12	5
Diluted EPS weighted average shares outstanding	3,691	3,657	3,632
Basic earnings per common share	$ 1.60	$ 2.10	$ 2.33
Diluted earnings per common share	$ 1.60	$ 2.10	$ 2.33

XML

Off-Balance Sheet Financial Instruments (Table) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Loss Contingencies [Line Items]
Financial Instrument Commitments	$ 73,631	$ 73,999
Unfunded availability under loan commitments [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	19,704	23,070
Unfunded commitments under lines of credit [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	48,641	45,269
Standby letters of credit [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	$ 5,286	$ 5,660

XML

Fair Value of Financial Instruments (Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 138,851	$ 156,395
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	384	398
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	138,467	155,997
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	9,169	28,975
U.S. Government Agencies [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agencies [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	9,169	28,975
U.S. Government Agencies [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	60,755	54,332
States and political subdivisions [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States and political subdivisions [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	60,755	54,332
States and political subdivisions [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	4,974	6,486
Corporate obligations [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	4,974	6,486
Corporate obligations [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Mortgage-backed securities-government sponsored entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	63,569	66,204
Mortgage-backed securities-government sponsored entities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Mortgage-backed securities-government sponsored entities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	63,569	66,204
Mortgage-backed securities-government sponsored entities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Equity securities-financial services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	384	398
Equity securities-financial services [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	384	398
Equity securities-financial services [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Equity securities-financial services [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 0	$ 0

XML

Fair Value of Financial Instruments (Fair Value, Assets and Liabilities Measured on Nonrecurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 7,615	$ 11,312
Impaired Loans [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Impaired Loans [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Impaired Loans [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	7,615	11,312
Foreclosed Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	2,847	3,726
Foreclosed Real Estate Owned [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Foreclosed Real Estate Owned [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Foreclosed Real Estate Owned [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 2,847	$ 3,726

XML

Fair Value of Financial Instruments (Additional Qualitative Information about Level 3 Assets) (Details) $ in Thousands		12 Months Ended
		Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($) loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment		$ 9,228	$ 11,605
Impaired Financing Receivable, with Related Allowance, Recorded Investment		6,373	2,973
Impaired Financing Receivable, Related Allowance		1,613	293
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		2,855	8,632
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		7,615	11,312
Impaired Financing Receivable, Recorded Investment		$ 9,228	$ 11,605
Number of impaired loans requiring a valuation allowance | loan		3	3
Impaired Financing Receivable, with Related Allowance, Recorded Investment		$ 6,373	$ 2,973
Impaired Financing Receivable, Related Allowance		$ 1,613	$ 293
Number of impaired loans not requiring a valuation allowance | loan		20	14
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		$ 2,855	$ 8,632
Impaired Loans, Cumulative Charge-Offs		2,044	1,022
Impaired Loans [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 2,574	$ 11,312
Fair Value Measurements, Valuation Techniques	[1]	Appraisal of collateral(1)	Appraisal of collateral(1)
Fair Value Disclosure, Unobservable Input Range	[2]	Appraisal adjustments(2)	Appraisal adjustments(2)
Fair Value Inputs, Discount Rate		10.00%
Impaired Loans [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 5,041
Fair Value Measurements, Valuation Techniques		Present value of future cash flows
Fair Value Disclosure, Unobservable Input Range		Loan discount rate
Impaired Loans [Member] | Minimum [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate			6.00%
Impaired Loans [Member] | Minimum [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		4.00%
Impaired Loans [Member] | Maximum [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate			33.00%
Impaired Loans [Member] | Maximum [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		7.00%
Impaired Loans [Member] | Weighted Average [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		10.00%	23.35%
Impaired Loans [Member] | Weighted Average [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		5.61%
Foreclosed Real Estate Owned [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 2,847	$ 3,726
Fair Value Measurements, Valuation Techniques	[1]	Appraisal of collateral(1)	Appraisal of collateral(1)
Fair Value Disclosure, Unobservable Input Range	[2]	Liquidation Expenses(2)	Liquidation Expenses(2)
Fair Value Inputs, Discount Rate		10.00%	10.00%

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.

