UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

(Mark One)

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

For the quarterly period ended ~~March 31,~~September 30, 2019

☐	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 0-28364

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

N/A

Former name, former address and former fiscal year, if changed since last report.

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

Title of each class

Trading

symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.10 per share

NWFL

The Nasdaq Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act): ☐ Yes ☒ No

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

~~Title of each class~~

~~Trading~~

~~symbol(s)~~

~~Name of each exchange~~

~~on which registered~~

~~Common Stock, par value $0.10 per share~~

~~NWFL~~

~~The Nasdaq Stock Market LLC~~

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~~November 1, 2019
Common stock, par value $0.10 per share		~~6,288,955~~6,300,881

NORWOOD FINANCIAL CORP.

FORM10-Q

FOR THE QUARTER ENDED ~~MARCH 31,~~SEPTEMBER 30, 2019


			Page Number
PART I – -	CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP.

Item 1.	Financial Statements (unaudited)			3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			3135
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			4250
Item 4.	Controls and Procedures			4351

PART II – -	OTHER INFORMATION

Item 1.	Legal Proceedings			4451
Item 1A.	Risk Factors			4451
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			4451
Item 3.	Defaults Upon Senior Securities			4452
Item 4.	Mine Safety Disclosures			4452
Item 5.	Other Information			4452
Item 6.	Exhibits			4552

Signatures		47		54

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets(unaudited)

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


	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	13,583		$	18,039		$	20,067		$	18,039
Interest-bearing deposits with banks		6,291			309			848			309

Cash and cash equivalents		19,874			18,348			20,915			18,348
Securities available for sale, at fair value		240,621			243,277			211,199			243,277
Loans receivable		864,198			850,182			905,582			850,182
Less: Allowance for loan losses		8,349			8,452			8,405			8,452

Net loans receivable		855,849			841,730			897,177			841,730
Regulatory stock, at cost		3,132			3,926			3,137			3,926
Bank premises and equipment, net		14,165			13,846			13,927			13,846
Bank owned life insurance		38,134			37,932			38,562			37,932
Accrued interest receivable		4,089			3,776			3,726			3,776
Foreclosed real estate owned		1,792			1,115			1,572			1,115
Goodwill		11,331			11,331			11,331			11,331
Other intangibles		307			336			257			336
Other assets		14,301			8,942			14,053			8,942

TOTAL ASSETS	$	1,203,595		$	1,184,559		$	1,215,856		$	1,184,559

LIABILITIES
Deposits:
Non-interest bearing demand	$	206,806		$	201,457		$	231,211		$	201,457
Interest-bearing		767,609			745,323			743,222			745,323

Total deposits		974,415			946,780			974,433			946,780
Short-term borrowings		37,824			53,046			52,778			53,046
Other borrowings		47,955			52,284			35,906			52,284
Accrued interest payable		2,457			1,806			2,623			1,806
Other liabilities		14,172			8,358			15,222			8,358

TOTAL LIABILITIES		1,076,823			1,062,274			1,080,962			1,062,274

STOCKHOLDERS’ EQUITY
Preferred stock, no par value per share, authorized 5,000,000 shares		—			—
Common stock, $0.10 par value per share, authorized 10,000,000 shares; issued 2019: 6,301,263 shares, 2018: 6,295,113 shares		630			630
Preferred stock, no par value per share, authorized: 5,000,000 shares; issued: none								—			—
Common stock, $0.10 par value per share, authorized: 2019: 20,000,000 shares, 2018: 10,000,000 shares issued: 2019: 6,314,688 shares, 2018: 6,295,113 shares								632			630
Surplus		48,559			48,322			49,052			48,322
Retained earnings		80,115			78,434			84,522			78,434
Treasury stock at cost: 2019: 13,807 shares, 2018: 2,470 shares		(455	)		(81	)		(455	)		(81	)
Accumulated other comprehensive loss		(2,077	)		(5,020	)
Accumulated other comprehensive income (loss)								1,143			(5,020	)

TOTAL STOCKHOLDERS’ EQUITY		126,772			122,285			134,894			122,285

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,203,595		$	1,184,559		$	1,215,856		$	1,184,559

See accompanying notes to the unaudited consolidated financial statements.

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income(unaudited)

(dollars in thousands, except per share data)


	Three Months Ended March 31,					Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018			2019			2018			2019		2018
INTEREST INCOME
Loans receivable, including fees	$	9,970	$	8,487		$	10,776		$	9,301		$	31,074	$	26,645
Securities		1,441		1,524			1,278			1,483			4,155		4,543
Other		15		18			5			2			70		63

Total interest income		11,426		10,029			12,059			10,786			35,299		31,251

INTEREST EXPENSE
Deposits		1,729		1,029			1,787			1,116			5,355		3,198
Short-term borrowings		123		52			135			111			344		201
Other borrowings		303		141			246			171			827		442

Total interest expense		2,155		1,222			2,168			1,398			6,526		3,841

NET INTEREST INCOME		9,271		8,807			9,891			9,388			28,773		27,410
PROVISION FOR LOAN LOSSES		450		550			300			375			1,050		1,350

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		8,821		8,257
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES							9,591			9,013			27,723		26,060

OTHER INCOME
Service charges and fees		1,031		980			1,200			1,129			3,283		3,211
Income from fiduciary activities		142		137			167			151			454		463
Net realized gains on sales of securities		—		142			169			13			233		213
Gain on sale of loans, net		42		—			15			15			125		15
Earnings and proceeds on bank owned life insurance		202		273			222			297			630		848
Other		143		162			109			392			358		716

Total other income		1,560		1,694			1,882			1,997			5,083		5,466

OTHER EXPENSES
Salaries and employee benefits		3,649		3,462			3,667			3,577			10,915		10,445
Occupancy, furniture & equipment, net		924		892			916			910			2,780		2,659
Data processing and related operations		448		319			480			368			1,400		1,027
Taxes, other than income		161		175			179			153			520		480
Professional fees		250		230			276			301			752		760
Federal Deposit Insurance Corporation insurance		71		92			(5	)		87			150		265
Foreclosed real estate		23		(19	)		24			(26	)		37		68
Amortization of intangibles		29		34			23			29			79		97
Other		1,093		1,063			1,231			1,173			3,591		3,372

Total other expenses		6,648		6,248			6,791			6,572			20,224		19,173

INCOME BEFORE INCOME TAXES		3,733		3,703			4,682			4,438			12,582		12,353
INCOME TAX EXPENSE		543		574			775			728			1,963		2,001

NET INCOME	$	3,190	$	3,129		$	3,907		$	3,710		$	10,619	$	10,352

BASIC EARNINGS PER SHARE	$	0.51	$	0.50		$	0.62		$	0.59		$	1.70	$	1.66

DILUTED EARNINGS PER SHARE	$	0.51	$	0.50		$	0.62		$	0.58		$	1.68	$	1.64

See accompanying notes to the unaudited consolidated financial statements.

NORWOOD FINANCIAL CORP.

Consolidated Statements of Comprehensive Income ~~(Loss)~~ (unaudited)

(dollars in thousands)


	Three Months Ended March 31,						Three Months Ended September 30,
	2019			2018			2019			2018
Net income	$	3,190		$	3,129		$	3,907		$	3,710

Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gain (loss)		3,725			(4,490	)		1,059			(1,830	)
Tax effect		(782	)		942			(224	)		384
Reclassification of investment securities gains recognized in net income		—			(142	)		(169	)		(13	)
Tax effect		—			30			37			3

Other comprehensive income (loss)		2,943			(3,660	)		703			(1,456	)

Comprehensive Income (Loss)	$	6,133		$	(531	)
Comprehensive Income							$	4,610		$	2,254


	Nine Months Ended September 30,
	2019			2018
Net income	$	10,619		$	10,352

Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gain (loss)		8,034			(7,160	)
Tax effect		(1,688	)		1,503
Reclassification of investment securities gains recognized in net income		(233	)		(213	)
Tax effect		50			45

Other comprehensive income (loss)		6,163			(5,825	)

Comprehensive Income	$	16,782		$	4,527

See accompanying notes to the unaudited consolidated financial statements.

NORWOOD FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2019 and 2018

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


																Accumulated
																Other
	Common Stock						Retained			Treasury Stock						Comprehensive
	Shares		Amount		Surplus		Earnings			Shares			Amount			Income (Loss)			Total
Balance, December 31, 2018		6,295,113	$	630	$	48,322	$	78,434			2,470		$	(81	)	$	(5,020	)	$	122,285
Net Income		—		—		—		10,619			—			—			—			10,619
Other comprehensive income		—		—		—		—			—			—			6,163			6,163
Cash dividends declared ($0.72 per share)		—		—		—		(4,531	)		—			—			—			(4,531	)
Compensation expense related to restricted stock		—		—		217		—			—			—			—			217
Acquisition of treasury stock		—		—		—		—			11,337			(374	)		—			(374	)
Stock options exercised		19,575		2		357		—			—			—			—			359
Compensation expense related to stock options		—		—		156		—			—			—			—			156

Balance, September 30, 2019		6,314,688	$	632	$	49,052	$	84,522			13,807		$	(455	)	$	1,143		$	134,894


																Accumulated
																Other
	Common Stock						Retained			Treasury Stock						Comprehensive
	Shares		Amount		Surplus		Earnings			Shares			Amount			Loss			Total
Balance, December 31, 2017		6,256,063	$	626	$	47,431	$	70,426			2,608		$	(77	)	$	(2,667	)	$	115,739
Net Income		—		—		—		10,352			—			—			—			10,352
Other comprehensive loss		—		—		—		—			—			—			(5,825	)		(5,825	)
Cash dividends declared ($0.66 per share)		—		—		—		(4,133	)		—			—			—			(4,133	)
Compensation expense related to restricted stock		—		—		154		—			—			—			—			154
Acquisition of treasury stock		—		—		—		—			5,446			(179	)		—			(179	)
Stock options exercised		18,450		2		325		—			(2,325	)		68			—			395
Compensation expense related to stock options		—		—		177		—			—			—			—			177

Balance, September 30, 2018		6,274,513	$	628	$	48,087	$	76,645			5,729		$	(188	)	$	(8,492	)	$	116,680

See accompanying notes to the unaudited consolidated financial statements.

NORWOOD FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended ~~March 31,~~September 30, 2019 and 2018

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


					Surplus			Retained Earnings											Accumulated Other Comprehensive Loss				Total																									Accumulated
	Common Stock										Treasury Stock																																				Other
	Shares		Amount								Shares			Amount												Common Stock										Retained				Treasury Stock							Comprehensive
Balance, December 31, 2018		6,295,113	$	630		$	48,322		$	78,434			2,470			$	(81	)		$	(5,020	)		$	122,285
																											Shares			Amount			Surplus				Earnings				Shares			Amount				Income (Loss)			Total
Balance, June 30, 2019																												6,304,413		$	630		$	48,741			$	82,127				13,807		$	(455	)		$	440		$	131,483
Net Income		—		—			—			3,190			—				—				—				3,190				—			—			—				3,907				—			—				—			3,907
Other comprehensive income		—		—		—			—			—				—				2,943				2,943				—			—			—				—				—			—				703			703
Cash dividends declared ($0.24 per share)		—		—		—			(1,509	)		—				—				—				(1,509	)			—			—			—				(1,512	)			—			—				—			(1,512	)
Compensation expense related to restricted stock		—		—		72			—			—				—				—				72				—			—			72				—				—			—				—			72
Acquisition of treasury stock		—		—		—			—			11,337				(374	)			—				(374	)			—			—			—				—				—			—				—			—
Stock options exercised		6,150		—		113			—			—				—				—				113				10,275			2			187				—				—			—				—			189
Compensation expense related to stock options		—		—		52			—			—				—				—				52				—			—			52				—				—			—				—			52

Balance, March 31, 2019		6,301,263	$	630	$	48,559		$	80,115			13,807			$	(455	)		$	(2,077	)		$	126,772
Balance, September 30, 2019																												6,314,688		$	632		$	49,052			$	84,522				13,807		$	(455	)		$	1,143		$	134,894


					Surplus			Retained Earnings											Accumulated Other Comprehensive Loss				Total																									Accumulated
	Common Stock										Treasury Stock																																				Other
	Shares		Amount								Shares			Amount												Common Stock										Retained				Treasury Stock							Comprehensive
Balance, December 31, 2017		6,256,063	$	626		$	47,431		$	70,426			2,608			$	(77	)		$	(2,667	)		$	115,739
																											Shares			Amount			Surplus				Earnings				Shares			Amount				Loss			Total
Balance, June 30, 2018																												6,266,388		$	627		$	47,815			$	74,315				5,729		$	(188	)		$	(7,036	)	$	115,533
Net Income		—		—			—			3,129			—				—				—				3,129				—			—			—				3,710				—			—				—			3,710
Other comprehensive loss		—		—		—			—			—				—				(3,660	)			(3,660	)			—			—			—				—				—			—				(1,456	)		(1,456	)
Cash dividends declared ($0.22 per share)		—		—		—			(1,376	)		—				—				—				(1,376	)			—			—			—				(1,380	)			—			—				—			(1,380	)
Compensation expense related to restricted stock		—		—		51			—			—				—				—				51				—			—			52				—				—			—				—			52
Acquisition of treasury stock		—		—		—			—			5,446				(179	)			—				(179	)			—			—			—				—				—			—				—			—
Stock options exercised		1,500		—		7			—			(2,325	)			68				—				75				8,125			1			161				—				—			—				—			162
Compensation expense related to stock options		—		—		59			—			—				—				—				59				—			—			59				—				—			—				—			59

Balance, March 31, 2018		6,257,563	$	626	$	47,548		$	72,179			5,729			$	(188	)		$	(6,327	)		$	113,838
Balance, September 30, 2018																												6,274,513		$	628		$	48,087			$	76,645				5,729		$	(188	)		$	(8,492	)	$	116,680

See accompanying notes to the unaudited consolidated financial statements.

