f10q_033112.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2012
OR
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ________ to ________
Commission file number 0-28366
Norwood Financial Corp.
|
(Exact name of Registrant as specified in its charter)
|
Pennsylvania
|
|
23-2828306
|
(State or other jurisdiction of
Incorporation or organization)
|
|
(I.R.S. employer identification no.)
|
717 Main Street, Honesdale, Pennsylvania
|
|
18431
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
|
(570) 253-1455
|
(Registrant’s telephone number, including area code)
|
NA
|
(Former name, former address and former fiscal year, if changed since last report)
|
Indicate by check (x) whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer x
|
Non-accelerated filer o
|
Smaller reporting company o
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): [ ] Yes[X] No
Class
|
|
Outstanding as of May 1, 2012
|
|
Common stock, par value $0.10 per share
|
|
3,274,457 |
|
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012
|
|
Page
Number
|
PART I -
|
CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD
FINANCIAL CORP.
|
|
|
|
|
Item 1.
|
Financial Statements
|
3
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
29
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
40
|
Item 4.
|
Controls and Procedures
|
41
|
PART II -
|
OTHER INFORMATION
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
42
|
Item 1A.
|
Risk Factors
|
42
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
42
|
Item 3.
|
Defaults upon Senior Securities
|
42
|
Item 4.
|
Mine Safety Disclosures
|
42
|
Item 5.
|
Other Information
|
42
|
Item 6.
|
Exhibits
|
42
|
|
|
|
Signatures
|
|
44
|
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, |
|
|
December 31, |
|
|
|
2012
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
14,250 |
|
|
$ |
8,974 |
|
Interest bearing deposits with banks
|
|
|
5,991 |
|
|
|
12,449 |
|
Cash and cash equivalents
|
|
|
20,241 |
|
|
|
21,423 |
|
|
|
|
|
|
|
|
|
|
Securities available for sale, at fair value
|
|
|
148,489 |
|
|
|
150,263 |
|
Securities held to maturity, fair value 2012:
$175, 2011: $177
|
|
|
171 |
|
|
|
171 |
|
Loans receivable (net of unearned income)
|
|
|
479,082 |
|
|
|
457,907 |
|
Less: Allowance for loan losses
|
|
|
5,618 |
|
|
|
5,458 |
|
Net loans receivable
|
|
|
473,464 |
|
|
|
452,449 |
|
Investment in Federal Home Loan Bank Stock, at cost
|
|
|
3,413 |
|
|
|
3,593 |
|
Bank premises and equipment, net
|
|
|
7,468 |
|
|
|
7,479 |
|
Bank owned life insurance
|
|
|
12,003 |
|
|
|
11,887 |
|
Accrued interest receivable
|
|
|
2,690 |
|
|
|
2,468 |
|
Foreclosed real estate owned
|
|
|
1,143 |
|
|
|
2,910 |
|
Goodwill
|
|
|
9,715 |
|
|
|
9,715 |
|
Other intangibles
|
|
|
760 |
|
|
|
800 |
|
Other assets
|
|
|
5,972 |
|
|
|
5,656 |
|
TOTAL ASSETS
|
|
$ |
685,529 |
|
|
$ |
668,814 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$ |
78,339 |
|
|
$ |
71,959 |
|
Interest-bearing
|
|
|
467,853 |
|
|
|
453,808 |
|
Total deposits
|
|
|
546,192 |
|
|
|
525,767 |
|
Short-term borrowings
|
|
|
15,854 |
|
|
|
21,794 |
|
Other borrowings
|
|
|
27,625 |
|
|
|
27,670 |
|
Accrued interest payable
|
|
|
1,333 |
|
|
|
1,321 |
|
Other liabilities
|
|
|
5,664 |
|
|
|
4,201 |
|
TOTAL LIABILITIES
|
|
|
596,668 |
|
|
|
580,753 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value per share, authorized
10,000,000; shares issued 2012: 3,371,866 shares,
2011: 3,371,866 shares
|
|
|
337 |
|
|
|
337 |
|
Surplus
|
|
|
24,686 |
|
|
|
24,660 |
|
Retained earnings
|
|
|
63,513 |
|
|
|
62,308 |
|
Treasury stock at cost: 2012: 97,392 shares,
2011: 87,370 shares
|
|
|
(2,831 |
) |
|
|
(2,559 |
) |
Accumulated other comprehensive income
|
|
|
3,156 |
|
|
|
3,315 |
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
88,861 |
|
|
|
88,061 |
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
$ |
685,529 |
|
|
$ |
668,814 |
|
See accompanying notes to the unaudited consolidated financial statements.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
|
|
Three Months Ended |
|
|
|
March 31, |
|
INTEREST INCOME
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
Loans receivable, including fees
|
|
$ |
6,373 |
|
|
$ |
4,928 |
|
Securities
|
|
|
1,026 |
|
|
|
1,090 |
|
Other
|
|
|
4 |
|
|
|
8 |
|
Total interest income
|
|
|
7,403 |
|
|
|
6,026 |
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
961 |
|
|
|
885 |
|
Short-term borrowings
|
|
|
11 |
|
|
|
24 |
|
Other borrowings
|
|
|
244 |
|
|
|
336 |
|
Total interest expense
|
|
|
1,216 |
|
|
|
1,245 |
|
NET INTEREST INCOME
|
|
|
6,187 |
|
|
|
4,781 |
|
PROVISION FOR LOAN LOSSES
|
|
|
350 |
|
|
|
220 |
|
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
|
|
|
5,837 |
|
|
|
4,561 |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
554 |
|
|
|
549 |
|
Income from fiduciary activities
|
|
|
98 |