[2] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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Fair Value of Financial Instruments (Fair Value, by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	$ 10,010	$ 12,376
Financial assets: Securities, Fair Value Disclosure	138,851	156,395
Financial assets: Loans receivable, net, Fair Value Disclosure	559,416	507,833
Financial assets: Mortgage servicing rights, Fair Value Disclosure	291	277
Financial assets: Regulatory stock, Fair Value Disclosure	3,412	1,714
Financial assets: Bank owned life insurance, Fair Value Disclosure	18,820	18,284
Financial assets: Accrued interest receivable, Fair Value Disclosure	2,363	2,339
Financial liabilities: Deposits, Fair Value Disclosure	551,175	560,243
Financial liabilities: Short-term borrowings, Fair Value Disclosure	53,235	25,695
Financial liabilities: Other borrowings, Fair Value Disclosure	41,260	23,228
Financial liabilities: Accrued interest payable, Fair Value Disclosure	957	966
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold	10,010	12,376	$ 7,863	$ 12,295
Financial assets: Securities	138,851	156,395
Financial assets: Loans receivable, net	552,627	495,260
Financial assets: Mortgage servicing rights	261	271
Financial assets: Investment in FHLB stock	3,412	1,714
Financial assets: Bank owned life insurance	18,820	18,284
Financial assets: Accrued interest receivable	2,363	2,339
Financial liabilities: Deposits	550,909	559,944
Financial liabilities: Short-term borrowings	53,235	25,695
Financial liabilities: Other borrowings	41,126	22,200
Financial liabilities: Accrued interest payable	957	966
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	10,010	12,376
Financial assets: Securities, Fair Value Disclosure	384	398
Financial assets: Loans receivable, net, Fair Value Disclosure	0	0
Financial assets: Mortgage servicing rights, Fair Value Disclosure	0	0
Financial assets: Regulatory stock, Fair Value Disclosure	3,412	1,714
Financial assets: Bank owned life insurance, Fair Value Disclosure	18,820	18,284
Financial assets: Accrued interest receivable, Fair Value Disclosure	2,363	2,339
Financial liabilities: Deposits, Fair Value Disclosure	354,162	338,112
Financial liabilities: Short-term borrowings, Fair Value Disclosure	53,235	25,695
Financial liabilities: Other borrowings, Fair Value Disclosure	0	0
Financial liabilities: Accrued interest payable, Fair Value Disclosure	957	966
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	0	0
Financial assets: Securities, Fair Value Disclosure	138,467	155,997
Financial assets: Loans receivable, net, Fair Value Disclosure	0	0
Financial assets: Mortgage servicing rights, Fair Value Disclosure	0	0
Financial assets: Regulatory stock, Fair Value Disclosure	0	0
Financial assets: Bank owned life insurance, Fair Value Disclosure	0	0
Financial assets: Accrued interest receivable, Fair Value Disclosure	0	0
Financial liabilities: Deposits, Fair Value Disclosure	0	0
Financial liabilities: Short-term borrowings, Fair Value Disclosure	0	0
Financial liabilities: Other borrowings, Fair Value Disclosure	0	0
Financial liabilities: Accrued interest payable, Fair Value Disclosure	0	0
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	0	0
Financial assets: Securities, Fair Value Disclosure	0	0
Financial assets: Loans receivable, net, Fair Value Disclosure	559,416	507,833
Financial assets: Mortgage servicing rights, Fair Value Disclosure	291	277
Financial assets: Regulatory stock, Fair Value Disclosure	0	0
Financial assets: Bank owned life insurance, Fair Value Disclosure	0	0
Financial assets: Accrued interest receivable, Fair Value Disclosure	0	0
Financial liabilities: Deposits, Fair Value Disclosure	197,013	222,131
Financial liabilities: Short-term borrowings, Fair Value Disclosure	0	0
Financial liabilities: Other borrowings, Fair Value Disclosure	41,260	23,228
Financial liabilities: Accrued interest payable, Fair Value Disclosure	0	0
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	$ 0	$ 0

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Accumulated Other Comprehensive Income (Components of Accumulated Other Comprehensive Income and Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015		Dec. 31, 2014		Dec. 31, 2013
Accumulated Other Comprehensive Income (Loss) [Abstract]
Beginning balance	[1]	$ 462		$ (2,602)
Other comprehensive income (loss) before reclassification	[1]	439		3,836
Amount reclassified from accumulated other comprehensive income (loss)	[1]	(413)		(772)
Other comprehensive income (loss), net of tax amount		26	[1]	3,064	[1]	$ (5,399)
Ending balance	[1]	$ 488		$ 462		$ (2,602)

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Accumulated Other Comprehensive Income (Items Reclassified Out of Each Component of OCI) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities		$ 626	$ 1,170	$ 881
Income tax expense		(1,632)	(2,606)	(2,706)
Net Income		5,908	7,657	$ 8,465
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	[1]	(213)	(398)
Net Income	[1]	413	772
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized gains on available for sale securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	[1]	$ 626	$ 1,170

[1] Amounts in parentheses indicate debits to net income.