NORWOOD FINANCIAL CORP.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)


	Three Months Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	3,190		$	3,129		$	10,619		$	10,352
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		450			550			1,050			1,350
Depreciation		241			216			739			665
Amortization of intangible assets		29			34			79			97
Deferred income taxes		(40	)		(127	)		(176	)		(198	)
Net amortization of securities premiums and discounts		371			463			1,104			1,308
Net realized gain on sales of securities		—			(142	)		(232	)		(213	)
Earnings and proceeds on life insurance policies		(202	)		(273	)		(630	)		(848	)
Gain on sales and write-downs of fixed assets and foreclosed real estate owned		(8	)		(47	)
Gain on sales and write-downs of fixed assets and foreclosed real estate owned, net								(67	)		(42	)
Net gain on sale of loans		(42	)		—			(125	)		(15	)
Mortgage loans originated for sale		(732	)		—
Loans originated for sale								(2,767	)		(752	)
Proceeds from sale of loans originated for sale		758			—			2,846			767
Compensation expense related to stock options		52			59			156			177
Compensation expense related to restricted stock		72			51			217			154
(Increase) decrease in accrued interest receivable		(313	)		29
Decrease (increase) in accrued interest receivable								50			(76	)
Increase in accrued interest payable		651			22			817			271
Other, net		(201	)		(1,920	)		1,017			1,062

Net cash provided by operating activities		4,276			2,044			14,697			14,059

CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales		327			10,761			22,862			17,745
Proceeds from maturities and principal reductions on mortgage-backed securities		5,684			7,724			21,211			22,848
Purchases		—			(8,179	)		(5,066	)		(15,458	)
Purchase of regulatory stock		(1,112	)		(765	)		(2,963	)		(3,865	)
Redemption of regulatory stock		1,906			1,725			3,752			4,109
Net increase in loans		(15,352	)		(11,925	)		(57,891	)		(56,275	)
Purchase of premises and equipment		(560	)		(160	)		(1,056	)		(598	)
Proceeds from sales of foreclosed real estate owned		44			412			312			696
Proceeds from sales of bank premises and equipment								246			—

Net cash used in investing activities		(9,063	)		(407	)		(18,593	)		(30,798	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		27,635			10,765			27,653			10,330
Net decrease in short-term borrowings		(15,222	)		(12,625	)
Net (decrease) increase in short-term borrowings								(268	)		10,290
Repayments of other borrowings		(4,329	)		(2,852	)		(22,378	)		(9,296	)
Proceeds from other borrowings								6,000			10,000
Stock options exercised		113			75			359			395
Purchase of treasury stock		(374	)		(179	)		(374	)		(179	)
Cash dividends paid		(1,510	)		(1,376	)		(4,529	)		(4,130	)

Net cash provided by (used in) financing activities		6,313			(6,192	)
Net cash provided by financing activities								6,463			17,410

Increase (decrease) in cash and cash equivalents		1,526			(4,555	)
Increase in cash and cash equivalents								2,567			671
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		18,348			16,697			18,348			16,697

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	19,874		$	12,142		$	20,915		$	17,368

NORWOOD FINANCIAL CORP.

Consolidated Statements of Cash Flows (Unaudited) (continued)

(dollars in thousands)


	Three Months Ended March 31,				Nine Months Ended September 30,
	2019		2018		2019		2018
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits and borrowings	$	1,504	$	1,200	$	5,709	$	3,570
Income taxes paid, net of refunds	$	46	$	19	$	1,447	$	1,547
Supplemental Schedule of Noncash Investing Activities:
Transfers of loans to foreclosed real estate and repossession of other assets	$	822	$	203	$	1,478	$	333
Cash dividends declared	$	1,509	$	1,376
Investment maturity receivable	$	—	$	2,009
Dividends payable					$	1,512	$	1,379

See accompanying notes to the unaudited consolidated financial statements.

Notes to the Unaudited Consolidated Financial Statements

1.	1. Basis of Presentation

The unaudited 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, Inc. 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 Form10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the consolidated financial position and results of operations of the Company. The operating results for the three month ~~period~~and nine month periods ended ~~March 31,~~September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other future interim period.

2.	2. Revenue Recognition

Management has determined that the primary sources of revenue emanating from interest income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, and fees from financial guarantees are not within the scope of ASC 606. As a result, no changes were made during the period related to those sources of revenue.

The following presents noninterest income, segregated by revenue streamsin-scope andout-of-scope of Topic 606, for the three and nine months ended ~~March 31:~~September 30:


					Three months ended September 30,
(dollars in thousands)					2019		2018

Noninterest Income	2019		2018
In-scope of Topic 606:
Service charges on deposit accounts	$	67	$	65	$	72	$	66
ATM fees		90		96		106		108
Overdraft fees		351		384		323		372
Safe deposit box rental		26		30		22		23
Loan related service fees		129		80		228		152
Debit card fees		326		295		370		358
Fiduciary activities		142		137		167		151
Commissions on mutual funds and annuities		55		43		30		51
Other income		115		139		143		374

Noninterest Income (in-scope of Topic 606)		1,301		1,269		1,461		1,655


Out-of-scope of Topic 606:
Net realized gains on sales of securities		—		142		169		13
Loan servicing fees		15		10		15		17
Gains on sales of loans		42		—		15		15
Earnings on and proceeds from bank-owned life insurance		202		273		222		297

Noninterest Income (out-of-scope of Topic 606)		259		425		421		342

Total Noninterest Income	$	1,560	$	1,694	$	1,882	$	1,997


	Nine months ended September 30,
(dollars in thousands)	2019		2018
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts	$	205	$	195
ATM fees		287		299
Overdraft fees		1,017		1,137
Safe deposit box rental		71		76
Loan related service fees		451		387
Debit card fees		1,067		991
Fiduciary activities		454		463
Commissions on mutual funds and annuities		111		154
Other income		379		651

Noninterest Income (in-scope of Topic 606)		4,042		4,353

Out-of-scope of Topic 606:
Net realized gains on sales of securities		233		213
Loan servicing fees		53		37
Gains on sales of loans		125		15
Earnings on and proceeds from bank-owned life insurance		630		848

Noninterest Income (out-of-scope of Topic 606)		1,041		1,113

Total Noninterest Income	$	5,083	$	5,466

3.	3. 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 reflect 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 restricted stock, and are determined using the treasury stock method.

The following table sets forth the weighted average shares outstanding used in the computations of basic and diluted earnings per share.


(in thousands)	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018
(in thousands)							2019			2018			2019			2018
(in thousands)		6,293			6,256			6,296			6,264			6,293			6,259
Less: Unvested restricted shares		(34	)		(31	)		(35	)		(30	)		(35	)		(30	)

Basic EPS weighted average shares outstanding		6,259			6,225			6,261			6,234			6,258			6,229


Basic EPS weighted average shares outstanding		6,259			6,225			6,261			6,234			6,258			6,229
Add: Dilutive effect of stock options and restricted shares		50			54			48			70			50			72

Diluted EPS weighted average shares outstanding		6,309			6,279			6,309			6,304			6,308			6,301

~~As of March 31,~~

For the three and nine month periods ended September 30, 2019, there were 60,650 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of Norwood common stock of $31.61 per share as of September 30, 2019.

For the three and nine month periods ended September 30, 2018, there were no stock options that would be anti-dilutive to the earnings per share calculations based upon the closing price of Norwood common stock of ~~$30.84~~$39.16 per share on ~~March 31, 2019.~~

As of March 31, 2018, there were 34,000 stock options that would be anti-dilutive to the earnings per share calculations based upon the closing price of Norwood common stock of $30.09 per share on March 31,September 30, 2018.

4.	4. Stock-Based Compensation

No awards were granted during the ~~three-month~~nine-month period ~~ending March 31,~~ended September 30, 2019. As of ~~March 31,~~September 30, 2019, there was ~~$156,000~~$52,000 of total unrecognized compensation cost related tonon-vested options granted in 2018 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2019. Compensation costs related to stock options amounted to ~~$52,000~~$156,000 and ~~$59,000~~$177,000 during the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018, respectively.

A summary of the Company’s stock option activity for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019 is as follows:


	Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)		Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2019		208,700		$	22.54		5.9 Yrs.	$	2,183		208,700		$	22.54		5.9 Yrs.	$	2,183
Granted		—			—		—		—		—			—		—		—
Exercised		(6,150	)		18.31		4.7 Yrs.		113		(19,575	)		18.32		3.5 Yrs.		283
Forfeited		—			—		—		—		—			—		—		—

Outstanding at March 31, 2019		202,550		$	22.67		5.7 Yrs.	$	1,761
Outstanding at September 30, 2019											189,125		$	22.98		5.4 Yrs.	$	1,691

Exercisable at March 31, 2019		173,650		$	21.06		5.0 Yrs.	$	1,761
Exercisable at September 30, 2019											160,225		$	21.29		4.7 Yrs.	$	1,691

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option. The ~~stock~~market price was ~~$30.84~~$31.61 per share as of ~~March 31,~~September 30, 2019 and $33.00 per share as of December 31, 2018.

A summary of the Company’s restricted stock activity for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 is as follows:


	2019				2018				2019				2018
	Number of Restricted Stock		Weighted-Average Grant Date Fair Value		Number of Restricted Stock		Weighted-Average Grant Date Fair Value		Number of Restricted Stock		Weighted-Average Grant Date Fair Value		Number of Restricted Stock		Weighted-Average Grant Date Fair Value
Non-vested, January 1,		34,615	$	27.82		30,415	$	24.46		34,615	$	27.82		30,415	$	24.46
Granted		—		—		—		—		—		—		—		—
Vested		—		—		—		—		—		—		—		—
Forfeited		—		—		—		—		—		—		—		—

Non-vested, March 31,		34,615	$	27.82		30,415	$	24.46
Non-vested, September 30,										34,615	$	27.82		30,415	$	24.46

The expected future compensation expense relating to the 34,615 shares ofnon-vested restricted stock outstanding as of ~~March 31,~~September 30, 2019 is ~~$891,000.~~$746,000. This cost will be recognized over the remaining vesting period of ~~4.75~~4.25 years. Compensation costs related to restricted stock amounted to ~~$72,000~~$217,000 and ~~$51,000~~$154,000 during the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018, respectively.

5.	5. Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive ~~loss~~income (loss) (in thousands) by component net of tax for the three months and nine months ended ~~March 31,~~September 30, 2019 and 2018:


				Unrealized gains (losses) on available for sale securities (a)
Balance as of June 30, 2019				$	440
Other comprehensive income before reclassification					835
Amount reclassified from accumulated other comprehensive loss					(132	)

Total other comprehensive income					703

Balance as of September 30, 2019				$	1,143


				Unrealized gains (losses) on available for sale securities (a)
Balance as of June 30, 2018				$	(7,036	)
Other comprehensive loss before reclassification					(1,446	)
Amount reclassified from accumulated other comprehensive loss					(10	)

Total other comprehensive loss					(1,456	)

Balance as of September 30, 2018				$	(8,492	)


	Unrealized gains (losses) on available for sale securities (a)			Unrealized gains (losses) on available for sale securities (a)
Balance as of December 31, 2018	$	(5,020	)	$	(5,020	)
Other comprehensive income before reclassification		2,943			6,346
Amount reclassified from accumulated other comprehensive loss		—			(183	)

Total other comprehensive income		2,943			6,163

Balance as of March 31, 2019	$	(2,077	)
Balance as of September 30, 2019				$	1,143


	Unrealized gains (losses) on available for sale securities (a)			Unrealized gains (losses) on available for sale securities (a)
Balance as of December 31, 2017	$	(2,667	)	$	(2,667	)
Other comprehensive loss before reclassification		(3,548	)		(5,657	)
Amount reclassified from accumulated other comprehensive loss		(112	)		(168	)

Total other comprehensive loss		(3,660	)		(5,825	)

Balance as of March 31, 2018	$	(6,327	)
Balance as of September 30, 2018				$	(8,492	)

(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 loss (in thousands) for the three months and nine months ended ~~March 31,~~September 30, 2019 and 2018:


Details about other comprehensive income	Amount Reclassified From Accumulated Other Comprehensive Income (Loss) (a)					Affected Line Item in Consolidated Statements of Income	Amount Reclassified From Accumulated Other Comprehensive Income (Loss) (a)						Affected Line Item in Consolidated Statements of Income
	Three months ended March 31,						Three months ended September 30,
	2019		2018				2019			2018
Unrealized gains on available for sale securities	$	—	$	142		Net realized gains on sales of securities	$	169		$	13			Net realized gains on sales of securities
		—		(30	)	Income tax expense		(37	)		(3	)		Income tax expense

	$	—	$	112			$	132		$	10


							Nine months ended September 30,
							2019			2018
Unrealized gains on available for sale securities							$	233		$	213			Net realized gains on sales of securities
								(50	)		(45	)		Income tax expense

							$	183		$	168

(a)	Amounts in parentheses indicate debits to net income

6.	6. Off-Balance Sheet Financial Instruments and Guarantees

The Bank is a party to financial instruments withoff-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 foron-balance sheet instruments.

