SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-28366
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Norwood Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2828306
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
717 Main Street, Honesdale, Pennsylvania 18431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (570) 253-1455
-----------------
N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act): [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of May 11, 2007
--------------------------------------- ------------------------------
Common stock, par value $0.10 per share 2,787,855
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2007
Page
Number
PART I - CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP.
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
Item 4T. Controls and Procedures 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits 25
Signatures 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands, except share data)
March 31, December 31,
2007 2006
---- ----
ASSETS
Cash and due from banks $ 8,604 $ 9,450
Interest bearing deposits with banks 141 67
Federal funds sold 3,130 --
-------- --------
Cash and cash equivalents 11,875 9,517
Securities available for sale 112,597 112,912
Securities held to maturity, fair value 2007:
$974, 2006: $971 955 954
Loans receivable (net of unearned income) 320,744 315,567
Less: Allowance for loan losses 3,871 3,828
-------- --------
Net loans receivable 316,873 311,739
Investment in FHLB Stock 1,923 1,687
Bank premises and equipment, net 5,935 6,020
Bank owned life insurance 7,549 7,479
Accrued interest receivable 2,175 2,129
Other Assets 1,501 1,919
-------- --------
TOTAL ASSETS $461,383 $454,356
======== ========
LIABILITIES
Deposits:
Non-interest bearing demand $ 54,046 $ 53,856
Interest bearing 305,988 304,247
-------- --------
Total deposits 360,034 358,103
Short-term borrowings 19,986 22,736
Long-term debt 23,000 13,000
Accrued interest payable 3,402 2,894
Other liabilities 1,902 5,392
-------- --------
TOTAL LIABILITIES 408,324 402,125
STOCKHOLDERS' EQUITY
Common stock, $.10 par value per share, authorized
10,000,000; shares issued 2,840,872 284 284
Surplus 10,233 10,149
Retained earnings 43,946 43,125
Treasury stock at cost: 2007: 53,017 shares, 2006: 43,721 (1,556) (1,283)
Accumulated other comprehensive income (loss) 152 (44)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 53,059 52,231
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $461,383 $454,356
======== ========
See accompanying notes to the unaudited consolidated financial statements.
3
NORWOOD FINANCIAL CORP. Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended
March 31,
-------------------
2007 2006
---- ----
INTEREST INCOME
Loans receivable, including fees $5,840 $4,944
Securities 1,218 1,050
Other 21 2
------ ------
Total interest income 7,079 5,996
INTEREST EXPENSE
Deposits 2,486 1,590
Short-term borrowings 256 187
Long-term debt 246 293
------ ------
Total interest expense 2,988 2,070
------ ------
NET INTEREST INCOME 4,091 3,926
PROVISION FOR LOAN LOSSES 50 70
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,041 3,856
------ ------
OTHER INCOME
Service charges and fees 606 590
Income from fiduciary activities 125 77
Net realized gain on sales of securities -- 7
Gain on sale of loans 7 --
Earnings on life insurance policies 81 74
Other 75 76
------ ------
Total other income 894 824
------ ------
OTHER EXPENSES
Salaries and employee benefits 1,497 1,406
Occupancy, furniture & equipment, net 415 380
Data processing 174 156
Taxes, other than income 118 113
Professional fees 89 113
Amortization of intangibles 13 13
Other 555 585
------ ------
Total other expenses 2,861 2,766
------ ------
INCOME BEFORE INCOME TAXES 2,074 1,914
INCOME TAX EXPENSE 611 581
------ ------
NET INCOME $1,463 $1,333
====== ======
BASIC EARNINGS PER SHARE $ 0.52 $ 0.48
====== ======
DILUTED EARNINGS PER SHARE $ 0.51 $ 0.47
====== ======
See accompanying notes to the unaudited consolidated financial statements.
4
NORWOOD FINANCIAL CORP.
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
(dollars in thousands, except per Accumulated
share data) Number Unearned Other
of shares Common Retained Treasury ESOP Comprehensive
issued Stock Surplus Earnings Stock Shares Income (Loss) Total
------ ----- ------- -------- ----- ------ ------------- -----
Balance December 31, 2006 2,840,872 $284 $10,149 $43,125 ($1,283) $ -- ($44) $52,231
Comprehensive Income:
Net Income 1,463 1,463
Change in unrealized gains (losses)
on securities available for sale, net
of reclassification adjustment and
tax effects 196 196
-------
Total comprehensive income 1,659
-------
Cash dividends declared $.23 per
share (642) (642)
Acquisition of 9,267 shares of
treasury stock (273) (273)
Compensation expense related to stock
options 84 -- 84
--------- ---- ------- ------- ------- ---- ---- -------
Balance, March 31, 2007 2,840,872 $284 $10,233 $43,946 ($1,556) $ -- $152 $53,059
========= ==== ======= ======= ======= ==== ==== =======
See accompanying notes to the unaudited consolidated financial statements.
5
NORWOOD FINANCIAL CORP.