|
|
|
113 |
|
Net realized gains on sales of securities
|
|
|
402 |
|
|
|
212 |
|
Net gains on sale of loans
|
|
|
5 |
|
|
|
143 |
|
Other
|
|
|
232 |
|
|
|
191 |
|
Total other income
|
|
|
1,291 |
|
|
|
1,208 |
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,151 |
|
|
|
1,701 |
|
Occupancy, furniture & equipment, net
|
|
|
487 |
|
|
|
398 |
|
Data processing related
|
|
|
232 |
|
|
|
215 |
|
Taxes, other than income
|
|
|
152 |
|
|
|
129 |
|
Professional fees
|
|
|
209 |
|
|
|
134 |
|
Merger related expenses
|
|
|
18 |
|
|
|
267 |
|
Federal Deposit Insurance Corporation insurance assessment
|
|
|
99 |
|
|
|
120 |
|
Foreclosed real estate owned
|
|
|
122 |
|
|
|
19 |
|
Other
|
|
|
677 |
|
|
|
551 |
|
Total other expenses
|
|
|
4,147 |
|
|
|
3,534 |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
2,981 |
|
|
|
2,235 |
|
INCOME TAX EXPENSE
|
|
|
795 |
|
|
|
575 |
|
NET INCOME
|
|
$ |
2,186 |
|
|
$ |
1,660 |
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$ |
.67 |
|
|
$ |
.60 |
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$ |
.67 |
|
|
$ |
.60 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
NORWOOD FINANCIAL CORP
Consolidated Statement of Comprehensive Income (unaudited)
(dollars in thousands)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2012
|
|
|
March 31, 2011
|
|
Net income
|
|
$ |
2,186 |
|
|
$ |
1,660 |
|
Other Comprehensive income:
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
Unrealized holding gains
|
|
|
154 |
|
|
|
466 |
|
Tax effect
|
|
|
(48 |
) |
|
|
(158 |
) |
Reclassification of gains recognized in net income
|
|
|
(402 |
) |
|
|
(212 |
) |
Tax effect
|
|
|
137 |
|
|
|
72 |
|
Net of tax amount
|
|
|
(159 |
) |
|
|
168 |
|
Comprehensive Income
|
|
$ |
2,027 |
|
|
$ |
1,828 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
NORWOOD FINANCIAL CORP.
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
Three Months Ended March 31, 2012
(dollars in thousands, except share and per share data)
|
|
Common Stock
|
|
|
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Total
|
|
Balance December 31, 2011
|
|
|
3,371,866 |
|
|
$ |
337 |
|
|
$ |
24,660 |
|
|
$ |
62,308 |
|
|
|
87,370 |
|
|
$ |
(2,559 |
) |
|
$ |
3,315 |
|
|
$ |
88,061 |
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,186 |
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159 |
) |
|
|
(159 |
) |
Cash dividends declared $.30
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(981 |
) |
Acquisition of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,647 |
|
|
|
(320 |
) |
|
|
|
|
|
|
(320 |
) |
Compensation expense related
to stock options
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(1,625 |
) |
|
|
48 |
|
|
|
|
|
|
|
39 |
|
Tax benefit on stock options
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Balance, March 31, 2012
|
|
|
3,371,866 |
|
|
$ |
337 |
|
|
$ |
24,686 |
|
|
$ |
63,513 |
|
|
|
97,392 |
|
|
$ |
(2,831 |
) |
|
$ |
3,156 |
|
|
$ |
88,861 |
|
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, |
|
|
|
2012
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net Income
|
|
$ |
2,186 |
|
|
$ |
1,660 |
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
350 |
|
|
|
220 |
|
Depreciation
|
|
|
141 |
|
|
|
110 |
|
Amortization of intangible assets
|
|
|
40 |
|
|
|
13 |
|
Deferred income taxes
|
|
|
52 |
|
|
|
(84 |
) |
Net amortization of securities premiums and discounts
|
|
|
296 |
|
|
|
179 |
|
Net realized gain on sales of securities
|
|
|
(402 |
) |
|
|
(212 |
) |
Net increase in value of life insurance
|
|
|
(132 |
) |
|
|
(84 |
) |
Loss on sale of bank premises and equipment and foreclosed real estate
|
|
|
32 |
|
|
|
- |
|
Net gain on sale of mortgage loans
|
|
|
(5 |
) |
|
|
(143 |
) |
Mortgage loans originated for sale
|
|
|
(123 |
) |
|
|
(4,692 |
) |
Proceeds from sale of mortgage loans originated for sale
|
|
|
128 |
|
|
|
4,835 |
|
Compensation expense related to stock options
|
|
|
33 |
|
|
|
41 |
|
Increase in accrued interest receivable and other assets
|
|
|
(495 |
) |
|
|
(615 |
) |
Increase in accrued interest payable and other liabilities
|
|
|
(456 |
) |
|
|
635 |
|
Net cash provided by operating activities
|
|
|
1,645 |
|
|
|
1,863 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
Proceeds from sales
|
|
|
10,633 |
|
|
|
6,187 |
|
Proceeds from maturities and principal reductions on mortgage-backed securities
|
|
|
6,738 |
|
|
|
7,113 |
|
Purchases
|
|
|
(13,804 |
) |
|
|
(10,302 |
) |
Redemption of FHLB stock
|
|
|
180 |
|
|
|
168 |
|
Net (increase) decrease in loans
|
|
|
(21,692 |
) |
|
|
6,467 |
|
Purchase of bank premises and equipment
|
|
|
(130 |
) |
|
|
(4 |
) |
Proceeds from sale of bank premises and equipment and foreclosed real estate
|
|
|
2,071 |
|
|
|
- |
|
Net cash (used in) provided by investing activities
|
|
|
(16,004 |
) |
|
|