A summary of the Bank’s financial instrument commitments is as follows:


(in thousands)	March 31,				September 30,
	2019		2018
(in thousands)					2019		2018
(in thousands)	$	40,322	$	46,792	$	49,806	$	51,225
Unfunded commitments under lines of credit		77,573		63,135		65,854		78,024
Standby letters of credit		4,183		5,919		3,687		4,410

	$	122,078	$	115,846	$	119,347	$	133,659

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 acase-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.

The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank, generally, holds collateral and/or personal guarantees supporting these commitments. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of ~~March 31,~~September 30, 2019 for guarantees under standby letters of credit issued is not material.

7.	7. Securities

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


	March 31, 2019									September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)									(In Thousands)
Available for Sale:
States and political subdivisions	$	97,955	$	726	$	(488	)	$	98,193	$	78,145	$	1,396	$	(14	)	$	79,527
Corporate obligations		8,854		—		(107	)		8,747		6,200		5		(4	)		6,201
Mortgage-backed securities-government sponsored entities		137,121		52		(3,492	)		133,681		126,087		346		(962	)		125,471

Total debt securities	$	243,930	$	778	$	(4,087	)	$	240,621	$	210,432	$	1,747	$	(980	)	$	211,199


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale:
States and political subdivisions	$	99,218	$	385	$	(1,990	)	$	97,613
Corporate obligations		8,896		—		(256	)		8,640
Mortgage-backed securities-government sponsored entities		142,197		25		(5,198	)		137,024

Total debt securities	$	250,311	$	410	$	(7,444	)	$	243,277


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale:
States and political subdivisions	$	99,218	$	385	$	(1,990	)	$	97,613
Corporate obligations		8,896		—		(256	)		8,640
Mortgage-backed securities-government sponsored entities		142,197		25		(5,198	)		137,024

Total debt securities	$	250,311	$	410	$	(7,444	)	$	243,277

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

   March 31, 2019
   Less than 12 Months 12 Months or More Total
   Fair Value    Unrealized
Losses Fair Value    Unrealized
Losses Fair Value    Unrealized
Losses
States and political subdivisions
   $ 773    $ (11 ) $ 52,523    $ (477 ) $ 53,296    $ (488 )
Corporate obligations
   —      —   8,747    (107 ) 8,747    (107 )
Mortgage-backed securities-government sponsored entities
   1,747    (2 ) 120,061    (3,490 ) 121,808    (3,492 )








   $ 2,520    $ (13 ) $ 181,331    $ (4,074 ) $ 183,851    $ (4,087 )


	September 30, 2019
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
States and political subdivisions	$	7,697	$	(12)	$	481	$	(2)	$	8,178	$	(14)
Corporate obligations		—		—		3,109		(4)		3,109		(4)
Mortgage-backed securities-government sponsored entities		25,071		(118)		64,124		(844)		89,195		(962)

	$	32,768	$	(130)	$	67,714	$	(850)	$	100,482	$	(980)


	December 31, 2018
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
States and political subdivisions	$	19,140	$	(390	)	$	56,740	$	(1,600	)	$	75,880	$	(1,990	)
Corporate obligations		2,045		(21	)		6,595		(235	)		8,640		(256	)
Mortgage-backed securities-government sponsored entities		8,444		(22	)		122,950		(5,176	)		131,394		(5,198	)

	$	29,629	$	(433	)	$	186,285	$	(7,011	)	$	215,914	$	(7,444	)

At ~~March 31,~~September 30, 2019, the Company had ~~two~~30 debt securities in an unrealized loss position in the less than twelve months category and ~~183~~58 debt securities in the twelve months or more category. In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. No other-than-temporary-impairment charges were recorded in 2019. Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

The amortized cost and fair value of debt securities as of ~~March 31,~~September 30, 2019 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.


	Available for Sale				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Due in one year or less	$	2,689	$	2,689	$	4,365	$	4,378
Due after one year through five years		21,030		20,874		17,693		17,705
Due after five years through ten years		45,176		44,948		33,194		33,365
Due after ten years		37,914		38,429		29,093		30,280

		106,809		106,940		84,345		85,728
Mortgage-backed securities-government sponsored entities		137,121		133,681		126,087		125,471

	$	243,930	$	240,621	$	210,432	$	211,199

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


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018
Gross realized gains	$	—	$	142	$	169	$	13	$	233	$	213
Gross realized losses		—		—		—		—		—		—

Net realized gain	$	—	$	142	$	169	$	13	$	233	$	213

Proceeds from sales of securities	$	327	$	10,761	$	19,326	$	3,162	$	22,862	$	17,745

Securities with a carrying value of ~~$196,137,000~~$179,075,000 and ~~$216,435,000~~$169,984,000 at ~~March 31,~~September 30, 2019 and 2018, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

8.	8. Loans Receivable and Allowance for Loan Losses

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


	March 31, 2019					December 31, 2018					September 30, 2019					December 31, 2018
Real Estate Loans:
Residential	$	231,954		26.8	%	$	235,523		27.7	%	$	230,624		25.5	%	$	235,523		27.7	%
Commercial		373,276		43.2			374,790		44.1			384,376		42.4			374,790		44.1
Construction		18,604		2.2			17,445		2.0			18,267		2.0			17,445		2.0
Commercial, financial and agricultural		118,535		13.7			110,542		13.0			126,835		14.0			110,542		13.0
Consumer loans to individuals		121,945		14.1			112,002		13.2			145,547		16.1			112,002		13.2

Total loans		864,314		100.0	%		850,302		100.0	%		905,649		100.0	%		850,302		100.0	%

Deferred fees, net		(116	)				(120	)				(67	)				(120	)

Total loans receivable		864,198					850,182					905,582					850,182
Allowance for loan losses		(8,349	)				(8,452	)				(8,405	)				(8,452	)

Net loans receivable	$	855,849				$	841,730				$	897,177				$	841,730

The following table presents information regarding loans acquired and accounted for in accordance with ASC310-30 (in thousands):


	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Outstanding Balance	$	985	$	1,055	$	946	$	1,055
Carrying Amount	$	829	$	886	$	807	$	886

As a result of the acquisition of Delaware Bancshares, Inc. (“Delaware”), the Company added $1,397,000 of loans that were accounted for in accordance with ASC310-30. Based on a review of the loans acquired by senior lending management, which included an analysis of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $499,000. For loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction of the specific reserve and will not impact the allowance for loan losses until actual losses exceed the allotted reserves. For loans acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the allowance for loan loss adequacy calculation.

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. Such 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. We do not aggregate such loans for evaluation purposes. Impairment is measured on aloan-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.

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets. As of ~~March 31,~~September 30, 2019 and December 31, 2018, foreclosed real estate owned totaled ~~$1,792,000~~$1,572,000 and $1,115,000, respectively. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company acquired three properties viadeed-in-lieu transactions ~~with an aggregate carrying value of $680,000~~which have subsequently been sold, and foreclosed on one commercial property with a carrying value of ~~$32,000, and~~$608,000. The Company also disposed of ~~one property~~three properties that were previously transferred to foreclosed real estate owned with a carrying value of ~~$36,000~~$151,000 through the sale of the ~~property.~~properties. As of ~~March 31,~~September 30, 2019, the Company has initiated formal foreclosure proceedings on ~~two~~three properties classified as consumer residential mortgages with an aggregate carrying value of ~~$221,000.~~$300,000.

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


	Real Estate Loans												Real Estate Loans
	Residential		Commercial		Construction		Commercial Loans		Consumer Loans		Total								Commercial		Consumer
March 31, 2019	(In thousands)
													Residential		Commercial		Construction		Loans		Loans		Total
													(In thousands)
September 30, 2019
Individually evaluated for impairment	$	—	$	451	$	—	$	—	$	—	$	451	$	—	$	514	$	—	$	—	$	—	$	514
Loans acquired with deteriorated credit quality		581		248		—		—		—		829		577		230		—		—		—		807
Collectively evaluated for impairment		231,373		372,577		18,604		118,535		121,945		863,034		230,047		383,632		18,267		126,835		145,547		904,328

Total Loans	$	231,954	$	373,276	$	18,604	$	118,535	$	121,945	$	864,314	$	230,624	$	384,376	$	18,267	$	126,835	$	145,547	$	905,649

   Real Estate Loans
   Residential    Commercial    Construction    Commercial
Loans    Consumer
Loans    Total
   (In thousands)
December 31, 2018

Individually evaluated for impairment
   $ —      $ 1,319    $ —      $ —      $ —      $ 1,319
Loans acquired with deteriorated credit quality
   630    256    —      —      —      886
Collectively evaluated for impairment
   234,893    373,215    17,445    110,542    112,002    848,097












Total Loans
   $ 235,523    $ 374,790    $ 17,445    $ 110,542    $ 112,002    $ 850,302


	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2018
Individually evaluated for impairment	$	—	$	1,319	$	—	$	—	$	—	$	1,319
Loans acquired with deteriorated credit quality		630		256		—		—		—		886
Collectively evaluated for impairment		234,893		373,215		17,445		110,542		112,002		848,097

Total Loans	$	235,523	$	374,790	$	17,445	$	110,542	$	112,002	$	850,302

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


	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Recorded Investment		Unpaid Principal Balance		Associated Allowance
March 31, 2019	(in thousands)
									(in thousands)
September 30, 2019
With no related allowance recorded:
Real Estate Loans:
Commercial	$	451	$	702	$	—	$	514	$	1,101	$	—

Subtotal		451		702		—		514		1,101		—

Total:
Real Estate Loans:
Commercial		451		702		—		514		1,101		—

Total Impaired Loans	$	451	$	702	$	—	$	514	$	1,101	$	—


	Recorded Investment		Unpaid Principal Balance		Associated Allowance
December 31, 2018	(in thousands)
With no related allowance recorded:
Real Estate Loans:
Commercial	$	1,319	$	1,747	$	—

Subtotal		1,319		1,747		—

Total:
Real Estate Loans:
Commercial		1,319		1,747		—

Total Impaired Loans	$	1,319	$	1,747	$	—


	Recorded Investment		Unpaid Principal Balance		Associated Allowance
			(in thousands)
December 31, 2018
With no related allowance recorded:
Real Estate Loans:
Commercial	$	1,319	$	1,747	$	—

Subtotal		1,319		1,747		—

Total:
Real Estate Loans:
Commercial		1,319		1,747		—

Total Impaired Loans	$	1,319	$	1,747	$	—

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month periods ended ~~March 31,~~September 30, 2019 and 2018, respectively (in thousands):


	Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
	2019		2018		2019		2018		2019		2018		2019		2018
Real Estate Loans:
Residential	$	—	$	23	$	—	$	—	$	—	$	23	$	—	$	—
Commercial		885		1,219		—		14		633		1,217		—		15

Total	$	885	$	1,242	$	—	$	14	$	633	$	1,240	$	—	$	15

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the nine-month periods ended September 30, 2019 and 2018, respectively (in thousands):


	Average Recorded Investment				Interest Income Recognized
	2019		2018		2019		2018
Real Estate Loans:
Residential	$	—	$	23	$	—	$	—
Commercial		759		1,195		24		45

Total	$	759	$	1,218	$	24	$	45

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources. As of ~~March 31,~~September 30, 2019 and December 31, 2018, troubled debt restructured loans totaled ~~$107,000~~$102,000 and $1.1 million, respectively, with no specific reserve. For the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2019, there were no new loans identified as troubled debt restructurings. During 2019, the Company recognized a ~~loss~~charge-off of $451,000 on a loan that was previously identified as a troubled debt restructuring. The loan was transferred to foreclosed real estate during the first quarter of 2019 with a carrying value of $608,000.

For the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2018, there were no new loans identified as troubled debt restructurings nor did the Company recognize any write-down on loans that were previously identified as a troubled debt restructuring.