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Three Months Ended March 31,
----------------------------
2007 2006
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,463 $ 1,333
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses 50 70
Depreciation 144 123
Amortization of intangible assets 13 13
Deferred income taxes 82 (129)
Net amortization of securities premiums and discounts 49 92
Net realized gain on sales of securities -- (7)
Earnings on life insurance policy (70) (64)
Net gain on sale of mortgage loans (7) --
Mortgage loans originated for sale (327) --
Proceeds from sale of mortgage loans 334 --
Release of ESOP shares -- 146
Compensation expense related to stock options 84 --
Decrease in accrued interest receivable and other assets 301 959
Increase (decrease) in accrued interest payable and other liabilities (3,080) 153
-------- --------
Net cash provided by (used in) operating activities (964) 2,689
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from maturities and principal reductions on mortgage-backed securities 13,861 3,622
Purchases (13,300) (4,765)
Securities held to maturity, proceeds from maturities -- 505
Increase in investment in FHLB stock (236) (453)
Net increase in loans (5,210) (972)
Purchase of bank premises and equipment (59) (238)
-------- --------
Net cash used in investing activities (4,944) (2,301)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits 1,931 (1,096)
Net increase (decrease) in short-term borrowings (2,750) 1,201
Proceeds from long-term debt 10,000 --
Acquisition of treasury stock (273) (396)
Cash dividends paid (642) (561)
-------- --------
Net cash provided by(used in) financing activities 8,266 (852)
-------- --------
Increase (decrease) in cash and cash equivalents 2,358 (464)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,517 9,816
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,875 $ 9,352
======== ========
See accompanying notes to the unaudited consolidated financial statements.
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of Norwood
Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and
the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp.
and WTRO Properties. All significant intercompany transactions have been
eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial statements and with instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
principles for complete financial statements. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ from
those estimates. The financial statements reflect, in the opinion of management,
all normal, recurring adjustments necessary to present fairly the financial
position of the Company. The operating results for the three month period ended
March 31, 2007 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2007 or any other future interim
period.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference in
the Company's Annual Report on Form 10-K for the year-ended December 31, 2006.
2. 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. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and are determined using the treasury stock method.
The following table sets forth the computations of basic and diluted
earnings per share:
(in thousands)
Three Months Ended
March 31,
------------------
2007 2006
----- -----
Basic EPS weighted average shares outstanding 2,791 2,797
Dilutive effect of stock options 56 55
----- -----
Diluted EPS weighted average shares outstanding 2,847 2,852
===== =====
7
3. STOCK-BASED COMPENSATION
------------------------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123(R), "Share-Based Payment." Statement No. 123(R) replaces
Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Statement No. 123(R)
requires that the fair value of share-based payment transactions be recognized
as compensation costs in the financial statements over the period than an
employee provides service in exchange for the award. The fair value of the
share-based payments is estimated using the Black-Scholes option-pricing model.
The Company adopted Statement No. 123(R) effective January 1, 2006, using the
modified-prospective transition method. 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. The Company did not issue any stock options in 2005 and for the period
ended March 31, 2006. All outstanding options as of December 31, 2005 are fully
vested. The Company's shareholders approved the Norwood Financial Corp 2006
Stock Option Plan at the annual meeting on April 25, 2006 and the Company
awarded 47,700 options in 2006, all of which have a twelve month vesting period.
Included in the results for the three months ended March 31, 2007, were $84,000
in compensation costs. Net income for the three months ended March 31, 2007 was
reduced by approximately $80,000 which is net of related income tax benefit. As
of March 31, 2007, there was approximately $166,000 of total unrecognized
compensation cost related to nonvested options under the plan. There were no
options awarded or exercised for the three month period ending March 31, 2007.
4. 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 with
maturities of 90 days or less and federal funds sold.
Cash payments for interest for the period ended March 31, 2007 and 2006
were $2,480,000 and $2,124,000 respectively. Cash payments for income taxes in
2007 were $4,000 compared to $5,000 in 2006. Non-cash investing activity for
2007 and 2006 included foreclosed mortgage loans and repossession of other
assets of $24,000 and $26,000, respectively.
5. COMPREHENSIVE INCOME
--------------------
Accounting principles generally accepted in the United States of America
require that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities such as unrealized
gains and losses on available for sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income. The components of other
comprehensive income and related tax effects are as follows.
8
(in thousands) Three Months Ended March 31
---------------------------
2007 2006
---- ----
Unrealized holding gains (losses)
on available for sale securities $ 294 $(199)
Reclassification adjustment for gains
realized in income -- (7)
----- -----
Net unrealized gain (losses) 294 (206)
Income tax expense (benefit) 98 (70)
----- -----
Other comprehensive income (loss) $ 196 $(136)
===== =====
6. OFF BALANCE SHEET FINANCIAL INSTRUMENTS AND GUARANTEES
------------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheets. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and letters of
credit is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments is as follows:
(in thousands) March 31
-------------- --------
2007 2006
------- -------
Commitments to grant loans $ 8,940 $18,971
Unfunded commitments under lines of credit 30,376 31,532
Standby letters of credit 6,914 7,120
------- -------
$46,230 $57,623
======= =======
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer and generally consists of real
estate.
The Bank does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of credit. Standby
letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Generally, all letters
of credit, when
9
issued have expiration dates within one year. The credit risk involved in
issuing letters of credit is essentially the same as those that are involved in
extending loan facilities to customers. The Bank, generally, holds collateral
and/or personal guarantees supporting these commitments. Management believes
that the proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the potential amount of
future payments required under the corresponding guarantees. The current amount
of the liability as of March 31, 2007 for guarantees under standby letters of
credit issued is not material.