9,629 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
20,425 |
|
|
|
3,255 |
|
Net decrease in short-term borrowings
|
|
|
(5,940 |
) |
|
|
(7,844 |
) |
Repayments of other borrowings
|
|
|
(45 |
) |
|
|
(3,000 |
) |
Stock options exercised
|
|
|
39 |
|
|
|
- |
|
Tax benefit of stock options exercised
|
|
|
2 |
|
|
|
- |
|
Acquisition of treasury stock
|
|
|
(320 |
) |
|
|
(191 |
) |
Cash dividends paid
|
|
|
(984 |
) |
|
|
(803 |
) |
Net cash provided by (used in) financing activities
|
|
|
13,177 |
|
|
|
(8,583 |
) |
Increase (decrease) in cash and cash equivalents
|
|
|
(1,182 |
) |
|
|
2,909 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
21,423 |
|
|
|
16,625 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
20,241 |
|
|
$ |
19,534 |
|
See accompanying notes to the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
|
|
Three Months Ended
March 31, |
|
|
|
2012
|
|
|
2011
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
Interest paid to depositors
|
|
$ |
1,204 |
|
|
$ |
1,440 |
|
Income taxes paid, net of refunds
|
|
|
197 |
|
|
|
3 |
|
Supplemental Schedule of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
Investment purchases
|
|
|
1,934 |
|
|
|
- |
|
Transfers of loans to foreclosed real estate and repossession of other assets
|
|
|
336 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
Notes to the Unaudited Consolidated Financial Statements
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., Norwood Settlement Services, LLC, and WTRO Properties. All significant intercompany transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the financial position and results of operations of the Company. The operating results for the three month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any other future interim period.
These statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2011.
2. Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
The following table sets forth the weighted average shares outstanding used in the computations of basic and diluted earnings per share:
(in thousands)
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2012
|
|
|
2011
|
|
Basic EPS weighted average shares outstanding
|
|
|
3,283 |
|
|
|
2,767 |
|
Dilutive effect of stock options
|
|
|
2 |
|
|
|
3 |
|
Diluted EPS weighted average shares outstanding
|
|
|
3,285 |
|
|
|
2,770 |
|
|
|
|
|
|
|
|
|
|
Stock options which had no intrinsic value, because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 173,775 and 163,150 as of March 31, 2012 and 2011, respectively, based upon the closing price of Norwood common stock of $26.50 and $27.25 per share on March 31, 2012 and 2011, respectively.
3. Stock-Based Compensation
The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the annual meeting on April 25, 2006 and the Company awarded 47,700 options in 2006, 22,000 options in 2007,
24,000 options in 2008, 27,000 options in 2009, 28,000 options in 2010 and 29,000 in 2011, all of which have a twelve month vesting period. As of March 31, 2012, there was $98,000 of total unrecognized compensation cost related to non-vested options granted in 2011 under the plan, which will be fully amortized by December 31, 2012.
A summary of stock options from all plans, adjusted for stock dividends declared, is shown below.
|
Options
|
|
Weighted
Average
Exercise Price
Per Share
|
Weighted Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
($000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2012
|
209,914
|
|
$
|
28.43
|
|
6.3
|
Yrs.
|
|
$
|
113
|
|
Granted
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised
|
(1,625
|
) |
|
23.95
|
|
1.7
|
Yrs.
|
|
|
-
|
|
Forfeited
|
(12,225
|
) |
|
29.65
|
|
5.4
|
Yrs.
|
|
|
|
|
Outstanding at March 31, 2012
|
196,064
|
|
$
|
26.39
|
|
6.1
|
Yrs.
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2012
|
167,064
|
|
$
|
28.55
|
|
4.6
|
Yrs.
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 price was $26.50 as of March 31, 2012 and $27.47 as of December 31, 2011.
4. Off-Balance Sheet Financial Instruments and Guarantees
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
A summary of the Bank’s financial instrument commitments is as follows:
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Unfunded availability under loan commitments
|
|
$ |
42,538 |
|
|
$ |
23,466 |
|
Unfunded commitments under lines of credit
|
|
|
41,865 |
|
|
|
29,809 |
|
Standby letters of credit
|
|
|
11,557 |
|
|
|
3,636 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
95,960 |
|
|
$ |
56,911 |
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.
The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank, generally, holds collateral and/or personal guarantees supporting these commitments. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of March 31, 2012 for guarantees under standby letters of credit issued is not material.