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 Bank 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 nonperformance, 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 $1,500,000 and over to assign orre-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of ~~March 31,~~September 30, 2019 and December 31, 2018 (in thousands):


	Pass		Special Mention		Substandard		Doubtful or Loss		Total				Special				Doubtful
March 31, 2019
											Pass		Mention		Substandard		or Loss		Total
September 30, 2019
Commercial real estate loans	$	359,791	$	8,118	$	5,367	$	—	$	373,276	$	368,796	$	12,301	$	3,279	$	—	$	384,376
Commercial loans		118,294		—		241		—		118,535		126,371		252		212		—		126,835

Total	$	478,085	$	8,118	$	5,608	$	—	$	491,811	$	495,167	$	12,553	$	3,491	$	—	$	511,211


	Pass		Special Mention		Substandard		Doubtful or Loss		Total
December 31, 2018
Commercial real estate loans	$	360,838	$	7,918	$	6,034	$	—	$	374,790
Commercial loans		109,966		82		494		—		110,542

Total	$	470,804	$	8,000	$	6,528	$	—	$	485,332


			Special				Doubtful
	Pass		Mention		Substandard		or Loss		Total
December 31, 2018
Commercial real estate loans	$	360,838	$	7,918	$	6,034	$	—	$	374,790
Commercial loans		109,966		82		494		—		110,542

Total	$	470,804	$	8,000	$	6,528	$	—	$	485,332

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. The following table presents the recorded investment in the loan classes based on payment activity as of ~~March 31,~~September 30, 2019 and December 31, 2018 (in thousands):


	Performing		Nonperforming		Total		Performing		Nonperforming		Total
March 31, 2019
September 30, 2019
Residential real estate loans	$	231,358	$	596	$	231,954	$	229,857	$	767	$	230,624
Construction		18,604		—		18,604		18,267		—		18,267
Consumer loans		121,927		18		121,945		145,490		57		145,547

Total	$	371,889	$	614	$	372,503	$	393,614	$	824	$	394,438


	Performing		Nonperforming		Total		Performing		Nonperforming		Total
December 31, 2018
Residential real estate loans	$	234,725	$	798	$	235,523	$	234,725	$	798	$	235,523
Construction		17,445		—		17,445		17,445		—		17,445
Consumer loans		112,002		—		112,002		112,002		—		112,002

Total	$	364,172	$	798	$	364,970	$	364,172	$	798	$	364,970

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of ~~March 31,~~September 30, 2019 and December 31, 2018 (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
March 31, 2019

Real Estate loans

Residential
   $ 230,696    $ 598    $ 64    $ —      $ 596    $ 1,258    $ 231,954
Commercial
   370,808    445    1,572    —      451    2,468    373,276
Construction
   18,604    —      —      —      —      —      18,604
Commercial loans
   118,242    1    260    —      32    293    118,535
Consumer loans
   121,736    185    6    —      18    209    121,945














Total
   $ 860,086    $ 1,229    $ 1,902    $ —      $ 1,097    $ 4,228    $ 864,314


															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
September 30, 2019
Real Estate loans
Residential															$	228,976	$	692	$	189	$	—	$	767	$	1,648	$	230,624
Commercial																383,667		114		54		—		541		709		384,376
Construction																18,267		—		—		—		—		—		18,267
Commercial loans																126,795		14		—		—		26		40		126,835
Consumer loans																145,161		183		146		—		57		386		145,547

Total															$	902,866	$	1,003	$	389	$	—	$	1,391	$	2,783	$	905,649


	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		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, 2018
Real Estate loans
Residential	$	234,201	$	373	$	151	$	—	$	798	$	1,322	$	235,523	$	234,201	$	373	$	151	$	—	$	798	$	1,322	$	235,523
Commercial		372,617		1,043		788		—		342		2,173		374,790		372,617		1,043		788		—		342		2,173		374,790
Construction		17,445		—		—		—		—		—		17,445		17,445		—		—		—		—		—		17,445
Commercial loans		110,191		320		31		—		—		351		110,542		110,191		320		31		—		—		351		110,542
Consumer loans		111,796		171		35		—		—		206		112,002		111,796		171		35		—		—		206		112,002

Total	$	846,250	$	1,907	$	1,005	$	—	$	1,140	$	4,052	$	850,302	$	846,250	$	1,907	$	1,005	$	—	$	1,140	$	4,052	$	850,302

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for loan losses. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance.

As of ~~March 31,~~September 30, 2019, the allocation of the allowance pertaining to commercial real estate loans is ~~slightly~~$889,000 lower than the allocation as of December 31, 2018. This decrease is due primarily to a reduction in the ~~quantitative~~historical factor ~~for historical losses~~ which decreased from 0.42% as of December 31, 2018 to ~~0.22%~~0.21% at ~~March 31,~~September 30, 2019. Also contributing to the reduced reserve balance is a decrease in the qualitative factor related to the annualized growth rate and large balance loans, which was partially offset by an increase due to a declining economy. Increases in other loan categories reflect loan growth and replenishment of the allowance due to charge offs.

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			Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Beginning balance, December 31, 2018	$	1,328		$	5,455		$	93	$	712		$	864		$	8,452		$	1,328		$	5,455		$	93		$	712		$	864		$	8,452
Charge Offs		(65	)		(469	)		—		(1	)		(63	)		(598	)		(90	)		(615	)		—			(254	)		(246	)		(1,205	)
Recoveries		11			10			—		10			14			45			20			18			—			31			39			108
Provision for loan losses		181			(49	)		15		90			213			450			310			(292	)		14			454			564			1,050

Ending balance, March 31, 2019	$	1,455		$	4,947		$	108	$	811		$	1,028		$	8,349
Ending balance, September 30, 2019																		$	1,568		$	4,566		$	107		$	943		$	1,221		$	8,405

Ending balance individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Ending balance collectively evaluated for impairment	$	1,455		$	4,947		$	108	$	811		$	1,028		$	8,349		$	1,568		$	4,566		$	107		$	943		$	1,221		$	8,405

(In thousands)																		Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Beginning balance, June 30, 2019																		$	1,447		$	4,694		$	112		$	896		$	1,079		$	8,228
Charge Offs																			(15	)		—			—			(20	)		(111	)		(146	)
Recoveries																			5			4			—			10			4			23
Provision for loan losses																			131			(132	)		(5	)		57			249			300

Ending balance, September 30, 2019																		$	1,568		$	4,566		$	107		$	943		$	1,221		$	8,405


(In thousands)																		Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Beginning balance, December 31, 2017																		$	1,272		$	5,265		$	90		$	463		$	544		$	7,634
Charge Offs																			(85	)		(244	)		—			(246	)		(189	)		(764	)
Recoveries																			2			33			—			—			25			60
Provision for loan losses																			185			205			4			497			459			1,350

Ending balance, September 30, 2018																		$	1,374		$	5,259		$	94		$	714		$	839		$	8,280

Ending balance individually evaluated for impairment																		$	—		$	—		$	—		$	—		$	—		$	—
Ending balance collectively evaluated for impairment																		$	1,374		$	5,259		$	94		$	714		$	839		$	8,280

(In thousands)    Residential
Real Estate Commercial
Real Estate Construction    Commercial    Consumer Total
Beginning balance, December 31, 2017
   $ 1,272 $ 5,265 $ 90    $ 463    $ 544 $ 7,634
Charge Offs
   (51 ) —   —      —      (48 ) (99 )
Recoveries
   1 6 —      —      7 14
Provision for loan losses
   303 (142 ) 30    175    184 550






Ending balance, March 31, 2018
   $ 1,525 $ 5,129 $ 120    $ 638    $ 687 $ 8,099






Ending balance individually evaluated for impairment
   $ —   $ —   $ —      $ —      $ —   $ —
Ending balance collectively evaluated for impairment
   $ 1,525 $ 5,129 $ 120    $ 638    $ 687 $ 8,099


(In thousands)	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Beginning balance, June 30, 2018	$	1,455		$	5,247		$	128		$	690		$	806		$	8,326
Charge Offs		(10	)		(110	)		—			(241	)		(72	)		(433	)
Recoveries		—			2			—			—			10			12
Provision for loan losses		(71	)		120			(34	)		265			95			375

Ending balance, September 30, 2018	$	1,374		$	5,259		$	94		$	714		$	839		$	8,280

The Company’s primary business activity as of ~~March 31,~~September 30, 2019 was with customers located in northeastern Pennsylvania and the New York counties of Delaware and Sullivan. Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to honor their contracts is influenced by the region’s economy.

As of ~~March 31,~~September 30, 2019, the Company considered its concentration of credit risk to be acceptable. The highest concentrations are in commercial rentals with ~~$73.4~~$80.7 million of loans outstanding, or ~~8.5%~~8.9% of total loans outstanding, and the hospitality/lodging industry with loans outstanding of ~~$59.1~~$65.0 million, or ~~6.8%~~7.2% of loans outstanding. During 2019, the Company did not recognize any charge offs in the named concentrations.

9.	9. Fair Value of Assets and Liabilities

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring ornon-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on aNon-Recurring Basis”. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 of the Company’s 2018 Form10-K. In accordance with ASU2016-01, the fair value of loans, excluding previously presented impaired loans measured at fair value on anon-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk. Loans are considered a Level 3 classification.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

   Fair Value Measurement Using Reporting Date
Description
   Total    Level 1    Level 2    Level 3
   (In thousands)
March 31, 2019

Available for Sale:

States and political subdivisions
   $ 98,193    $ —      $ 98,193    $ —
Corporate obligations
   8,747    —      8,747    —
Mortgage-backed securities-government sponsored entities
   133,681    —      133,681    —








Total
   $ 240,621    $ —      $ 240,621    $ —


									Fair Value Measurement Using
									Reporting Date
Description									Total		Level 1		Level 2		Level 3
									(In thousands)
September 30, 2019
Available for Sale:
States and political subdivisions									$	79,527	$	—	$	79,527	$	—
Corporate obligations										6,201		—		6,201		—
Mortgage-backed securities-government sponsored entities										125,471		—		125,471		—

Total									$	211,199	$	—	$	211,199	$	—


Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)								(In thousands)
December 31, 2018
Available for Sale:
States and political subdivisions	$	97,613	$	—	$	97,613	$	—	$	97,613	$	—	$	97,613	$	—
Corporate obligations		8,640		—		8,640		—		8,640		—		8,640		—
Mortgage-backed securities-government sponsored entities		137,024		—		137,024		—		137,024		—		137,024		—

Total	$	243,277	$	—	$	243,277	$	—	$	243,277	$	—	$	243,277	$	—

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/ornon-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.

Assets and Liabilities Required to be Measured and Reported at Fair Value on aNon-Recurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

   Fair Value Measurement Using Reporting Date
(In thousands)

Description
   Total    Level 1    Level 2    Level 3
March 31, 2019

Impaired Loans
   $ 451    $ —      $ —      $ 451
Foreclosed Real Estate Owned
   1,792    —      —      1,792
December 31, 2018

Impaired Loans
   $ 1,319    $ —      $ —      $ 1,319
Foreclosed Real Estate Owned
   1,115    —      —      1,115


			Fair Value Measurement Using Reporting Date
(In thousands)
Description	Total		Level 1		Level 2		Level 3
September 30, 2019
Impaired Loans	$	514	$	—	$	—	$	514
Foreclosed Real Estate Owned		1,572		—		—		1,572
December 31, 2018
Impaired Loans	$	1,319	$	—	$	—	$	1,319
Foreclosed Real Estate Owned		1,115		—		—		1,115

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 ~~March 31,~~September 30, 2019, the fair value investment in impaired loans totaled ~~$451,000~~$514,000 which included ~~four~~five loan relationships that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan. As of ~~March 31,~~September 30, 2019, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of ~~$251,000~~$587,000 over the life of the loans.

As of December 31, 2018, the fair value investment in impaired loans totaled $1,319,000 which included six loans 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, 2018, the Company had recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $428,000 over the life of the loans.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through loan foreclosures, or by deed 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.

The following table presents additional quantitative information about assets measured at fair value on anon-recurring 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)
March 31, 2019

Impaired loans
   $ 344    Appraisal of collateral(1)    Appraisal adjustments(2)    10.00-57.58% (18.93%)
Impaired loans
   $ 107    Present value of future cash flows    Loan discount rate    4.00% (4.00%)
Foreclosed real estate owned
   $ 1,792    Appraisal of collateral(1)    Liquidation Expenses(2)    7.00-68.75% (9.25%)

Quantitative Information about Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

September 30, 2019

Impaired loans

311

Appraisal of
collateral(1)

Appraisal
adjustments(2)

10.00-10.00% (10.00%)

Impaired loans

203

Present value of future
cash flows

Loan discount rate

4.00-6.97% (5.35%)

Foreclosed real estate owned

1,572

Appraisal of
collateral(1)

Liquidation Expenses(2)

7.00-10.00% (8.16%)

Quantitative Information about Level 3 Fair Value Measurements

(dollars in thousands)

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range (Weighted Average)

December 31, 2018

Impaired loans

232

Appraisal of collateral(1)

Appraisal adjustments(2)

10.00-81.54% (56.06%)

232

Appraisal of
collateral(1)

Appraisal
adjustments(2)

10.00-81.54% (56.06%)

Impaired loans

1,087

Present value of future cash flows

Loan discount rate

4.00-6.00% (5.80%)

1,087

Present value of future
cash flows

Loan discount rate

4.00-6.00% (5.80%)

Foreclosed real estate owned

1,115

Appraisal of collateral(1)

Liquidation Expenses(2)

7.00-85.71% (7.80%)

1,115

Appraisal of
collateral(1)

Liquidation Expenses(2)

7.00-85.71% (7.80%)

(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.