7. NEW AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
---------------------------------------------------
Effective January 1, 2007, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 156, "Accounting for Servicing of Financial
Assets - An Amendment of FASB Statement No. 140" (SFAS 156"). SFAS 156 requires
that all separately recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable. The statement permits, but
does not require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. The adoption of SFAS 156 did not have a significant
effect on the consolidated financial statements.
Effective January 1, 2007, the Company adopted the provisions of Financial
Accounting Standards Board (FASB) Interpretation No,. 48, "Accounting for
Uncertainty in Income Taxes". The Interpretation provides clarification on
accounting for uncertainty in income taxes recognized in an enterprises's
financial statements in accordance with FASB Statement of Financial Accounting
Standard (SFAS) No. 109, "Accounting for Income Taxes". The Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and also provides guidance on derecogntion,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. As a result of the Company's evaluation of the
implementation of FIN 48, no significant income tax uncertainties were
identified. Therefore, the Company recognized no adjustment for unrecognized
income tax benefits during the three months ended March 31, 2007. Our policy is
to recognize interest and penalties on unrecognized tax benefits in "Federal
income taxes" in the Consolidated Statements of Income. The amount of interest
and penalties for the three months ended March 31, 2007 was immaterial. The tax
years subject to examination by the taxing authorities are the years ending
December 31, 2006, 2005, 2004 and 2003.
In March 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11
requires companies to recognize the income tax benefit realized from dividends
or dividend equivalents that are charged to retained earnings and paid to
employees for nonvested equity-classified employee share-based payment awards as
an increase to additional paid-in capital. EITF 06-11 is effective for fiscal
years beginning after September 15, 2007. The Company does not expect EITF 06-11
will have a material impact on its consolidated financial position, results of
operations or cash flows.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10
"Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements"
(EITF 06-10). EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement of the
associated asset on the basis of the terms of the collateral assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. The Company is currently assessing the impact of EITF 06-10 on its
consolidated financial position and results of operations.
10
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115. "SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for our Company January 1, 2008. The Company is evaluating the impact
that the adoption of SFAS No. 159 will have on our consolidated financial
statements.
On September 7, 2006, the Task Force reached a conclusion on EITF Issue No.
06-5, "Accounting for Purchases of Life Insurance - Determining the Amount that
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance" ("EITF 06-5"). The Scope of EITF
06-5 consists of six separate issues relating to accounting for life insurance
policies purchased by entities protecting against the loss of "key persons." The
six issues are clarifications of previously issued guidance on FASB Technical
Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect it to have a material impact on
the Company's consolidated financial statements.
In September 2006, the FASB's Emerging Issues Task Force (EIFT) issued EITF
Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance Arrangements" ("EITF 06-4).
EITF 06-4 requires the recognition of a liability related to the postretirement
benefits covered by an endorsement split-dollar life insurance arrangement. The
consensus highlights that the employer (who is also the policyholder) has a
liability for the benefit it is providing to its employee. As such, if the
policyholder has agreed to maintain the insurance policy in force for the
employee's benefit during his or her retirement, then the liability recognized
during the employee's active service period should be based on the future cost
of insurance to be incurred during the employee's retirement. Alternatively if
the policy holder has agreed to provide the employee with a death benefit, then
the liability for the future death benefit should be recognized by following the
guidance in SFAS No. 106 or Accounting Principals Board (APB) Opinion No. 12, as
appropriate. For transition, an entity can choose to apply the guidance using
either of the following approaches: (a) a change in accounting principle through
retrospective application to all periods presented or (b) a change in accounting
principle through a cumulative-effect adjustment to the balance in retained
earnings at the beginning of the year of adoption. The disclosures are required
in fiscal years beginning after December 15, 2007, with early adoption
permitted. The Company is evaluating the potential impact of this guidance on
Company's consolidated financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
FASB Statement 157 applies to other accounting pronouncements that require or
permit fair value measurements. The new guidance is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years. We are currently evaluating the
potential impact, if any, of the adoption of FASB Statement No. 157 on our
consolidated financial position, results of operations and cash flows.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
--------------------------
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words believes, anticipates, contemplates, expects, and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, which could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, risks associated with the effect of opening a new branch, the
ability to control costs and expenses, demand for real estate and general
economic conditions. The Company undertakes no obligation to publicly release
the results of any revisions to those forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICIES
----------------------------
Note 2 to the Company's consolidated financial statements for the year
ended December 31, 2006 (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,
accounting for stock options, the valuation of deferred tax assets and the
determination of other-than-temporary impairment losses on securities. Please
refer to the discussion of the allowance for loan losses calculation under
"Non-performing Assets and Allowance for Loan Losses" in the "Financial
Condition" section.
The Company adopted SFAS No. 123(R) "Share-Based Payment" as of January 1,
2006, which requires that transactions be recognized as compensation cost in the
income statement based on their fair values on the measurement date, which, for
the Company is the grant date. There were no stock options awarded in 2005 or
for the three months ended March 31, 2006. The Norwood Financial Corp 2006 Stock
Option Plan was approved on April 25, 2006 and the Company granted 47,700
options during 2006. For the three months ended March 31, 2007, salaries and
employee benefit expense includes $84,000 related to the adoption of Statement
No. 123 (R) and $-0- for the three months ended March 31, 2006.