5. Securities
The amortized cost and fair value of securities were as follows:
|
|
March 31, 2012
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(In Thousands)
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$ |
9,000 |
|
|
$ |
16 |
|
|
$ |
- |
|
|
$ |
9,016 |
|
States and political subdivisions
|
|
|
51,667 |
|
|
|
2,439 |
|
|
|
(12 |
) |
|
|
54,094 |
|
Corporate obligations
|
|
|
9,150 |
|
|
|
234 |
|
|
|
- |
|
|
|
9,384 |
|
Mortgage-backed securities-government sponsored entities
|
|
|
73,700 |
|
|
|
2,100 |
|
|
|
(13 |
) |
|
|
75,787 |
|
|
|
|
143,517 |
|
|
|
4,789 |
|
|
|
(25 |
) |
|
|
148,281 |
|
Equity securities-financial services
|
|
|
189 |
|
|
|
20 |
|
|
|
(1 |
) |
|
|
208 |
|
|
|
$ |
143,706 |
|
|
$ |
4,809 |
|
|
$ |
(26 |
) |
|
$ |
148,489 |
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$ |
171 |
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(In Thousands)
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$ |
13,268 |
|
|
$ |
130 |
|
|
$ |
- |
|
|
$ |
13,398 |
|
States and political subdivisions
|
|
|
54,106 |
|
|
|
2,640 |
|
|
|
- |
|
|
|
56,746 |
|
Corporate obligations
|
|
|
8,733 |
|
|
|
130 |
|
|
|
(54 |
) |
|
|
8,809 |
|
Mortgage-backed securities-government sponsored entities
|
|
|
68,886 |
|
|
|
2,081 |
|
|
|
(2 |
) |
|
|
70,965 |
|
|
|
|
144,993 |
|
|
|
4,981 |
|
|
|
(56 |
) |
|
|
149,918 |
|
Equity securities-financial services
|
|
|
239 |
|
|
|
109 |
|
|
|
(3 |
) |
|
|
345 |
|
|
|
$ |
145,232 |
|
|
$ |
5,090 |
|
|
$ |
(59 |
) |
|
$ |
150,263 |
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions
|
|
$ |
171 |
|
|
$ |
6 |
|
|
$ |
- |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2012
|
|
|
|
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
|
|
$ |
1,082 |
|
|
$ |
(12 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,082 |
|
|
$ |
(12 |
) |
Mortgage-backed securities-government sponsored agencies
|
|
|
6,627 |
|
|
|
(13 |
) |
|
|
- |
|
|
|
- |
|
|
|
6,627 |
|
|
|
(13 |
) |
Equity securities-financial services
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
(1 |
) |
|
|
15 |
|
|
|
(1 |
) |
|
|
$ |
7,709 |
|
|
$ |
(25 |
) |
|
$ |
15 |
|
|
$ |
(1 |
) |
|
$ |
7,724 |
|
|
$ |
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
Corporate obligations
|
|
$ |
4,152 |
|
|
$ |
(54 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,152 |
|
|
$ |
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-government sponsored agencies
|
|
|
2,495 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
2,495 |
|
|
|
(2 |
) |
Equity securities-financial services
|
|
|
34 |
|
|
|
(2 |
) |
|
|
15 |
|
|
|
(1 |
) |
|
|
49 |
|
|
|
(3 |
) |
|
|
$ |
6,681 |
|
|
$ |
(58 |
) |
|
$ |
15 |
|
|
$ |
(1 |
) |
|
$ |
6,696 |
|
|
$ |
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2012, the Company has 6 debt securities in an unrealized loss position in the less than twelve months category and no debt securities in the twelve months or more category. In Management’s opinion the unrealized losses less than twelve months principally reflect changes in interest rates subsequent to the acquisition of specific securities. The Company holds a small amount of equity securities in other financial institutions. The value of these equity securities has been impacted by the overall weakness in the financial sector, one of which has been in a loss position for greater than one year. Management believes that the other unrealized loss represents temporary impairment of the security as the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis.
The amortized cost and fair value of debt securities as of March 31, 2012 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 |
|
|
Held to Maturity |
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$ |
1,471 |
|
|
$ |
1,474 |
|
|
$ |
- |
|
|
$ |
- |
|
Due after one year through five years
|
|
|
17,753 |
|
|
|
18,028 |
|
|
|
171 |
|
|
|
175 |
|
Due after five years through ten years
|
|
|
18,944 |
|
|
|
19,873 |
|
|
|
- |
|
|
|
- |
|
Due after ten years
|
|
|
31,649 |
|
|
|
33,119 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-government sponsored agencies
|
|
|
73,700 |
|
|
|
75,787 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
143,517 |
|
|
$ |
148,281 |
|
|
$ |
171 |
|
|
$ |
175 |
|
Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
Gross realized gains
|
|
$ |
402 |
|
|
$ |
212 |
|
Gross realized losses
|
|
___-
|
|
|
___-
|
|
Net realized gain
|
|
$ |
402 |
|
|
$ |
212 |
|
Proceeds from sales of securities
|
|
$ |
10,633 |
|
|
$ |
6,187 |
|
6. 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:
Types of loans
(dollars in thousands)
|
|
March 31, 2012 |
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate-Residential
|
|
$ |
148,983 |
|
|
|
31.1 |
% |
|
$ |
148,148 |
|
|
|
32.3 |
% |
Commercial
|
|
|
273,922 |
|
|
|
57.1 |
|
|
|
262,476 |
|
|
|
57.3 |
|
Construction
|
|
|
14,562 |
|
|
|
3.0 |
|
|
|
11,087 |
|
|
|
2.4 |
|
Commercial, financial and agricultural
|
|
|
28,506 |
|
|
|
5.9 |
|
|
|
22,684 |
|
|
|
5.0 |
|
Consumer loans to individuals
|
|
|
13,669 |
|
|
|
2.9 |
|
|
|
13,934 |
|
|
|
3.0 |
|
Total loans
|
|
|
479,642 |
|
|
|
100.0 |
% |
|
|
458,329 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred fees (net)
|
|
|
(560 |
) |
|
|
|
|
|
|
(422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(5,618 |
) |
|
|
|
|
|
|
(5,458 |
) |
|
|
|
|
Net loans receivable
|
|
$ |
473,464 |
|
|
|
|
|
|
$ |
452,449 |
|
|
|
|
|
Changes in the accretable yield for purchased credit-impaired loans were as follows for the three months ended March 31, 2012 (in thousands):
Balance at beginning of period
|
|
$ |
171 |
|
Accretion
|
|
|
(24 |
) |
Reclassification and other
|
|
|
- |
|
Balance at end of period
|
|
$ |
147 |
|
|
|
|
|
|
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Acquired Loans with Specific
Evidence of Deterioration in Credit Quality
|
|
|
Acquired Loans with Specific
Evidence of Deterioration in Credit Quality
|
|
Outstanding Balance
|
|
$ |
1,392 |
|
|
$ |
1,412 |
|
Carrying Amount
|
|
|
1,244 |
|
|
|
1,246 |
|
There were no material increases or decreases in the expected cash flows of these loans between May 31, 2011 (the “acquisition date”) and March 31, 2012. There has been no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of May 31, 2011 as well as those acquired without specific evidence of deterioration in credit quality as of March 31, 2012. In addition, there has been no allowance for loan losses reversed.