Assets and Liabilities Not Required to be Measured or Reported at Fair Value

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 ~~March 31,~~September 30, 2019 and December 31, 2018.

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.

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 defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

Deposit liabilities (carried at cost):

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.

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 fair value that is deemed to represent the transfer price if the liability were assumed by a third party.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at ~~March 31,~~September 30, 2019 and December 31, 2018. (In thousands)

   Fair Value Measurements at March 31, 2019
   Carrying
Amount    Fair Value    Level 1    Level 2    Level 3
Financial assets:

Cash and cash equivalents (1)
   $ 19,874    $ 19,874    $ 19,874    $ —      $ —
Loans receivable, net
   855,849    861,129    —      —      861,129
Mortgage servicing rights
   176    220    —      —      220
Regulatory stock (1)
   3,132    3,132    3,132    —      —
Bank owned life insurance (1)
   38,134    38,134    38,134    —      —
Accrued interest receivable (1)
   4,089    4,089    4,089    —      —
Financial liabilities:

Deposits
   974,415    973,011    611,162    —      361,849
Short-term borrowings (1)
   37,824    37,824    37,824    —      —
Other borrowings
   47,955    47,977    —      —      47,977
Accrued interest payable (1)
   2,457    2,457    2,457    —      —
Off-balance sheet financial instruments:

Commitments to extend credit and outstanding letters of credit
   —      —      —      —      —


	Fair Value Measurements at December 31, 2018										Fair Value Measurements at September 30, 2019
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	18,348	$	18,348	$	18,348	$	—	$	—	$	20,915	$	20,915	$	20,915	$	—	$	—
Loans receivable, net		841,730		840,134		—		—		840,134		897,177		917,146		—		—		917,146
Mortgage servicing rights		178		220		—		—		220		180		220		—		—		220
Regulatory stock (1)		3,926		3,926		3,926		—		—		3,137		3,137		3,137		—		—
Bank owned life insurance (1)		37,932		37,932		37,932		—		—		38,562		38,562		38,562		—		—
Accrued interest receivable (1)		3,776		3,776		3,776		—		—		3,726		3,726		3,726		—		—

Financial liabilities:
Deposits		946,780		945,773		601,604		—		344,169		974,433		977,729		632,151		—		345,045
Short-term borrowings (1)		53,046		53,046		53,046		—		—		52,778		52,778		52,778		—		—
Other borrowings		52,284		52,043		—		—		52,043		35,906		36,229		—		—		36,229
Accrued interest payable (1)		1,806		1,806		1,806		—		—		2,623		2,623		2,623		—		—

Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		—		—		—		—		—		—		—		—		—		—

											Fair Value Measurements at December 31, 2018
											Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)											$	18,348	$	18,348	$	18,348	$	—	$	—
Loans receivable, net												841,730		840,134		—		—		840,134
Mortgage servicing rights												178		220		—		—		220
Regulatory stock (1)												3,926		3,926		3,926		—		—
Bank owned life insurance (1)												37,932		37,932		37,932		—		—
Accrued interest receivable (1)												3,776		3,776		3,776		—		—
Financial liabilities:
Deposits												946,780		945,773		601,604		—		344,169
Short-term borrowings (1)												53,046		53,046		53,046		—		—
Other borrowings												52,284		52,043		—		—		52,043
Accrued interest payable (1)												1,806		1,806		1,806		—		—
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit												—		—		—		—		—

(1)	This financial instrument is carried at cost, which approximates the fair value of the instrument.

10.	~~10.~~ New and Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU2016-02,Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and aright-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments

over the lease term on a straight-line basis. ASU2016-02 was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU2018-11,“Leases (Topic 842) – —Targeted Improvements,”which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issuedASU2018-20, “Leases (Topic 842)- Narrow-Scope Improvements for Lessors,”which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU2016-02, ASU2018-11 and ASU2018-20 on January 1, 2019, we recorded recognized aright-of-use assets and related lease liabilities totaling $5.3 million each, which are recorded in other assets and other liabilities, respectively.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU2016-13,Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued inmid-November. We expect to recognize aone-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU2017-04,Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission

(SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, includingnot-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued inmid-November. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2017, the FASB issued ASU2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965). This Update relates primarily to the reporting by an employee benefit plan for its interest in a master trust, which is a trust for which a regulated financial institution serves as a trustee or custodian and in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held. For each master trust in which a plan holds an interest, the amendments in this Update require a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. The amendments in this Update remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments, which supplements the existing requirement to disclose the master trusts balances in each general type of investments. There are also increased disclosure requirements for investments in master trusts. The amendments in this Update are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In March 2017, the FASB issued~~ ASU~~2017-08,~~2018-04,~~Receivables~~Investments – ~~Nonrefundable Fees~~Debt Securities (Topic 320) and ~~Other Costs (Subtopic~~Regulated Operations (Topic 980) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No.~~310-20).~~ 33-9273, ~~The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized~~ASU2018-04 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected asissuance of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update did not have a significant impact on the Company’s financial statements.Staff Accounting Bulletin No. 117.

In ~~June~~May 2018, the FASB issued ASU~~2018-07,~~2018-06,~~Compensation~~Codification Improvements to Topic 942, Financial Services – ~~Stock Compensation (Topic 718)~~Depository and Lending, which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting: (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update did not have a significant impact on the Company’s financial statements.

~~In July 2018, the FASB issued ASU2018-09,~~~~Codification Improvements~~~~, represents changes to clarify, correct errors in, or make minor improvements~~supersedes outdated guidance related to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. SomeOffice of the ~~amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many~~Comptroller of the ~~amendments in this ASU do have transition~~Currency (OCC)’s Banking Circular 202,Accounting for Net Deferred Tax Charges(Circular 202), because that guidance ~~with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update did not have a significant impact on~~has been rescinded by the ~~Company’s financial statements.~~OCC and no longer is relevant.

In August 2018, the FASB issued ASU2018-12,Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This Update is intended to improve financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care, and annuities, by requiring updated assumptions for liability measurement, standardizing the liability discount rate, simplifying and improving the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts by requiring those benefits to be measured at fair value instead of using two different measurement models, simplifying the amortization of deferred acquisition costs, and increasing transparency by improving the effectiveness of disclosures. This Update is effective for public business

entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. On October 16, 2019, the FASB voted to defer the effective date for ASC 944, Financial Services – Insurance, for public business entities that are SEC filers, except for smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within those fiscal years and for all other entities, including smaller reporting companies, to fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The final ASU is expected to be issued inmid-November. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU2018-14,Compensation – Retirement Benefits (Topic715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of aone-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU2018-15,Intangibles – Goodwill and Other –Internal-Use Software (Subtopic350-40). This Update addresses customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred forinternal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software (and hosting arrangements that include aninternal-use software license). This Update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In October 2018, the FASB issued ASU2018-16, Derivatives and Hedging (Topic 815). The amendments in this Update permit use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. For entities that have not already adopted Update2017-12, the amendments in this Update are required to be adopted concurrently with the amendments in Update2017-12. For public business entities that already have adopted the amendments in Update2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities that already have adopted the amendments in Update2017-12, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this Update if an entity already has adopted Update2017-12. This Update is not expected to have a significant impact on the Company’s financial statements.

In October, 2018, the FASB issued ASU2018-17,Consolidation (Topic 810), which made improvements in 1) applying the variable interest entity (VIE) guidance to private companies under common control and 2) considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. Under the amendments in this Update, a private company may elect not to apply VIE guidance to legal entities under common control (including common control leasing arrangements) if both the parent and the legal entity being evaluated for consolidation are not public business entities. In addition, indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For entities other than private companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this Update are effective for a private company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In November, 2018, the FASB issued ASU~~018-18,~~2018-18,Collaborative Arrangements (Topic 808), which made the following targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements (1) clarified that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (2) addunit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and (3) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~November, 2018, the FASB issued ASU2018-19,~~~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses,~~~~which amended the effective date of ASU2016-13~~ ~~for entities other than public business entities (PBEs), by requiringnon-PBEs~~ ~~to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU2016-13~~ for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities~~(non-PBEs)~~ will be for fiscal years beginning after December 15, 2021, including interim periods within those years. The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic~~326-20.~~ ~~Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842,~~~~Leases~~~~. The effective date and transition requirements for ASU2018-19~~ ~~are the same as those in ASU2016-13,~~ ~~as amended by ASU2018-19.~~ ~~This Update is not expected to have a significant impact on the Company’s financial statements.~~

In April 2019, the FASB issued ASU2019-04,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, w~~hich~~which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued inmid-November.Topic 815, Derivatives and Hedgingamendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update.Topic 825, Financial Instrumentsamendmentsare effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2019, the FASB issued ASU2019-05,Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC825-10.3. The election must be applied on aninstrument-by-instrument basis and is not available for eitheravailable-for-sale orheld-to-maturity debt securities. For entities that elect the

fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU2016-13, the effective dates and transition requirements are the same as those in ASU2016-13. For entities that have adopted ASU2016-13, ASU2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU2016-13 has been adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued inmid-November. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In July 2019, the FASB issued ASU2019-07,Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos.33-10231 and33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule ReleasesNo. 33-10532,Disclosure Update and Simplification, and Nos.33-10231 and33-10442,Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

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:

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 is subject to declines in value

potential other-than-temporary impairments

soundness of other financial institutions

interest rate risks

potential liquidity risk

deposits acquired through competitive bidding

availability of capital

regional economic factors

loss of senior officers

comparatively low legal lending limits

risks of new capital requirements

potential impact of Tax Cuts and Jobs Act

limited market for the Company’s stock

restrictions on ability to pay dividends

common stock may lose value

insider ownership

issuing additional shares may dilute ownership

competitive environment

certain anti-takeover provisions

extensive and complex governmental regulation and ~~associate~~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.

Critical Accounting Policies

Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2018 (incorporated by reference in Item 8 of the Form10-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 fair value of financial instruments, the determination of other-than-temporary impairment on securities and the determination of goodwill impairment. Please refer to the discussion of the allowance for loan losses calculation under “Loans” in the “Changes in Financial Condition” section.

The Company uses the modified prospective transition method to account for stock options. Under this method companies are required to record compensation expense, based on the fair value of options over the vesting period. 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 determines the fair value of restricted stock.

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.

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.

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

Declines in the fair value of 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, the Company 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 whether it is more likely than not that it will not have to sell the securities before recovery of their cost basis. The Company believes that all unrealized losses on securities at ~~March 31,~~September 30, 2019 and December 31, 2018 represent temporary impairment of the securities, related to changes in interest rates.

In connection with acquisitions, the Company recorded goodwill in the amount of $11.3 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired in purchase transactions, at its fair value at the date of acquisition. 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 Company or 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.

Changes in Financial Condition

General

Total assets as of ~~March 31,~~September 30, 2019 were ~~$1.204~~$1.216 billion compared to $1.185 billion as of December 31, 2018. The increase reflects growth in loans which were funded by an increase in deposits and cash flows from securities.

Securities

The fair value of securities available for sale as of ~~March 31,~~September 30, 2019 was ~~$240.6~~$211.2 million compared to $243.3 million as of December 31, 2018. The decrease in the securities portfolio is the result of sales, calls, maturities and principal reductions of securities. The fair value of the portfolio increased $7.8 million due to a reduction in unrealized losses on securities related to the decrease in interest rates during the first nine months of 2019.

The carrying value of the Company’s securities portfolio(Available-for Sale) consisted of the following:


	March 31, 2019					December 31, 2018					September 30, 2019					December 31, 2018
(dollars in thousands)	Amount		% of portfolio			Amount		% of portfolio			Amount		% of portfolio			Amount		% of portfolio
States and political subdivisions	$	98,193		40.8	%	$	97,613		40.1	%	$	79,527		37.7	%	$	97,613		40.1	%
Corporate obligations		8,747		3.6			8,640		3.6			6,201		2.9			8,640		3.6
Mortgage-backed securities-government sponsored entities		133,681		55.6			137,024		56.3			125,471		59.4			137,024		56.3

Total	$	240,621		100.0	%	$	243,277		100.0	%	$	211,199		100.0	%	$	243,277		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. Management believes that the unrealized losses on all holdings represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.

Loans

Loans receivable totaled ~~$864.2~~$905.6 million at ~~March 31,~~September 30, 2019 compared to $850.2 million as of December 31, 2018. The increase in loans receivable includes a ~~$7.5~~$29.5 million increase in retail loans and a ~~$6.5~~$25.9 million increase in commercial loans.