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 that it is more likely than not that all deferred
tax assets will be realized.
In estimating other-than-temporary impairment losses on securities, the
Company considers 1) the length of time and extent to which the fair value has
been less than cost 2) the financial condition of the issuer and 3) the intent
and ability of the Company to hold the security to allow for a recovery to fair
value. The
12
Company believes that the unrealized losses at March 31, 2007 and December 31,
2006 represent temporary impairment of the securities.
CHANGES IN FINANCIAL CONDITION
------------------------------
GENERAL
-------
Total assets as of March 31, 2007 were $461.4 million compared to $454.4
million as of December 31, 2006 an increase of $7.0 million or 1.6%. The
increase reflects a $5.1 million, or 1.6%, increase in loans receivable and a
$2.4 million increase in cash and cash equivalents.
SECURITIES
----------
The fair value of securities available for sale as of March 31, 2007 was
$112.6 million compared to $112.9 million as of December 31, 2006. The Company
purchased $13.3 million of securities using the proceeds from $13.9 million of
securities called, maturities and principal reductions.
The carrying value of the Company's securities portfolio (Available-for
Sale and Held-to Maturity) consisted of the following:
March 31, 2007 December 31, 2006
-----------------------------------------------------------------------------
(dollars in thousands) Amount % of portfolio Amount % of portfolio
------ -------------- ------ --------------
US Government agencies $ 43,656 38.5% $ 47,581 41.9%
States and political subdivisions 19,900 17.5 17,419 15.3
Corporate securities 7,457 6.6 8,439 7.4
Mortgage-backed securities 40,792 35.9 38,652 33.9
Equity securities 1,747 1.5 1,775 1.6
-------- ----- -------- -----
Total $113,552 100.0% $113,866 100.0%
The Company has securities in an unrealized loss position. In Management's
opinion, the unrealized losses reflect changes in interest rates subsequent to
the acquisition of specific securities. The Company's available-for-sale
portfolio has an average repricing term of 2.2 years. Interest rates in the 2-3
year section of the treasury yield curve decreased during the three months ended
March 31, 2007 favorably impacting the fair value of individual securities.
Management believes that the unrealized losses represent temporary impairment of
the securities and are the result of changes in interest rates. The Company has
the intent and ability to hold these investments until maturity or market price
recovery.
LOANS RECEIVABLE
----------------
Loans receivable totaled $320.7 million compared to $315.7 million as of
December 31, 2006. Residential real estate increased $3.3 million principally
due to growth in single family first lien residential loans. Commercial real
estate increased $2.9 million during the period. Consumer loans declined $1.2
million due to continued run-off in the Company's indirect automobile portfolio.
13
Set forth below is selected data relating to the composition of the loan
portfolio at the dates indicated:
Types of loans
(dollars in thousands) March 31, 2007 December 31, 2006
-------------------- ---------------------
$ % $ %
--- --- --- ---
Real Estate-Residential $117,120 36.5 $113,783 36.0
Commercial 141,830 44.2 138,881 44.0
Construction 6,660 2.1 7,714 2.4
Commercial, financial and agricultural 35,097 10.9 34,019 10.8
Consumer loans to individuals 20,354 6.3 21,520 6.8
-------- ----- -------- ------
Total loans 321,061 100.0 315,917 100.0
Deferred fees (317) (350)
-------- --------
320,744 315,567
Allowance for loan losses (3,871) (3,828)
-------- --------
Net loans receivable $316,873 $311,739
======== ========
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
---------------------------------------------------
Following is a summary of changes in the allowance for loan losses for the
periods indicated:
Three
-----
(dollars in thousands) Months Ended March 31,
----------------------
2007 2006
---- ----
Balance, beginning $ 3,828 $ 3,669
Provision for loan losses 50 70
Charge-offs (28) (27)
Recoveries 21 31
------- -------
Net (charge-offs)/recoveries (7) 4
------- -------
Balance, ending $ 3,871 $ 3,743
======= =======
Allowance to total loans 1.21% 1.28%
Net (charge-offs) recoveries to average loans
(annualized) (.01%) .01%
The allowance for loan losses totaled $3,871,000 as of March 31, 2007 and
represented 1.21% of total loans, compared to $3,828,000 at year end, and
$3,743,000 as of March 31, 2006. The Company had net charge-offs for the three
months ended March 31, 2007 of $7,000 compared to net recoveries of $4,000 in
2006. The Company's loan review process assesses the adequacy of the allowance
for loan losses on a quarterly basis. The process includes an analysis of the
risks inherent in the loan portfolio. It includes an analysis of impaired loans
and a historical review of credit losses by loan type. Other factors considered
include: concentration of credit in specific industries; economic and industry
conditions; trends in delinquencies and loan classifications, large dollar
exposures and loan growth. Management considers the allowance adequate at March
31, 2007 based on the Company's criteria. However, there can be no assurance
that the allowance for loan losses will be adequate to cover significant losses,
if any, that might be incurred in the future.