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 probably 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 a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.
A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate may be removed from the TDR status after a period of performance.
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
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
Construction
|
|
|
|
Commercial
Loans
|
|
|
Consumer
Loans
|
|
|
Total |
|
March 31, 2012
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ |
- |
|
|
$ |
12,655 |
|
|
$ |
- |
|
|
$ |
385 |
|
|
$ |
- |
|
|
$ |
13,040 |
|
Loans acquired with deteriorated
credit quality
|
|
$ |
278 |
|
|
$ |
966 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,244 |
|
Collectively evaluated for impairment
|
|
$ |
148,705 |
|
|
$ |
260,301 |
|
|
$ |
14,562 |
|
|
$ |
28,121 |
|
|
$ |
13,669 |
|
|
$ |
465,358 |
|
Total Loans
|
|
$ |
148,983 |
|
|
$ |
273,922 |
|
|
$ |
14,562 |
|
|
$ |
28,506 |
|
|
$ |
13,669 |
|
|
$ |
479,642 |
|
|
|
Real Estate Loans
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
Construction
|
|
|
|
Commercial
Loans
|
|
|
Consumer
Loans
|
|
|
Total
|
|
December 31, 2011
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$ |
- |
|
|
$ |
11,786 |
|
|
$ |
- |
|
|
$ |
598 |
|
|
$ |
- |
|
|
$ |
12,384 |
|
Loans acquired with deteriorated
credit quality
|
|
$ |
343 |
|
|
$ |
903 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,246 |
|
Collectively evaluated for impairment
|
|
$ |
147,805 |
|
|
$ |
249,787 |
|
|
$ |
11,087 |
|
|
$ |
22,086 |
|
|
$ |
13,934 |
|
|
$ |
444,699 |
|
Total Loans
|
|
$ |
148,148 |
|
|
$ |
262,476 |
|
|
$ |
11,087 |
|
|
$ |
22,684 |
|
|
$ |
13,934 |
|
|
$ |
458,329 |
|
The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable. Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired.
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
March 31, 2012
With no related allowance recorded:
|
|
(In thousands) |
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
278 |
|
|
$ |
306 |
|
|
$ |
- |
|
|
$ |
296 |
|
|
$ |
1 |
|
Commercial
|
|
|
6,427 |
|
|
|
6,546 |
|
|
|
- |
|
|
|
6,353 |
|
|
|
22 |
|
Commercial Loans
|
|
|
385 |
|
|
|
385 |
|
|
|
- |
|
|
|
385 |
|
|
|
- |
|
Total
|
|
|
7,090 |
|
|
|
7,237 |
|
|
|
- |
|
|
|
7,034 |
|
|
|
23 |
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
7,194 |
|
|
|
7,194 |
|
|
|
1,073 |
|
|
|
6,844 |
|
|
|
53 |
|
Total
|
|
|
7,194 |
|
|
|
7,194 |
|
|
|
1,073 |
|
|
|
6,844 |
|
|
|
53 |
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
278 |
|
|
|
306 |
|
|
|
- |
|
|
|
296 |
|
|
|
1 |
|
Commercial
|
|
|
13,621 |
|
|
|
13,740 |
|
|
|
1,073 |
|
|
|
13,197 |
|
|
|
75 |
|
Commercial Loans
|
|
|
385 |
|
|
|
385 |
|
|
|
- |
|
|
|
385 |
|
|
|
- |
|
Total Impaired Loans
|
|
$ |
14,284 |
|
|
$ |
14,431 |
|
|
$ |
1,073 |
|
|
$ |
13,878 |
|
|
$ |
76 |
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
December 31, 2011
With no related allowance recorded:
|
|
(In thousands) |
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
343 |
|
|
$ |
385 |
|
|
$ |
- |
|
|
$ |
245 |
|
|
$ |
7 |
|
Commercial
|
|
|
5,866 |
|
|
|
5,995 |
|
|
|
- |
|
|
|
5,372 |
|
|
|
340 |
|
Commercial Loans
|
|
|
598 |
|
|
|
598 |
|
|
|
- |
|
|
|
496 |
|
|
|
10 |
|
Total
|
|
|
6,807 |
|
|
|
6,978 |
|
|
|
- |
|
|
|
6,113 |
|
|
|
357 |
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
6,823 |
|
|
|
6,823 |
|
|
|
1,231 |
|
|
|
9,670 |
|
|
|
204 |
|
Total
|
|
|
6,823 |
|
|
|
6,823 |
|
|
|
1,231 |
|
|
|
9,670 |
|
|
|
204 |
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
343 |
|
|
|
385 |
|
|
|
- |
|
|
|
245 |
|
|
|
7 |
|
Commercial
|
|
|
12,689 |
|
|
|
12,818 |
|
|
|
1,231 |
|
|
|
15,042 |
|
|
|
544 |
|
Commercial Loans
|
|
|
598 |
|
|
|
598 |
|
|
|
- |
|
|
|
496 |
|
|
|
10 |
|
Total Impaired Loans
|
|
$ |
13,630 |
|
|
$ |
13,801 |
|
|
$ |
1,231 |
|
|
$ |
15,783 |
|
|
$ |
561 |
|
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, 2012, troubled debt restructured loans totaled $7.2 million and resulted in specific reserves of $1.1 million. There were no defaults on restructured loans during the past twelve months. During 2012, there were no new loans identified as troubled debt restructurings. As of December 31, 2011, troubled debt restructured loans totaled $7.2 million and resulted in specific reserves of $1.2 million.