The allowance for loan losses totaled ~~$8,349,000~~$8,405,000 as of ~~March 31,~~September 30, 2019 and represented ~~0.97%~~0.93% of total loans outstanding, compared to $8,452,000, or 0.99% of total loans, at December 31, 2018. The Company had net charge-offs for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 of ~~$553,000~~$1,205,000 compared to ~~$85,000~~$704,000 in the corresponding period in 2018. The increase in charge-offs was due to one large commercial loan relationship which was written down by $336,000 during the second quarter of 2019, and one commercial real estate credit which was written down by $451,000 and subsequently transferred to foreclosed real ~~estate.~~estate during the first quarter of 2019. The Company’s management 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, and loan growth. Management considers the allowance adequate at ~~March 31,~~September 30, 2019 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.

As of ~~March 31,~~September 30, 2019,non-performing loans totaled ~~$1.1 million,~~$1,391,000, or ~~0.13%~~0.15% of total loans compared to ~~$1.1 million,~~$1,140,000, or 0.13%, of total loans at December 31, 2018. At ~~March 31,~~September 30, 2019,non-performing assets totaled ~~$2.9 million,~~$2,963,000, or 0.24%, of total assets, compared to ~~$2.3 million,~~$2,255,000, or 0.19%, of total assets at December 31, 2018.

The following table sets forth information regardingnon-performing loans and foreclosed real estate at the dates indicated:


(dollars in thousands)	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Loans accounted for on anon-accrual basis:
Real Estate
Residential	$	596		$	798		$	767		$	798
Commercial		451			342			541			342
Construction		—			—			—			—
Commercial, financial and agricultural		32			—			26			—
Consumer loans to individuals		18			—			57			—

Totalnon-accrual loans *		1,097			1,140			1,391			1,140
Accruing loans which are contractually past due 90 days or more		—			—			—			—

Totalnon-performing loans		1,097			1,140			1,391			1,140
Foreclosed real estate		1,792			1,115			1,572			1,115

Totalnon-performing assets	$	2,889		$	2,255		$	2,963		$	2,255

Allowance for loans losses	$	8,349		$	8,452		$	8,405		$	8,452
Coverage ofnon-performing loans		761.08	%		741.40	%		604.24	%		741.40	%
Non-performing loans to total loans		0.13	%		0.13	%		0.15	%		0.13	%
Non-performing loans to total assets		0.09	%		0.10	%		0.11	%		0.10	%
Non-performing assets to total assets		0.24	%		0.19	%		0.24	%		0.19	%

*	Includesnon-accrual TDRs of ~~$107,000~~$102,000 as of ~~March 31,~~September 30, 2019 and $110,000 on December 31, 2018. There were no accruing TDRs ~~on March 31,~~as of September 30, 2019 and $977,000 of accruing TDRs as of December 31, 2018.

Deposits

During the ~~three-month~~nine-month period ~~ending March 31,~~ended September 30, 2019, total deposits increased ~~$27.6~~$27.7 million due primarily to ~~an $18.1~~a $29.8 million increase in ~~time~~demand deposits which reflects seasonal activity in municipal account relationships. All other deposits decreased ~~$9.5~~$2.1 million, net.

The following table sets forth deposit balances as of the dates indicated:


(dollars in thousands)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Non-interest bearing demand	$	206,806	$	201,457	$	231,211	$	201,457
Interest-bearing demand		92,067		88,917		99,671		88,917
Money market deposit accounts		135,293		137,636		135,404		137,636
Savings		176,996		173,593		166,398		173,593
Time deposits <$100,000		145,767		145,343		146,779		145,343
Time deposits >$100,000		217,486		199,834		194,970		199,834

Total	$	974,415	$	946,780	$	974,433	$	946,780

Borrowings

Other borrowings as of ~~March 31,~~September 30, 2019, totaled ~~$48.0~~$35.9 million compared to $52.3 million as of December 31, 2018. Short-term borrowings, which consist of securities sold under agreements to repurchase and overnight borrowings from the FHLB, decreased ~~$15.2 million~~slightly due to ~~a $15.6~~an $11.3 million reduction in overnight ~~borrowings.~~borrowings, which was partially offset by an $11.2 million increase in repurchase agreements.

Other borrowings consisted of the following:


(dollars in thousands)					September 30, 2019		December 31, 2018
	March 31, 2019		December 31, 2018
Notes with the FHLB:
Amortizing fixed rate borrowing due January 2019 at 1.393%	$	—	$	423	$	—	$	423
Term fixed rate borrowing due August 2019 at 1.606%		10,000		10,000		—		10,000
Amortizing fixed rate borrowing due June 2020 at 1.490%		2,570		3,079		1,548		3,079
Amortizing fixed rate borrowing due July 2020 at 2.77%		6,728		7,962		4,234		7,962
Amortizing fixed rate borrowing due December 2020 at 1.706%		1,799		2,051		1,290		2,051
Amortizing fixed rate borrowing due December 2020 at 3.06%		4,392		5,000		3,161		5,000
Amortizing fixed rate borrowing due March 2022 at 1.748%		2,661		2,877		2,227		2,877
Amortizing fixed rate borrowing due August 2022 at 1.94%						5,838		—
Amortizing fixed rate borrowing due October 2022 at 1.88%		5,809		6,200		5,022		6,200
Amortizing fixed rate borrowing due October 2023 at 3.24%		9,227		9,692		8,286		9,692
Amortizing fixed rate borrowing due December 2023 at 3.22%		4,769		5,000		4,300		5,000

	$	47,955	$	52,284	$	35,906	$	52,284

Stockholders’ Equity and Capital Ratios

As of ~~March 31,~~September 30, 2019, stockholders’ equity totaled ~~$126.8~~$134.9 million, compared to $122.3 million as of December 31, 2018. The net change in stockholders’ equity included ~~$3.2~~$10.6 million of net income that was partially offset by ~~$1.5~~$4.5 million of dividends declared. In addition, total equity increased ~~$2.9~~$6.2 million due to an increase in the fair value of securities in the available for sale portfolio, net of tax. This increase in fair value is the result of a change in interest rates and spreads, which may impact the value of the securities. Because of interest rate volatility, the Company’s accumulated other comprehensive income (loss) could materially fluctuate for each interim andyear-end period.

A comparison of the Company’s consolidated regulatory capital ratios is as follows:

   March 31, 2019 December 31, 2018
Tier 1 Capital

(To average assets)
   9.81 % 9.82 %
Tier 1 Capital

(To risk-weighted assets)
   12.92 % 13.04 %
Common Equity Tier 1 Capital

(To risk-weighted assets)
   12.92 % 13.04 %
Total Capital

(To risk-weighted assets)
   13.85 % 14.00 %


	September 30, 2019			December 31, 2018
Tier 1 Capital
(To average assets)		10.07	%		9.82	%
Tier 1 Capital
(To risk-weighted assets)		13.01	%		13.04	%
Common Equity Tier 1 Capital
(To risk-weighted assets)		13.01	%		13.04	%
Total Capital
(To risk-weighted assets)		13.91	%		14.00	%

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, increase the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assign 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 aone-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 requirement was phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement became effective. The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of ~~March 31,~~September 30, 2019.

Liquidity

As of ~~March 31,~~September 30, 2019, the Company had cash and cash equivalents of ~~$19.9~~$20.9 million in the form of cash, due from banks and short-term deposits with other institutions. In addition, the Company had total securities available for sale of ~~$240.6~~$211.2 million which could be used for liquidity needs. This totals ~~$260.5~~$232.1 million of liquidity and represents ~~21.6%~~19.1% of total assets compared to $261.6 million and 22.1% of total assets as of December 31, 2018. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of ~~March 31,~~September 30, 2019 and December 31, 2018. Based upon these measures, the Company believes its liquidity is adequate.

Capital Resources

The Company has a line of credit commitment from Atlantic Community Bankers Bank for $7,000,000 which expires June 30, ~~2019.~~2020. There were no borrowings under this line as of ~~March 31,~~September 30, 2019 and December 31, 2018.

The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $16,000,000. There were no borrowings under this line as of ~~March 31,~~September 30, 2019 and December 31, 2018.

The Company has a line of credit commitment available which has no stated expiration date from Zions Bank for $17,000,000. There were no borrowings under this line as of ~~March 31,~~September 30, 2019 and December 31, 2018.

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately ~~$411,912,000~~$423,726,000 as of ~~March 31,~~September 30, 2019, of which ~~$47,955,000~~$38,103,000 and $67,873,000 was outstanding at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. Additionally, as of ~~March 31,~~September 30, 2019, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of ~~$45.0~~$55.0 million as collateral for specific municipal deposits. These Letters of Credit reduce the availability under the maximum borrowing capacity. There was ~~$45,000,000~~$45.0 million outstanding in the form of Letters of Credit as of December 31, 2018. Advances and Letters of Credit from the Federal Home Loan Bank are secured by qualifying assets of the Bank.

Non-GAAP Financial Measures

This report contains or references fully taxable-equivalent (fte) interest income and net interest income, which arenon-GAAP financial measures. Interest income (fte) and net interest income (fte) are derived from GAAP interest income and net interest income using an assumed tax rate of 21%. We believe the presentation of interest income (fte) and net interest income (fte) ensures comparability of interest income and net interest income arising from both taxable andtax-exempt sources and is consistent with industry practice. Net interest income (fte) is reconciled to GAAP net interest income on ~~page 38.~~pages 40 and 44. Although the Company believes that thesenon-GAAP financial measures enhance investors’ understanding of our business and performance, thesenon-GAAP financial measures should not be considered an alternative to GAAP measures.

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,																		Three Months Ended September 30,
	2019									2018
	Average Balance (2)			Interest (1)			Average Rate (3)			Average Balance (2)			Interest (1)			Average Rate (3)
(Tax-Equivalent Basis, dollars in thousands)																			2019									2018
																			Average Balance (2)			Interest (1)			Average Rate (3)			Average Balance (2)			Interest (1)			Average Rate (3)

Interest-earning assets:
Interest-bearing deposits with banks	$	2,389		$	15			2.51	%	$	4,452		$	18			1.62	%	$	693		$	5			2.89	%	$	471		$	2			1.70	%
Securities available for sale:
Taxable		156,224			874			2.24			170,513			867			2.03			147,079			798			2.17			168,086			895			2.13
Tax-exempt (1)		94,883			718			3.03			108,613			832			3.06			80,099			608			3.04			97,966			744			3.04

Total securities available for sale (1)		251,107			1,592			2.54			279,126			1,699			2.43			227,178			1,406			2.48			266,052			1,639			2.46
Loans receivable (1) (4) (5)		857,438			10,084			4.70			767,481			8,588			4.48			897,850			10,890			4.85			813,092			9,402			4.63

Total interest-earning assets		1,110,934			11,691			4.21			1,051,059			10,305			3.92			1,125,721			12,301			4.37			1,079,615			11,043			4.09
Non-interest earning assets:
Cash and due from banks		14,024									13,779									14,968									14,629
Allowance for loan losses		(8,614	)								(7,877	)								(8,344	)								(8,440	)
Other assets		74,910									68,977									83,474									67,247

Totalnon-interest earning assets		80,320									74,879									90,098									73,436

Total Assets	$	1,191,254								$	1,125,938								$	1,215,819								$	1,153,051

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and money market	$	225,813		$	147			0.26		$	235,431		$	112			0.19		$	232,893		$	173			0.30		$	231,234		$	110			0.19
Savings		172,863			24			0.06			173,460			21			0.05			168,972			26			0.06			179,897			23			0.05
Time		359,168			1,558			1.74			325,012			896			1.10			348,890			1,588			1.82			310,502			983			1.27

Total interest-bearing deposits		757,844			1,729			0.91			733,903			1,029			0.56			750,755			1,787			0.95			721,633			1,116			0.62
Short-term borrowings		45,400			123			1.08			32,962			52			0.63			56,136			135			0.96			50,998			111			0.87
Other borrowings		49,939			303			2.43			34,360			141			1.64			39,349			246			2.50			36,028			171			1.90

Total interest-bearing liabilities		853,183			2,155			1.01			801,225			1,222			0.61			846,240			2,168			1.02			808,659			1,398			0.69
Non-interest bearing liabilities:
Demand deposits		200,273									200,786									218,893									217,258
Other liabilities		13,052									8,607									16,649									9,829

Totalnon-interest bearing liabilities		213,325									209,393									235,542									227,087
Stockholders’ equity		124,746									115,320									134,037									117,305

Total Liabilities and Stockholders’ Equity	$	1,191,254								$	1,125,938								$	1,215,819								$	1,153,051

Net interest income/spread (tax equivalent basis)					9,536			3.20	%					9,083			3.31	%					10,133			3.35	%					9,645			3.40	%

Tax-equivalent basis adjustment					(265	)								(276	)								(242	)								(257	)

Net interest income				$	9,271								$	8,807								$	9,891								$	9,388

Net interest margin (tax equivalent basis)								3.43	%								3.46	%								3.60	%								3.57	%

(1)	Interest and yields are presented on atax-equivalent basis using a marginal tax rate of 21%.