14
As of March 31, 2007, non-performing loans totaled $407,000, which is .13%
of total loans compared to $409,000, or .13% of total loans at December 31,
2006. The following table sets forth information regarding non-performing loans
and foreclosed real estate at the dates indicated:
(dollars in thousands) March 31, 2007 December 31, 2006
-------------- -----------------
Loans accounted for on a non-accrual basis:
Commercial and all other $ - $ -
Real Estate 401 392
Consumer 6 17
------ ------
Total 407 409
Accruing loans which are contractually
past due 90 days or more - -
------ ------
Total non-performing loans 407 409
Foreclosed real estate - -
------ ------
Total non-performing assets $ 407 $ 409
====== ======
Allowance for loans losses $3,871 $3,828
Coverage of non-performing loans 9.5x 9.4x
Non-performing loans to total loans .13% .13%
Non-performing assets to total assets .09% .09%
DEPOSITS
--------
Total deposits as of March 31, 2007 were $360.0 million increasing slightly
from $358.1 million as of December 31, 2006.
The following table sets forth deposit balances as of the dates indicated:
(dollars in thousands) March 31, 2007 December 31, 2006
-------------- -----------------
Non-interest bearing demand $ 54,046 $ 53,856
Interest bearing demand 36,498 36,600
Money Market 50,095 50,048
Savings 43,895 45,144
Time deposits <$100,000 118,589 115,719
Time deposits >$100,000 56,911 56,736
-------- --------
Total $360,034 $358,103
======== ========
The increase in deposits was principally due to a higher level of short-term CDs
that pay a higher rate of return.
15
BORROWINGS
----------
Short-term borrowings as of March 31, 2007 were $20.0 million compared to
$22.7 million as of December 31, 2006. Short-term borrowings consist of the
following:
March 31, 2007 December 31, 2006
-------------- -----------------
(dollars in thousands)
Securities sold under agreements to repurchase $18,986 $21,736
U.S. Treasury demand notes 1,000 1,000
------- -------
$19,986 $22,736
======= =======
Long-term debt consisted of the following:
March 31, 2007 December 31, 2006
-------------- -----------------
(dollars in thousands)
Notes with the FHLB:
Fixed rate note due April 2008 at 4.17% $ 5,000 $ 5,000
Convertible note due April 2009 at 5.53% 5,000 5,000
Convertible note due January 2011 at 5.24% 3,000 3,000
Convertible note due January 2017 at 4.71% 10,000 -
------- -------
$23,000 $13,000
======= =======
The convertible notes contain an option which allows the FHLB, at quarterly
intervals to change the note to an adjustable-rate advance at three month LIBOR
plus 11 to 16 basis points. If the notes are converted, the option allows the
Bank to put the funds back to the FHLB at no charge.
OFF BALANCE SHEET ARRANGEMENTS
------------------------------
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
16
A summary of the contractual amount of the Company's financial instrument
commitments is as follows:
March 31, December 31,
2007 2006
---- ----
(in thousands)
Commitments to grant loans $ 8,940 $12,611
Unfunded commitments under lines of credit 30,376 34,152
Standby letters of credit 6,914 7,215
------- -------
$46,230 $53,978
======= =======
STOCKHOLDERS' EQUITY AND CAPITAL RATIOS
---------------------------------------
As of March 31, 2007, stockholders' equity totaled $53.1 million, compared
to $52.2 million as of December 31, 2006. The net change in stockholders' equity
included $1,463,000 in net income, that was partially offset by $642,000 of
dividends declared. In addition, accumulated other comprehensive income
increased $196,000 due to an increase in fair value of securities in the
available for sale portfolio. This increase in fair value is the result of a
change in interest rates, which may impact the value of the securities. Because
of interest rate volatility, the Company's accumulated other comprehensive
income could materially fluctuate for each interim and year-end period.
A comparison of the Company's regulatory capital ratios is as follows:
March 31, 2007 December 31, 2006
-------------- -----------------
Tier 1 Capital
(To average assets) 11.48% 11.43%
Tier 1 Capital
(To risk-weighted assets) 15.84% 15.67%
Total Capital
(To risk-weighted assets) 17.15% 16.99%
The minimum capital requirements imposed by the FDIC on the Bank for
leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The Company
has similar capital requirements imposed by the Board of Governors of the
Federal Reserve System (FRB). The Bank is also subject to more stringent
Pennsylvania Department of Banking (PDB) guidelines. The Bank's capital ratios
do not differ significantly from the Company's ratios. Although not adopted in
regulation form, the PDB utilizes capital standards requiring a minimum of 6.5%
leverage capital and 10% total capital. The Company and the Bank were in
compliance in FRB, FDIC and PDB capital requirements as of March 31, 2007 and
December 31, 2006.
LIQUIDITY
---------
As of March 31, 2007, the Company had cash and cash equivalents of $11.9
million in the form of cash, due from banks, federal funds sold and short-term
deposits with other institutions. In addition, the Company had total securities
available for sale of $112.6 million which could be used for liquidity needs.
This totals $124.5 million and represents 27.0% of total assets compared to
$122.4 million and 26.9% of total assets as of December 31, 2006. The Company
also monitors other liquidity measures, all of which were within the Company's
policy guidelines as of March 31, 2007 and December 31, 2006. Based upon these
measures, the Company believes its liquidity is adequate.