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Proposed Acquisition of Delaware Bancshares, Inc. (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
	Mar. 10, 2016	Dec. 31, 2015
Subsequent Event, Date		Mar. 10, 2016
Subsequent Event [Member] | Delaware Bancshares and NBDC Bank Proposed Acquisition [Member]
Business Acquisition, Share Price	$ 16.68
Business Acquisition, shares exchanged	0.6221
Business Combination, Contingent Consideration, Asset, Current	$ 615
Subsequent Event [Member] | Delaware Bancshares and NBDC Bank Proposed Acquisition [Member] | Maximum [Member]
Percent of cash consideration	25.00%
Percent decline in market value resulting in possible termination	20.00%

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Norwood Financial Corp (Parent Company Only) Financial Information (Balance Sheets) (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	$ 9,744	$ 8,081
Securities available for sale	138,851	156,395
Other assets	1,434	1,418
Total Assets	750,505	711,635
Liabilities	649,507	612,594
Stockholders' equity	100,998	99,041	$ 91,864	$ 92,421
Total Liabilities and Stockholders' Equity	750,505	711,635
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	2,151	1,846
Securities available for sale	384	398
Investment in bank subsidiary	95,895	94,268
Other assets	4,113	3,900
Total Assets	102,543	100,412
Liabilities	1,545	1,371
Stockholders' equity	100,998	99,041
Total Liabilities and Stockholders' Equity	$ 102,543	$ 100,412

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Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Income) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Condensed Financial Statements, Captions [Line Items]
Net realized gain (loss) on sales of securities	$ 626	$ 1,170	$ 881
Income before taxes and equity in undistributed earnings	7,540	10,263	11,171
Income tax expense	1,632	2,606	2,706
Net Income	5,908	7,657	8,465
Comprehensive Income, Net of Tax	5,934	10,721	3,066
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Dividends from bank subsidiary	4,574	4,377	4,216
Other interest income	11	10	9
Total Revenues	4,585	4,387	4,225
Expenses	313	346	267
Income before taxes and equity in undistributed earnings	4,272	4,041	3,958
Income tax expense	(103)	(114)	(88)
Income before equity in undistributed earnings	4,375	4,155	4,046
Equity in undistributed earnings of subsidiary	1,533	3,502	4,419
Net Income	5,908	7,657	8,465
Comprehensive Income, Net of Tax	$ 5,934	$ 10,721	$ 3,066

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Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Cash Flows) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Condensed Financial Statements, Captions [Line Items]
Net Income	$ 5,908	$ 7,657	$ 8,465
Net (gains) losses on sales of securities	626	1,170	881
Net Cash Provided by (Used in) Operating Activities, Continuing Operations	10,498	10,531	12,691
Proceeds from sale of securities	44,976	66,263	42,348
Securities available for sale: Purchases	(50,565)	(74,426)	(84,589)
Proceeds from Stock Options Exercised	441	691	575
Excess Tax Benefit from Share-based Compensation, Financing Activities	16	17	39
ESOP purchase of shares from treasury stock	146	150	146
Acquisition of treasury stock	(127)	(179)	(319)
Cash dividends paid	(4,527)	(4,370)	(4,155)
Net Cash Provided by (Used in) Financing Activities, Continuing Operations	33,380	(10,709)	35,534
Net Increase (Decrease) in Cash and Cash Equivalents	(2,366)	4,513	(4,432)
CASH AND CASH EQUIVALENTS - BEGINNING	12,376	7,863	12,295
CASH AND CASH EQUIVALENTS - ENDING	10,010	12,376	7,863
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Net Income	5,908	7,657	8,465
Undistributed earnings of bank subsidiary	(1,533)	(3,502)	(4,419)
Other, net	19	(177)	247
Net Cash Provided by (Used in) Operating Activities, Continuing Operations	4,356	4,332	3,799
Proceeds from Stock Options Exercised	441	691	575
Excess Tax Benefit from Share-based Compensation, Financing Activities	16	17	39
ESOP purchase of shares from treasury stock	146	150	146
Acquisition of treasury stock	(127)	(179)	(319)
Cash dividends paid	(4,527)	(4,370)	(4,155)
Net Cash Provided by (Used in) Financing Activities, Continuing Operations	(4,051)	(3,691)	(3,714)
Net Increase (Decrease) in Cash and Cash Equivalents	305	641	85
CASH AND CASH EQUIVALENTS - BEGINNING	1,846	1,205	1,120
CASH AND CASH EQUIVALENTS - ENDING	$ 2,151	$ 1,846	$ 1,205