Management uses a seven point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first three 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 non performance, repossession, or death occurs to raise awareness of a possible credit event. The Bank’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 $500,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of March 31, 2012 and December 31, 2011 (in thousands):
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
$ |
248,086 |
|
|
$ |
10,960 |
|
|
$ |
14,876 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
273,922 |
|
Commercial loans
|
|
|
27,651 |
|
|
|
409 |
|
|
|
446 |
|
|
|
- |
|
|
|
- |
|
|
|
28,506 |
|
Total
|
|
$ |
275,737 |
|
|
$ |
11,369 |
|
|
$ |
15,322 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
302,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
$ |
237,407 |
|
|
$ |
11,009 |
|
|
$ |
14,060 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
262,476 |
|
Commercial loans
|
|
|
21,598 |
|
|
|
427 |
|
|
|
659 |
|
|
|
- |
|
|
|
- |
|
|
|
22,684 |
|
Total
|
|
$ |
259,005 |
|
|
$ |
11,436 |
|
|
$ |
14,719 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
285,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2012 and December 31, 2011 (in thousands):
March 31, 2012
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
Residential real estate loans
|
|
$ |
146,530 |
|
|
$ |
2,453 |
|
|
$ |
148,983 |
|
Construction
|
|
|
14,562 |
|
|
|
- |
|
|
|
14,562 |
|
Consumer loans
|
|
|
13,669 |
|
|
|
- |
|
|
|
13,669 |
|
Total
|
|
$ |
174,761 |
|
|
$ |
2,453 |
|
|
$ |
177,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Performing
|
|
|
Nonperforming
|
|
|
Total
|
|
Residential real estate loans
|
|
$ |
145,061 |
|
|
$ |
3,087 |
|
|
$ |
148,148 |
|
Construction
|
|
|
11,087 |
|
|
|
- |
|
|
|
11,087 |
|
Consumer loans
|
|
|
13,934 |
|
|
|
- |
|
|
|
13,934 |
|
Total
|
|
$ |
170,082 |
|
|
$ |
3,087 |
|
|
$ |
173,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2012 and December 31, 2011 (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, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
145,821 |
|
|
$ |
178 |
|
|
$ |
531 |
|
|
$ |
- |
|
|
$ |
2,453 |
|
|
$ |
3,162 |
|
|
$ |
148,983 |
|
Construction
|
|
|
14,556 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
14,562 |
|
Commercial
|
|
|
266,660 |
|
|
|
1,115 |
|
|
|
- |
|
|
|
418 |
|
|
|
5,729 |
|
|
|
7,262 |
|
|
|
273,922 |
|
Commercial loans
|
|
|
28,121 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
385 |
|
|
|
385 |
|
|
|
28,506 |
|
Consumer loans
|
|
|
13,620 |
|
|
|
48 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
49 |
|
|
|
13,669 |
|
Total
|
|
$ |
468,778 |
|
|
$ |
1,347 |
|
|
$ |
532 |
|
|
$ |
418 |
|
|
$ |
8,567 |
|
|
$ |
10,864 |
|
|
$ |
479,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$ |
143,550 |
|
|
$ |
160 |
|
|
$ |
1,351 |
|
|
$ |
- |
|
|
$ |
3,087 |
|
|
$ |
4,598 |
|
|
$ |
148,148 |
|
Construction
|
|
|
10,532 |
|
|
|
- |
|
|
|
555 |
|
|
|
- |
|
|
|
- |
|
|
|
555 |
|
|
|
11,087 |
|
Commercial
|
|
|
255,613 |
|
|
|
1,015 |
|
|
|
1,524 |
|
|
|
- |
|
|
|
4,324 |
|
|
|
6,863 |
|
|
|
262,476 |
|
Commercial loans
|
|
|
22,086 |
|
|
|
194 |
|
|
|
- |
|
|
|
- |
|
|
|
404 |
|
|
|
598 |
|
|
|
22,684 |
|
Consumer loans
|
|
|
13,835 |
|
|
|
89 |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
99 |
|
|
|
13,934 |
|
Total
|
|
$ |
445,616 |
|
|
$ |
1,458 |
|
|
$ |
3,440 |
|
|
$ |
- |
|
|
$ |
7,815 |
|
|
$ |
12,713 |
|
|
$ |
458,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the allowance for loan losses by the classes of the loan portfolio:
(In thousands)
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance, December 31, 2011
|
|
$ |
1,257 |
|
|
$ |
3,838 |
|
|
$ |
72 |
|
|
$ |
147 |
|
|
$ |
144 |
|
|
$ |
5,458 |
|
Charge Offs
|
|
|
(61 |
) |
|
|
(103 |
) |
|
|
- |
|
|
|
|
|
|
|
(32 |
) |
|
|
(196 |
) |
Recoveries
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
6 |
|
Provision Expense
|
|
|
2 |
|
|
|
272 |
|
|
|
3 |
|
|
|
44 |
|
|
|
29 |
|
|
|
350 |
|
Ending balance, March 31, 2012
|
|
$ |
1,199 |
|
|
|
4,007 |
|
|
|
75 |
|
|
|
191 |
|
|
|
146 |
|
|
|
5,618 |
|
Ending balance individually
evaluated for impairment
|
|
$ |
- |
|
|
|
1,073 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,073 |
|
Ending balance collectively
evaluated for impairment
|
|
$ |
1,199 |
|
|
|
2,934 |
|
|
|
75 |
|
|
|
191 |
|
|
|
146 |
|
|
|
4,545 |
|
(In thousands)
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Beginning balance, December 31, 2010
|
|
$ |
1,167 |
|
|
$ |
3,976 |
|
|
$ |
110 |
|
|
$ |
171 |
|
|
$ |
192 |
|
|
$ |
5,616 |
|
Charge Offs
|
|
|
(37 |
) |
|
|
(14 |
) |
|
|
- |
|
|
|
(2 |
) |
|
|