17
CAPITAL RESOURCES
-----------------
The Company has a line of credit commitment available from the Federal Home
Loan Bank (FHLB) of Pittsburgh for borrowings of up to $20,000,000 which expires
in December 2011. There were no borrowings under this line at March 31, 2007 and
December 31, 2006. The Company has a line of credit commitment available from
PNC for $12,000,000, Atlantic Central Bankers Bank for $7,000,000, Bank of
Lancaster County for $5,000,000 and Wachovia Bank for $2,000,000. There were no
borrowings under these lines of credit at March 31, 2007 and December 31, 2006.
The Bank's maximum borrowing capacity with the Federal Home Loan Bank was
$215,775,000 of which $23,000,000 was outstanding at March 31, 2007 and
$13,000,000 was outstanding at December 31, 2006. Advances from the Federal Home
Loan Bank are secured by qualifying assets of the Bank.
18
RESULTS OF OPERATIONS
NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)
Three Months Ended March 31,
-----------------------------------------------------------------------
2007 2006
--------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 1,445 $ 19 5.26% $ - $ - -%
Interest bearing deposits with banks 152 2 5.26 150 2 5.33
Securities held-to-maturity 954 22 9.22 1,062 25 9.42
Securities available for sale:
Taxable 97,831 1,045 4.27 99,225 858 3.46
Tax-exempt 17,756 241 5.43 19,135 267 5.58
-------- ------ ---- -------- ------ ----
Total securities available for sale (1) 115,587 1,286 4.45 118,360 1,125 3.80
Loans receivable (4) (5) 319,934 5,879 7.35 290,414 4,994 6.88
-------- ------ -------- ------
Total interest earning assets 438,072 7,208 6.58 409,986 6,146 6.00
Non-interest earning assets:
Cash and due from banks 8,137 8,113
Allowance for loan losses (3,859) (3,709)
Other assets 17,017 16,661
-------- --------
Total non-interest earning assets 21,298 21,065
-------- --------
Total Assets $459,370 $431,051
======== ========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and money market $ 85,691 430 2.01 $ 96,967 359 1.48
Savings 44,660 51 0.46 52,720 61 0.46
Time 175,612 2,005 4.57 138,217 1,170 3.39
-------- ------ ---- -------- ------ ----
Total interest bearing deposits 305,963 2,486 3.25 287,904 1,590 2.21
Short-term borrowings 22,578 256 4.54 19,163 187 3.90
Long-term debt 20,222 246 4.87 23,000 293 5.10
-------- ------ ---- -------- ------ ----
Total interest bearing liabilities 348,763 2,988 3.43 330,067 2,070 2.51
Non-interest bearing liabilities:
Demand deposits 53,378 50,222
Other liabilities 4,531 2,207
-------- --------
Total non-interest bearing liabilities 57,909 52,429
Stockholders' equity 52,698 48,555
-------- --------
Total Liabilities and Stockholders' Equity $459,370 $431,051
======== ========
Net interest income (tax equivalent basis) 4,220 3.15% 4,076 3.49%
==== ====
Tax-equivalent basis adjustment (129) (150)
------ ------
Net interest income $4,091 $3,926
====== ======
Net interest margin (tax equivalent basis) 3.85% 3.98%
==== ====
(1) Interest and yields are presented on a tax-equivalent basis using a
marginal tax rate of 34%.
(2) Average balances have been calculated based on daily balances.
(3) Annualized
(4) Loan balances include non-accrual loans and are net of unearned income. (5)
Loan yields include the effect of amortization of deferred fees, net of
costs.
19
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)
-------------------
Three months ended March 31, 2007 Compared to
---------------------------------------------
Three months ended March 31, 2006
---------------------------------
Variance due to
---------------
Volume Rate Net
------ ---- ---
(dollars in thousands)
Assets
Interest earning assets:
Federal funds sold ............................ $ 9 $ 10 $ 19
Interest bearing deposits with banks .......... - - -
Securities held to maturity ................... (2) (1) (3)
Securities available for sale:
Taxable ....................................... (80) 267 187
Tax-exempt securities ......................... (19) (7) (26)
----- ------ ------
Total securities .............................. (99) 260 161
Loans receivable .............................. 528 357 885
----- ------ ------
Total interest earning assets ................. 436 626 1,062
----- ------ ------
Interest bearing liabilities:
Interest-bearing demand and money market ...... (234) 305 71
Savings ....................................... (9) (1) (10)
Time .......................................... 365 470 835
----- ------ ------
Total interest bearing deposits ............... 122 774 896
Short-term borrowings ......................... 36 33 69
Other borrowings .............................. (34) (13) (47)
----- ------ ------
Total interest bearing liabilities ............ 124 794 918
----- ------ ------
Net interest income (tax-equivalent basis) .... $ 312 $ (168) $ 144
===== ====== ======
(1) 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.
20
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 TO
--------------------------------------------------------------------------------
MARCH 31, 2006
--------------
GENERAL
-------
For the three months ended March 31, 2007, net income totaled $1,463,000,
an increase of $130,000, or 9.8%, over $1,333,000 earned in the similar period
of 2006. Earnings per share for the current period were $.52 basic and $.51 on a
diluted basis, compared to $.48 basic and $.47 on a fully diluted basis for the
three months ended March 31, 2006. The resulting return on average assets and
return on average equity for the three months ended March 31, 2007, was 1.29%
and 11.26%, respectively, compared to 1.25% and 11.14%, respectively, for the
similar period in 2006.