(2)	Average balances have been calculated based on daily balances.

(3)	Annualized

(4)	Loan balances includenon-accrual loans and are net of unearned income.

(5)	Loan yields include the effect of amortization of deferred fees, net of costs.

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, 2019 Compared to Three months ended March 31, 2018 Variance due to									Increase/(Decrease) Three months ended September 30, 2019 Compared to Three months ended September 30, 2018 Variance due to
	Volume			Rate			Net			Volume			Rate			Net
	(dollars in thousands)									(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	(9	)	$	6		$	(3	)	$	1		$	2		$	3
Securities available for sale:
Taxable		(78	)		85			7			(112	)		15			(97	)
Tax-exempt securities		(107	)		(7	)		(114	)		(136	)		—			(136	)

Total securities		(185	)		78			(107	)		(248	)		15			(233	)
Loans receivable		1,034			462			1,496			1,005			483			1,488

Total interest-earning assets		840			546			1,386			758	��		500			1,258


Interest-bearing liabilities:
Interest-bearing demand and money market		(6	)		41			35			1			62			63
Savings		—			3			3			(1	)		4			3
Time		136			526			662			161			444			605

Total interest-bearing deposits		130			570			700			161			510			671
Short-term borrowings		29			42			71			12			12			24
Other borrowings		79			83			162			19			56			75

Total interest-bearing liabilities		238			695			933			192			578			770

Net interest income(tax-equivalent basis)	$	602		$	(149	)	$	453		$	566		$	(78	)	$	488

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.

Comparison of Operating Results for the Three Months Ended ~~March 31,~~September 30, 2019 to ~~March 31,~~September 30, 2018

General

For the three months ended ~~March 31,~~September 30, 2019, net income totaled ~~$3,190,000~~$3,907,000 compared to ~~$3,129,000~~$3,710,000 earned in the similar period in 2018. The increase in net income for the three months ended ~~March 31,~~September 30, 2019 was due primarily to a ~~$464,000~~$503,000 improvement in net interest income. Earnings per share for the current period were ~~$0.51~~$0.62 per share for basic shares and fully diluted shares compared to ~~$0.50~~$0.59 per share for basic shares and $0.58 per share for fully diluted shares for the three months ended ~~March 31,~~September 30, 2018. The resulting annualized return on average assets and annualized return on average equity for the three months ended ~~March 31,~~September 30, 2019 were ~~1.09%~~1.27% and ~~10.37%~~11.56%, respectively, compared to ~~1.13%~~1.28% and ~~11.00%~~12.55%, respectively, for the similar period in 2018.

The following table sets forth changes in net income:


(dollars in thousands)	Three months ended			Three months ended
	March 31, 2019 to March 31, 2018
Net income three months ended March 31, 2018	$	3,129
(dollars in thousands)				September 30, 2019 to September 30, 2018
(dollars in thousands)				$	3,710
Change due to:
Net interest income		464			503
Provision for loan losses		100			75
Net gains on sales		(100	)		156
Other income		(34	)		(271	)
Salaries and employee benefits		(187	)		(90	)
Occupancy, furniture and equipment		(32	)		(6	)
Data processing and related operations					(112	)
Foreclosed real estate		(42	)		(50	)
All other expenses		(139	)		39
Income tax expense		31			(47	)

Net income three months ended March 31, 2019	$	3,190
Net income three months ended September 30, 2019				$	3,907

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the three months ended ~~March 31,~~September 30, 2019 totaled ~~$9,536,000~~$10,133,000 which was ~~$453,000~~$488,000 higher than the comparable period in 2018. The increase in net interest income was due primarily to a ~~$1,496,000~~$1,488,000 increase in interest income (fte) on loans.Tax-equivalent interest income was negatively impacted by a ~~$107,000~~$233,000 decrease in securities income. The fte net interest spread and net interest margin were ~~3.20%~~3.35% and ~~3.43%~~3.60%, respectively, for the three months ended ~~March 31,~~September 30, 2019 compared to ~~3.31%~~3.40% and ~~3.46%~~3.57%, respectively, for the similar period in 2018. The decrease in the net interest spread ~~and margin~~ reflects the increased cost of funding.

Interest income (fte) totaled ~~$11,691,000~~$12,301,000 with a yield on average earning assets of ~~4.21%~~4.37% compared to ~~$10,305,000~~$11,043,000 and ~~3.92%~~4.09% for the 2018 period. Average loans increased ~~$90.0~~$84.8 million over the comparable period of last year, while average securities decreased ~~$28.0~~$38.9 million as portfolio runoff was utilized to fund loan growth. Average earning assets totaled ~~$1.111~~$1.126 billion for the three months ended ~~March 31,~~September 30, 2019, an increase of ~~$59.9~~$46.1 million over the average for the similar period in 2018.

Interest expense for the three months ended ~~March 31,~~September 30, 2019 totaled ~~$2,155,000~~$2,168,000 at an average cost of ~~1.01%~~1.02% compared to ~~$1,222,000~~$1,398,000 and ~~0.61%~~0.69% for the similar period in 2018. The increase in average cost reflects the rising rates on borrowed funds and certificates of deposit. The average cost of time deposits, which is the most significant component of funding, increased to ~~1.74%~~1.82% from ~~1.10%~~1.27% for the similar period in the prior year.

Provision for Loan Losses

The Company’s provision for loan losses for the three months ended ~~March 31,~~September 30, 2019 was ~~$450,000~~$300,000 compared to ~~$550,000~~$375,000 for the three months ended ~~March 31,~~September 30, 2018. The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level. Net charge-offs were ~~$553,000~~$123,000 for the quarter ended ~~March 31,~~September 30, 2019, compared to ~~$85,000~~$421,000 for the similar period in 2018. ~~The increase in charge-offs was due to one commercial credit which was written down by $451,000 in~~At September 30, 2019, the ~~current period.~~allowance for loan losses represented 0.93% of loans receivable and 604% ofnon-performing loans.

Other Income

Other income totaled ~~$1,560,000~~$1,882,000 for the three months ended ~~March 31,~~September 30, 2019, compared to ~~$1,694,000~~$1,997,000 for the similar period in 2018. The decrease was due primarily to a ~~$100,000 decrease~~$75,000 reduction in ~~net gains from sales of loans~~earnings and ~~securities reflecting to reduced opportunities. All other items included~~proceeds on bank-owned life insurance policies and a $283,000 reduction in other income ~~declined $34,000, net.~~due to a litigation settlement in the 2018 period. Gains on sales of securities increased $156,000 over the comparable period in 2018.

Other Expense

Other expense for the three months ended ~~March 31,~~September 30, 2019 totaled ~~$6,648,000~~$6,791,000, which was ~~$400,000~~$219,000 higher than the same period of 2018 due primarily to a ~~$187,000~~$90,000 increase in salaries and benefits expenses and a ~~$129,000~~$112,000 increase in data processing costs. All other operating expenses increased ~~$84,000,~~$17,000, net. The efficiency ratio was 56.5% during the three months ended September 30, 2019 and 2018.

Income Tax Expense

Income tax expense totaled ~~$543,000~~$775,000 for an effective tax rate of ~~14.6%~~16.6% for the period ~~ending March 31,~~ended September 30, 2019 compared to ~~$574,000~~$728,000 for an effective tax rate of ~~15.5%~~16.4% for the similar period in 2018.

Results of Operations

NORWOOD FINANCIAL CORP.

Consolidated Average Balance Sheets with Resultant Interest and Rates


(Tax-Equivalent Basis, dollars in thousands)	Nine Months Ended September 30,
	2019									2018
	Average						Average			Average						Average
	Balance			Interest			Rate			Balance			Interest			Rate
	(2)			(1)			(3)			(2)			(1)			(3)
Assets
Interest-earning assets:
Interest bearing deposits with banks	$	3,853		$	70			2.42	%	$	4,789		$	63			1.75	%
Securities available for sale:
Taxable		152,404			2,545			2.23			169,475			2,674			2.10
Tax-exempt (1)		89,369			2,038			3.04			103,217			2,366			3.06

Total securities available for sale (1)		241,773			4,583			2.53			272,692			5,040			2.46
Loans receivable (1) (4) (5)		877,283			31,419			4.78			789,700			26,950			4.55

Total interest-earning assets		1,122,909			36,072			4.28			1,067,181			32,053			4.00
Non-interest earning assets:
Cash and due from banks		14,473									14,317
Allowance for loan losses		(8,472	)								(8,203	)
Other assets		79,743									67,882

Totalnon-interest earning assets		85,744									73,996

Total Assets	$	1,208,653								$	1,141,177

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand and money market	$	230,748		$	486			0.28		$	236,390		$	335			0.19
Savings		172,148			77			0.06			179,489			67			0.05
Time		356,222			4,792			1.79			317,549			2,796			1.17

Total interest-bearing deposits		759,118			5,355			0.94			733,428			3,198			0.58
Short-term borrowings		48,957			344			0.94			39,310			201			0.68
Other borrowings		45,059			827			2.45			33,982			442			1.73

Total interest-bearing liabilities		853,134			6,526			1.02			806,720			3,841			0.63
Non-interest bearing liabilities:
Demand deposits		210,900									209,323
Other liabilities		15,252									9,237

Totalnon-interest bearing liabilities		226,152									218,560
Stockholders’ equity		129,367									115,897

Total Liabilities and Stockholders’ Equity	$	1,208,653								$	1,141,177

Net interest income/spread (tax equivalent basis)					29,546			3.26	%					28,212			3.37	%

Tax-equivalent basis adjustment					(773	)								(802	)

Net interest income					$ 28,773								$	27,410

Net interest margin (tax equivalent basis)								3.51	%								3.52	%

(1)	Interest and yields are presented on atax-equivalent basis using a marginal tax rate of 21%.

(2)	Average balances have been calculated based on daily balances

(3)	Annualized

(4)	Loan balances includenon-accrual loans and are net of unearned income.

(5)	Loan yields include the effect of amortization of deferred fees, net of costs.

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) Nine months ended September 30, 2019 Compared to Nine months ended September 30, 2018 Variance due to
	Volume			Rate			Net
	(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	(15	)	$	22		$	7
Securities available for sale:
Taxable		(215	)		86			(129	)
Tax-exempt securities		(315	)		(13	)		(328	)

Total securities		(530	)		73			(457	)
Loans receivable		3,015			1,454			4,469

Total interest-earning assets		2,470			1,549			4,019

Interest-bearing liabilities:
Interest-bearing demand and money market		(11	)		162			151
Savings		(3	)		13			10
Time		476			1,520			1,996

Total interest-bearing deposits		462			1,695			2,157
Short-term borrowings		60			83			143
Other borrowings		175			210			385

Total interest-bearing liabilities		697			1,988			2,685

Net interest income(tax-equivalent basis)	$	1,773		$	(439	)	$	1,334

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.

Comparison of Operating Results for the Nine Months Ended September 30, 2019 to September 30, 2018

General

For the nine months ended September 30, 2019, net income totaled $10,619,000 compared to $10,352,000 earned in the similar period in 2018. The increase in net income for the nine months ended September 30, 2019 was due primarily to a $1,363,000 increase in net interest income. Earnings per share for the current period were $1.70 per share for basic shares and $1.68 for fully diluted shares compared to $1.66 per share for basic shares and $1.64 per share for fully diluted shares for the nine months ended September 30, 2018. The resulting annualized return on average assets and annualized return on average equity for the nine months ended September 30, 2019 were 1.17% and 10.97%, respectively, compared to 1.21% and 11.94%, respectively, for the similar period in 2018.

The following table sets forth changes in net income:


(dollars in thousands)	Nine months ended
(dollars in thousands)	September 30, 2019 to September 30, 2018
Net income nine months ended September 30, 2018	$	10,352
Change due to:
Net interest income		1,363
Provision for loan losses		300
Net gains on sales		130
Other income		(513	)
Salaries and employee benefits		(470	)
Occupancy, furniture and equipment		(121	)
Data processing and related operations		(373	)
Foreclosed real estate		31
All other expenses		(118	)
Income tax expense		38

Net income nine months ended September 30, 2019	$	10,619

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the nine months ended September 30, 2019 totaled $29,546,000 which was $1,334,000 higher than the comparable period in 2018. The increase in net interest income was due primarily to a $4,469,000 increase in interest income (fte) on loans.Tax-equivalent interest income was negatively impacted by a $457,000 decrease in securities income. The fte net interest spread and net interest margin were 3.26% and 3.51%, respectively, for the nine months ended September 30, 2019 compared to 3.37% and 3.52%, respectively, for the similar period in 2018. The decrease in the net interest spread and margin reflects the increased cost of funding.

Interest income (fte) totaled $36,072,000 with a yield on average earning assets of 4.28%, compared to $32,053,000 and 4.00% for the 2018 period. Average loans increased $87.6 million over the comparable period of last year, while average securities decreased $30.9 million as portfolio runoff was utilized to fund loan growth. Average earning assets totaled $1.209 billion for the nine months ended September 30, 2019, an increase of $67.5 million over the average for the similar period in 2018.