(22 |
) |
|
|
(75 |
) |
Recoveries
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
12 |
|
|
|
19 |
|
Provision Expense
|
|
|
(14 |
) |
|
|
124 |
|
|
|
1 |
|
|
|
139 |
|
|
|
(30 |
) |
|
|
220 |
|
Ending balance, March 31, 2011
|
|
$ |
1,118 |
|
|
|
4,086 |
|
|
|
111 |
|
|
|
313 |
|
|
|
152 |
|
|
|
5,780 |
|
Ending balance individually
evaluated for impairment
|
|
$ |
- |
|
|
|
2,153 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,153 |
|
Ending balance collectively
evaluated for impairment
|
|
$ |
1,118 |
|
|
|
1,933 |
|
|
|
111 |
|
|
|
313 |
|
|
|
152 |
|
|
|
3,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s primary business activity is with customers located in northeastern Pennsylvania. Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to honor their contracts is influenced by the region’s economy.
As of March 31, 2012, the Company considered its concentration of credit risk to be acceptable. The highest concentrations are in the hospitality lodging industry and builders/contractors with loans outstanding of $46.6 million, or 53.5% of capital, to the hospitality lodging industry and $13.3 million, or 18.7% of capital, to builders/contractors. There were no losses recognized on loans to the hospitality industry or to builders/contractors during the current period.
Gross realized gains and gross realized losses on sales of residential mortgage loans were $5,000 and $0 respectively, in the first three months of 2012 compared to $96,000 and $0, respectively, in the same period in 2011. The proceeds from the sales of residential mortgage loans totaled $129,000 and $4.7 million for the three months ended March 31, 2012 and 2011, respectively.
7. Fair Value Measurements
Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.
Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.
The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:
Securities:
The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments are generally based on available market evidence (Level 2). 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.
We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or market accounting or write-downs of individual assets.
Impaired loans (generally carried at fair value):
The Company measured 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 expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Foreclosed real estate owned (carried at fair value):
Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.
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, 2012 and December 31, 2011 are as follows:
|
Fair Value Measurement Using
|
|
Description
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(In thousands) |
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agencies
|
|
$ |
9,016 |
|
|
$ |
- |
|
|
$ |
9,016 |
|
|
$ |
- |
|
States and political subdivisions
|
|
|
54,094 |
|
|
|
- |
|
|
|
54,094 |
|
|
|
- |
|
Corporate obligations
|
|
|
9,384 |
|
|
|
- |
|
|
|
9,384 |
|
|
|
- |
|
Mortgage-backed securities-government sponsored agencies
|
|
|
75,787 |
|
|
|
- |
|
|
|
75,787 |
|
|
|
- |
|
Equity securities-financial services
|
|
|
208 |
|
|
|
208 |
|
|
|
- |
|
|
|
-
|
|
Total
|
|
$ |
148,489 |
|
|
$ |
208 |
|
|
$ |
148,281 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agencies
|
|
$ |
13,398 |
|
|
$ |
- |
|
|
$ |
13,398 |
|
|
$ |
- |
|
States and political subdivisions
|
|
|
56,746 |
|
|
|
- |
|
|
|
56,746 |
|
|
|
- |
|
Corporate obligations
|
|
|
8,809 |
|
|
|
- |
|
|
|
8,809 |
|
|
|
- |
|
Mortgage-backed securities-government sponsored agencies
|
|
|
70,965 |
|
|
|
- |
|
|
|
70,965 |
|
|
|
- |
|
Equity securities-financial services
|
|
|
345 |
|
|
|
345 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
150,263 |
|
|
$ |
345 |
|
|
$ |
149,918 |
|
|
$ |
- |
|
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, 2012 and December 31, 2011 are as follows:
|
|
|
|
|
Fair Value Measurement using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
March 31, 2012
|
|
|
|
Impaired Loans
|
|
$ |
13,211 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
13,211 |
|
Foreclosed Real Estate Owned
|
|
|
1,143 |
|
|
|
- |
|
|
|
- |
|
|
|
1,143 |
|
|
|
$ |
14,354 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
14,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$ |
12,399 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
12,399 |
|
Foreclosed Real Estate Owned
|
|
|
2,910 |
|
|
|
- |
|
|
|
- |
|
|
|
2,910 |
|
|
|
$ |
15,309 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,309 |
|
There were no assets measured at fair value on a recurring basis for which Norwood has utilized Level 3 inputs to determine fair value at March 31, 2012.