The following table sets forth changes in net income:
(dollars in thousands) Three months ended
------------------
March 31, 2007 to March 31, 2006
--------------------------------
Net income three months ended March 31, 2006 $1,333
Change due to:
Net interest income 165
Provision for loan losses 20
Other income 70
Salaries and employee benefits (91)
All other expenses (4)
Income tax effect (30)
------
Net income three months ended March 31, 2007 $1,463
======
NET INTEREST INCOME
-------------------
Net interest income on a fully taxable equivalent basis (fte) for the three
months ended March 31, 2007 totaled $4,221,000, an increase of $145,000 or 3.6%
over the similar period in 2006. The net interest spread (fte) and net interest
margin were 3.15% and 3.85%, respectively, for the three months ended March 31,
2007 compared to 3.49% and 3.98%, respectively for the similar period in 2006.
Interest income (fte) totaled $7,208,000 with a yield on average earning
assets of 6.58%, increasing from $6,146,000 and 6.00% for the 2006 period. The
increase was due in part to growth in the loan portfolio. Average loans
increased $29.5 million and represented 73.0% of average earnings assets for the
three months ended March 31, 2007 compared to 70.8% of average earning assets
for the similar period in 2006. The average yield (fte) on loans also increased,
and was 7.35% for the 2007 period compared to 6.88% for the similar period in
2006. The increase in yield was principally the result of the increase in the
prime interest rate which was 8.25% as of March 31, 2007 compared to 7.75% on
March 31, 2006. The yield on the available-for-sale investment portfolio also
benefited from higher short-term rates as the fte yield for the three months
ended March 31, 2007 increased 65 basis points from the similar period in 2006.
Interest expense for the three months ended March 31, 2007 totaled
$2,988,000 at an average cost of 3.43% compared to $2,070,000 and 2.51% for the
similar period in 2006. As a result of the increase in short-term interest rates
the Company increased rates on money market accounts and short-term time
deposits. The cost of time deposits averaged 4.57% for the 2007 period compared
to 3.39% for the similar period in 2006. Deposits
21
have also shifted to higher costing instruments with time deposits representing
50.3% of average interest bearing liabilities in the 2007 period compared to
41.2% for the 2006 period.
OTHER INCOME
------------
Other income totaled $894,000 for the three months ended March 31, 2007, an
increase of $70,000 from $824,000 for the similar period in 2006. The increase
was due in part to a $48,000 increase in income from fiduciary activities
resulting in part from higher estate fees in the current period. Non-sufficient
funds (nsf) charges totaled $324,000 for the current period, increasing $32,000
from the 2006 period.
OTHER EXPENSES
--------------
Other expenses for the three months ended March 31, 2007 totaled $2,861,000
an increase of $95,000 or 3.4% over the similar period in 2006. Salaries and
employee benefits increased $91,000 which included $84,000 of expense related to
stock options in the current period with no such expense in 2006 period.
Occupancy costs increased $34,000 principally due to the opening of the
Tannersville Office in December 2006. For the three months ended March 31, 2006
the Company incurred a $50,000 loss in a robbery at one of its branch locations.
INCOME TAX EXPENSE
------------------
Income tax expense totaled $611,000 for an effective tax rate of 29.5% for
the period ending March 31, 2007 compared to $581,000 for an effective tax rate
of 30.3% for the similar period in 2006. The effective tax rate is lower than
the statutory rate due to tax-exempt income on certain investments and loans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
-----------
Interest rate sensitivity and the repricing characteristics of assets and
liabilities are managed by the Asset and Liability Management Committee (ALCO).
The principal objective of ALCO is to maximize net interest income within
acceptable levels of risk, which are established by policy. Interest rate risk
is monitored and managed by using financial modeling techniques to measure the
impact of changes in interest rates.
Net interest income, which is the primary source of the Company's earnings,
is impacted by changes in interest rates and the relationship of different
interest rates. To manage the impact of the rate changes, the balance sheet must
be structured so that repricing opportunities exist for both assets and
liabilities at approximately the same time intervals. The Company uses net
interest simulation to assist in interest rate risk management. The process
includes simulating various interest rate environments and their impact on net
interest income. As of March 31, 2007, the level of net interest income at risk
in a 200 basis points change in interest rates was within the Company's policy
limits. The Company's policy allows for a decline of no more than 8% of net
interest income.
Imbalance in repricing opportunities at a given point in time reflects
interest-sensitivity gaps measured as the difference between rate-sensitive
assets (RSA) and rate-sensitive liabilities (RSL). These are
22
static gap measurements that do not take into account any future activity, and
as such are principally used as early indications of potential interest rate
exposures over specific intervals.
As of March 31, 2007, the Bank had a positive 90 day interest sensitivity
gap of $14.8 million or 3.2% of total assets, decreasing from $24.0 million or
5.3% of total assets as of December 31, 2006. The change was principally due to
a higher level of time deposits maturing in the 90 day time frame as of March
31,2007. A positive gap means that rate-sensitive assets are greater than
rate-sensitive liabilities at the time interval. This would indicate that in a
rising rate environment, the yield on interest-earning assets would increase
faster than the cost of interest-bearing liabilities in the 90 day time frame.