Interest expense for the nine months ended September 30, 2019 totaled $6,526,000 at an average cost of 1.02% compared to $3,841,000 and 0.63% for the similar period in 2018. The increase in average cost reflects the rising interest rates on borrowed funds and certificates of deposit. The average cost of time deposits, which is the most significant component of funding, increased to 1.79% from 1.17% for the similar period in the prior year.

Provision for Loan Losses

The Company’s provision for loan losses for the nine months ended September 30, 2019 was $1,050,000 compared to $1,350,000 for the nine months ended September 30, 2018. The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level. Net charge-offs were $1,097,000 for the nine months ended September 30, 2019 compared to $704,000 for the similar period in 2018. The increase in charge-offs was due primarily to two commercial credits which were written down by $786,000 in the aggregate during the 2019 period. At September 30, 2019, the allowance for loan losses represented 0.93% of loans receivable and 604% ofnon-performing loans.

Other Income

Other income totaled $5,083,000 for the nine months ended September 30, 2019 compared to $5,466,000 for the similar period in 2018. The decrease was due primarily to a $218,000 decrease in earnings and proceeds on bank-owned life insurance policies and a $358,000 decrease in other income due to the settlement of litigation in the 2018 period. Gains from the sales of loans and securities increased $130,000 over the first nine months of 2018, while all other items included in other income increased $63,000, net.

Other Expenses

Other expenses for the nine months ended September 30, 2019 totaled $20,224,000 which was $1,051,000 higher than the same period of 2018 due primarily to a $470,000 increase in salaries and benefits expenses and a $373,000 increase in data processing costs. All other operating expenses increased $208,000, net. The efficiency ratio for the first nine months of 2019 was 58.4% compared to 56.9% during the same period of 2018.

Income Tax Expense

Income tax expense ~~and the~~totaled $1,963,000 for an effective tax rate ~~reflects~~of 15.6% for the period ended September 30, 2019 compared to $2,001,000 for an ~~increase~~effective tax rate of 16.2% for the similar period in ~~the level oftax-exempt~~ ~~income.~~2018.

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,~~September 30, 2019, the level of net interest income at risk in a rising or declining 200 basis point change in interest rates was within the Company’s policy limits. The Company’s policy allows for a decline of no more than 10% of net interest income for a ± 200 basis point shift in interest rates.

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 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,~~September 30, 2019, the Company had a positive90-day interest sensitivity gap of ~~$19.8~~$16.1 million or ~~1.6%~~1.3% of total assets, compared to the $18.7 million negative gap, or (1.6)% of total assets, as of December 31, 2018. Rate-sensitive assets repricing within 90 days increased ~~$5.6~~$22.8 million due primarily to a ~~$6.0~~$16.3 million increase in ~~overnight liquidity.~~loans and a $5.9 million increase in securities. Rate-sensitive liabilities repricing within 90 days decreased ~~$32.8~~$12.0 million since year end due to a ~~$17.4~~$9.9 million decrease in borrowings and a $3.3 million decrease in time deposits ~~repricing and a $16.1 million decrease in borrowings.~~repricing. 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 in the90-day time frame could increase faster than the cost of interest-bearing ~~liabilities in the90-day~~ ~~time frame.~~liabilities. 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.

Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table below. The balances allocated to the respective time periods represent an estimate of the total outstanding balance that has the potential to migrate through withdrawal or transfer to time deposits, thereby impacting the interest-sensitivity position of the Company. The estimates were derived from an independently preparednon-maturity deposit study for Wayne Bank which addressed the various deposit types and their pricing sensitivity to movements in market interest rates. The process involved analyzing correlations between product rates and market rates over aten-year period. The Company believes the study provides pertinent data to support the assumptions used in modelingnon-maturity deposits.

~~March 31,~~September 30, 2019

Rate Sensitivity Table

(dollars in thousands)


	3 Months			3-12 Months			1 to 3 Years			Over 3 Years			Total		3 Months			3-12 Months			1 to 3 Years			Over 3 Years			Total
Federal funds sold and interest-bearing deposits	$	6,291		$	—		$	—		$	—		$	6,291	$	848		$	—		$	—		$	—		$	848
Securities		6,326			22,658			55,897			155,740			240,621		12,710			35,716			59,137			103,636			211,199
Loans Receivable		135,399			161,234			281,276			286,289			864,198		151,604			166,461			296,280			291,237			905,582

Total RSA	$	148,016		$	183,892		$	337,173		$	442,029		$	1,111,110	$	165,162		$	202,177		$	355,417		$	394,873		$	1,117,629

Non-maturity interest-bearing deposits	$	60,251		$	59,672		$	157,749		$	126,684		$	404,356	$	60,709		$	59,128		$	157,532		$	124,104		$	401,473
Time Deposits		56,233			171,053			100,748			35,219			363,253		70,416			135,891			99,088			36,354			341,749
Borrowings		11,781			35,577			32,382			6,039			85,779		17,961			29,028			38,056			3,639			88,684

Total RSL	$	128,265		$	266,302		$	290,879		$	167,942		$	853,388	$	149,086		$	224,047		$	294,676		$	164,097		$	831,906


Interest Sensitivity Gap	$	19,751		$	(82,410	)	$	46,294		$	274,087		$	257,722	$	16,076		$	(21,870	)	$	60,741		$	230,776		$	285,723
Cumulative Gap		19,751			(62,659	)		(16,365	)		257,722					16,076			(5,794	)		54,947			285,723
RSA/RSL-cumulative		115.4	%		84.1	%		97.6	%		130.2	%				110.8	%		98.4	%		108.2	%		134.3	%

December 31, 2018

Interest Sensitivity Gap	$	(18,749	)	$	(60,791	)	$	18,852		$	303,804		$	243,116	$	(18,749	)	$	(60,791	)	$	18,852		$	303,804		$	243,116
Cumulative Gap		(18,749	)		(79,540	)		(60,688	)		243,116					(18,749	)		(79,540	)		(60,688	)		243,116
RSA/RSL-cumulative		88.4	%		79.8	%		91.1	%		128.6	%				88.4	%		79.8	%		91.1	%		128.6	%

Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There have been no material changes in the risk factors affecting the Company that were identified in Item 1A of Part 1 of the Company’s Form10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Sales and Use of Proceeds

(a)Unregistered Sales of Equity Securities. Not Applicable.

(b)Use of Proceeds. Not Applicable

(c)Issuer Purchases of Equity Securities. Set forth below is information regarding the Company’s stock repurchases during the quarter ended ~~March 31,~~September 30, 2019.


	Issuer Purchases of Equity Securities
	Total Number of Shares (or Units) Purchased		Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of of Publicly Announced Plans or Programs *		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
~~January~~July 1 – 31, 2019		—	$	—		—		129,500
~~February~~August 1 – ~~28,~~31, 2019		—		—		—		129,500
~~March~~September 1 – ~~31,~~30, 2019		—		—		—		129,500

Total		—	$	—		—		129,500

On March 19, 2008, the Registrant announced its intention to repurchase up to 5% of its outstanding common stock (approximately 226,050 split-adjusted shares) in the open market. On November 10, 2011, the Registrant announced that the Company had increased the number of shares which may be repurchased under its open-market program to 5% of its currently outstanding shares, or approximately 270,600 split-adjusted shares. There is no expiration date for this plan.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits


No.		Description

3(i)		Amended and Restated Articles of Incorporation of Norwood Financial Corp.⁽¹⁾

3(ii)		Bylaws of Norwood Financial Corp.⁽²⁾

4.0		Specimen Stock Certificate of Norwood Financial Corp.⁽¹⁾⁽³⁾

10.1		Employment Agreement with Lewis J. Critelli⁽³⁾⁽⁴⁾

10.2		Change in Control Severance Agreement with William S. Lance⁽³⁾⁽⁴⁾

10.3		Change in Control Severance Agreement with Robert J. Mancuso⁽⁴⁾⁽⁵⁾

10.4		Salary Continuation Agreement between the Bank and William W. Davis, Jr.⁽⁵⁾⁽⁶⁾

10.5		Amended and Restated Salary Continuation Agreement, dated September 1, 2017, between the Bank and Lewis J. Critelli⁽⁶⁾⁽⁷⁾

10.6		Salary Continuation Agreement between the Bank and John H. Sanders⁽⁷⁾⁽⁸⁾

10.7		2006 Stock Option Plan⁽⁸⁾⁽⁹⁾

10.8		First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr.^(9)(10)

10.9		First and Second Amendments to Salary Continuation Agreement with John H. Sanders^(9)(10)

10.10		Change In Control Severance Agreement with James F. Burke^(10)(11)

10.11		2014 Equity Incentive Plan, as amended^(11)(12)

10.12		Addendum to Change in Control Severance Agreement with William S. Lance^(12)(13)


10.13		Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and William S. Lance⁽⁶⁾⁽⁷⁾

10.14		Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and Robert J. Mancuso⁽⁶⁾⁽⁷⁾

10.15		Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and James F. Burke⁽⁶⁾⁽⁷⁾

10.16		Change-In-Control Severance Agreement, dated January 16, 2018, by and among Norwood Financial Corp., Wayne Bank, and John F. Carmody^(13)(14)

10.17		Addendum, dated January 16, 2018, toChange-In-Control Severance Agreement, dated March 2, 2010, by and among Norwood Financial Corp., Wayne Bank and William S. Lance^(13)(14)

10.18		Addendum, dated January 16, 2018, toChange-In-Control Severance Agreement, dated January 3, 2013, by and among Norwood Financial Corp., Wayne Bank and Robert J. Mancuso^(13)(14)

31.1		Rule13a-14(a)/15d-14(a) Certification of CEO

31.2		Rule13a-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		Interactive Data Files consisting of the following financial information from the Company’s Quarterly Report onForm 10-Q for the quarter ended ~~March 31,~~September 30, 2019 formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

~~(footnotes on next page)~~

⁽¹⁾	Incorporated by reference into this document from Exhibit 3(i) to the Registrant’s Form10-Q filed with the Commission on May 9, 2019

(2)	Incorporated by reference into this document from the identically numbered exhibit to the Registrant’s Form10-Q filed with the Commission on August 8, 2014

(3)	Incorporated herein by reference into this document from the identically numbered Exhibits to the Registrant’s Form 10, Registration Statement initially filed in paper with the Commission on April 29, 1996, RegistrationNo. 0-28364

⁽²⁾	~~Incorporated by reference into this document from the identically numbered exhibit to the Registrant’s Form10-Q~~ ~~filed with the Commission on August 8, 2014.~~

⁽³⁾(4)

Incorporated by reference into this document from the identically numbered exhibits to the Registrant’s Form10-K filed with the Commission on March 15, 2010.

⁽⁴⁾(5)

Incorporated by reference into this document from Exhibit 10.4 to the Registrant’s Form10-K filed with the Commission on March 14, 2013, FileNo. 0-28364.

⁽⁵⁾(6)

Incorporated by reference to Exhibit 10.6 to the Registrant’s Form10-K filed with the Commission on March 23, 2000.

⁽⁶⁾(7)

Incorporated by reference from the exhibits to the Current Report on Form8-K filed with the Commission on September 5, 2017.

⁽⁷⁾(8)

Incorporated herein by reference to Exhibit 10.11 to the Registrant’s Form10-K filed with the Commission on March 22, 2004.

⁽⁸⁾(9)

Incorporated by reference to this document from Exhibit 4.1 to Registrant’s Registration Statement on FormS-8 (FileNo. 333-134831) filed with the Commission on June 8, 2006.

⁽⁹⁾(10)

Incorporated herein by reference from ~~Exhibits~~Exhibit 10.1 and 10.5 to the Registrant’s Current Report on Form8-K filed on April 4, 2006.

⁽¹⁰⁾(11)

Incorporated by reference from Exhibit 10.13 to the Registrant’s Form10-Q filed with the Commission on November 7, 2013.

⁽¹¹⁾(12)

Incorporated by reference to Exhibit 10.1 to Post-Effective No. 1 to the Registrant’s Registration Statement on FormS-8 (FileNo. 333-195643) filed with the Commission on May 4, 2018.

⁽¹²⁾(13)

Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form8-K filed on February 18, 2015.

⁽¹³⁾(14)

Incorporated by reference into this document from the exhibits to the Registrant’s Current Report on Form8-K filed with the Commission on January 16, ~~2018~~2018.

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 9,~~November 8, 2019	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: ~~May 9,~~November 8, 2019	By:	/s/ William S. Lance
		William S. Lance
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

4754


	Fair Value Measurement Using Reporting Date
(In thousands) Description	Total		Level 1		Level 2		Level 3
March 31, 2019
Impaired Loans	$	451	$	—	$	—	$	451
Foreclosed Real Estate Owned		1,792		—		—		1,792

December 31, 2018
Impaired Loans	$	1,319	$	—	$	—	$	1,319
Foreclosed Real Estate Owned		1,115		—		—		1,115

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company