The repricing intervals are managed by ALCO strategies, including adjusting the
average life of the investment portfolio, pricing of deposit liabilities to
attract longer term time deposits, loan pricing to encourage variable rate
products and evaluation of loan sales of long-term fixed rate mortgages.
March 31, 2007
--------------
Rate Sensitivity Table
----------------------
(dollars in thousands)
3 Months 3-12 Months 1 to 3 Years 3 Years Total
-------- ----------- ------------ ------- -----
Federal funds sold and interest bearing deposits $ 3,271 $ -- $ -- $ -- $ --
Securities 20,180 32,159 35,710 25,503 113,552
Loans Receivable 95,331 52,714 69,082 103,617 320,744
-------- --------- --------- -------- --------
Total RSA 118,782 84,873 104,7921 129,120 437,567
Non-maturity interest-bearing deposits 20,424 22,344 58,891 28,829 130,488
Time Deposits 70,470 74,938 22,256 7,836 175,500
Other 13,064 6,738 23,184 -- 42,986
-------- --------- --------- -------- --------
Total RSL 103,958 104,020 104,331 36,665 348,974
Interest Sensitivity Gap $ 14,824 ($19,147) $ 461 $ 92,455 $ 88,593
Cumulative Gap 14,824 (4,323) (3,862) 88,593
RSA/RSL-cumulative 114.3% 97.9% 98.8% 125.4%
December 31,2006
Interest Sensitivity Gap $ 23,962 ($34,427) $ 8,813 $ 91,169 $ 89,517
Cumulative Gap 23,962 (10,465) (1,652) 89,517
RSA/RSL-cumulative 126.5% 94.9% 99.5% 126.3%
ITEM 4. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
Company's disclosure controls and procedures, as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
23
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 4T. CONTROL PROCEDURES
See Item 4 above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 1A. RISK FACTORS
No material changes from those disclosed in the Form 10-K for the year ended
December 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SALES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
-------------------------------------
Maximum number
--------------
Total number of of shares (or approximate
--------------- -------------------------
shares purchased dollar value) that may yet
---------------- --------------------------
Total number Average price as part of publicly be purchased
------------ ------------- -------------------- -------------
of shares paid per announced plans under the plans
--------- -------- --------------- ---------------
purchased share or programs or programs (2)
--------- ----- ----------- ---------------
January 1-January 31, 2007 5,000 $31.25 5,000 87,863
February 1-February 28, 2007 - - - -
March 1 - March 31, 2007 4,296 (1) 31.50 - -
---------- ------ ----- ------
9,296 $31.37 5,000 87,863
========== ====== ===== ======
(1) Purchases related to the Company's Employee Stock Ownership Plan (ESOP)
related to purchase of shares from terminated participants.
(2) On June 15, 2005, the Registrant announced its intention to repurchase up to
5% of its outstanding common stock (approximately 134,000 shares) in the open
market.
24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) 3(i) Articles of Incorporation of Norwood Financial Corp.*
3(ii) Bylaws of Norwood Financial Corp.*
4.0 Specimen Stock Certificate of Norwood Financial Corp.*
10.1 Amended Employment Agreement with William W. Davis, Jr.**
10.2 Amended Employment Agreement with Lewis J. Critelli **
10.3 Form of Change-In-Control Severance Agreement with seven key employees of the Bank***
10.4 Wayne Bank Stock Option Plan*
10.5 Salary Continuation Agreement between the Bank and William W. Davis, Jr.***
10.6 Salary Continuation Agreement between the Bank and Lewis J. Critelli***
10.7 Salary Continuation Agreement between the Bank and Edward C. Kasper***
10.8 1999 Directors Stock Compensation Plan***
10.9 Salary Continuation Agreement between the Bank and Joseph A. Kneller****
10.10 Salary Continuation Agreement between the Bank and John H. Sanders****
10.11 2006 Stock Option Plan *****
10.12 First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr.******
10.13 First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli******
10.14 First and Second Amendments to Salary Continuation Agreement with Edward C. Kasper******
10.15 First and Second Amendments to Salary Continuation Agreement with Joseph A. Kneller******
10.16 First and Second Amendments to Salary Continuation Agreement with John H. Sanders******
31.1 Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
32.1 Section 1350 Certification
---------------------------
* Incorporated herein by reference to the identically numbered exhibits
of the Registrant's Form 10 Registration Statement initially filed with
the Commission on April 29, 1996.
** Incorporated herein by reference to the identically numbered exhibits
to the Registrant's Form 8-K filed with the Commission on March 6,
2006.
*** Incorporated herein by reference to the identically numbered exhibits
of the Registrant's Form 10-K filed with the Commission on March 20,
2000.
25
**** Incorporated herein by reference to the identically numbered exhibit
to the Registrants Form 10-K filed with the Commission on March 22,
2004.
***** Incorporated herein by reference to the Registrant's Form 8-K filed
with the Commission on April 25, 2006.
****** Incorporated herein by reference from the Exhibits to the
Registrant's Current Report on Form 8-K filed on April 4, 2006.
26
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORWOOD FINANCIAL CORP.
Date: May 11, 2007 By: /s/ William W. Davis, Jr.
-----------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 2007 By: /s/ Lewis J. Critelli
-----------------------------------
Lewis J. Critelli
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
27