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Norwood has utilized Level 3 inputs to determine fair value:
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
(In thousands)
|
|
Fair Value
Estimate
|
|
Valuation
Techniques
|
Unobservable
Input
|
|
Range(Weighted
Average)
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$ |
13,211 |
|
Appraisal of
collateral(1)
|
Appraisal
adjustments(2)
|
|
|
0-20 |
% |
|
|
|
|
|
|
Liquidation
expenses(2)
|
|
|
20 |
% |
Foreclosed real estate owned
|
|
$ |
1,143 |
|
Appraisal of
collateral(1)(3)
|
|
|
|
|
|
(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.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.
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, 2012 and December 31, 2011.
Cash and cash equivalents (carried at cost):
The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.
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.
Investment in Federal Home Loan Bank stock (carried at cost):
The Company as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This restricted stock has no quoted market value and is carried at cost.
Bank Owned Life Insurance (carried at cost):
The fair value is equal to the cash surrender value of the Bank-owned life insurance.
Accrued interest receivable and payable (carried at cost):
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit liabilities (carried at cost):
The fair values disclosed for demand deposits (e.g. interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings (carried at cost):
The carrying amounts of short-term borrowings approximate their fair values.
Other borrowings (carried at cost):
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
Off-balance sheet financial instruments (disclosed at cost):
Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.
The estimated fair values of the Bank’s financial instruments were as follows at March 31, 2012 and December 31, 2011. (In thousands)
|
|
Fair Value Measurements at March 31, 2012
|
|
|
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks, interest-
bearing deposits with banks and federal funds sold
|
|
$ |
20,241 |
|
|
$ |
20,241 |
|
|
$ |
20,241 |
|
|
$ |
- |
|
|
$ |
- |
|
Securities
|
|
|
148,660 |
|
|
|
148,664 |
|
|
|
208 |
|
|
|
148,456 |
|
|
|
- |
|
Loans receivable, net
|
|
|
473,464 |
|
|
|
483,223 |
|
|
|
- |
|
|
|
- |
|
|
|
483,223 |
|
Mortgage servicing rights
|
|
|
291 |
|
|
|
291 |
|
|
|
291 |
|
|
|
- |
|
|
|
- |
|
Investment in FHLB stock
|
|
|
3,413 |
|
|
|
3,413 |
|
|
|
3,413 |
|
|
|
- |
|
|
|
- |
|
Bank owned life insurance
|
|
|
12,003 |
|
|
|
12,003 |
|
|
|
12,003 |
|
|
|
- |
|
|
|
- |
|
Accrued interest receivable
|
|
|
2,690 |
|
|
|
2,690 |
|
|
|
2,690 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
546,192 |
|
|
|
547,880 |
|
|
|
318,937 |
|
|
|
- |
|
|
|
228,943 |
|
Short-term borrowings
|
|
|
15,854 |
|
|
|
15,854 |
|
|
|
15,854 |
|
|
|
- |
|
|
|
- |
|
Other borrowings
|
|
|
27,625 |
|
|
|
30,446 |
|
|
|
- |
|
|
|
- |
|
|
|
30,446 |
|
Accrued interest payable
|
|
|
1,333 |
|
|
|
1,333 |
|
|
|
1,333 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit and outstanding letters of credit
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2011
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
Cash and due from banks, interest-
bearing deposits with banks and
federal funds sold
|
|
$ |
21,423 |
|
|
$ |
21,423 |
|
Securities
|
|
|
150,434 |
|
|
|
150,440 |
|
Loans receivable, net
|
|
|
452,449 |
|
|
|
463,118 |
|
Mortgage servicing rights
|
|
|
302 |
|
|
|
308 |
|
Investment in FHLB stock
|
|
|
3,593 |
|
|
|
3,593 |
|
Bank owned life insurance
|
|
|
11,887 |
|
|
|
11,887 |
|
Accrued interest receivable
|
|
|
2,468 |
|
|
|
2,468 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
525,767 |
|
|
|
527,707 |
|
Short-term borrowings
|
|
|
21,794 |
|
|
|
21,794 |
|
Other borrowings
|
|
|
27,670 |
|
|
|
30,002 |
|
Accrued interest payable
|
|
|
1,321 |
|
|
|
1,321 |
|
|
|
|
|
|
|
|
|
|
Off-balance sheet financial instruments:
Commitments to extend credit and
outstanding letters of credit
|
|
|
- |
|
|
|
- |
|
8. New and Recently Adopted Accounting Pronouncements
Recent Accounting Pronouncements:
In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-03, Transfers and Services (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The main objective in developing this Update is to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this Update apply to all entities, both public and nonpublic. The amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The guidance in this Update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value
measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company has provided the necessary disclosure in Note 7.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments in this Update should be applied retrospectively, and early adoption is permitted. The Company has provided the necessary disclosure in the Consolidated Statement of Comprehensive Income.
. In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other Topics (Topic 350), Testing Goodwill for Impairment. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this Update apply to all entities, both public and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.
In September 2011, the FASB issued ASU 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80):Disclosures about an Employer’s Participation in a Multiemployer Plan. The amendments in this Update will require additional disclosures about an employer’s participation in a multiemployer pension plan to enable users of financial statements to assess the potential cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For public entities, the amendments in this Update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented.
In December 2011, the FASB issued ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. The amendments in this Update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to
the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary's operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Company’s financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has provided the necessary disclosure in Statement of Comprehensive Income.
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 are as follows:
|
•
|
our ability to realize the anticipated benefits from our acquisition of North Penn Bancorp, Inc.
|
|
•
|
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
|
|
•
|
higher deposit insurance premiums
|
|
•
|
soundness of other financial institutions
|
|
•
|
increased compliance burden under new financial reform legislation
|
|
•
|
risk of failure to stabilize the financial system
|
|
•
|
current market volatility
|
|
•
|
potential liquidity risk
|
|
•
|
availability of capital
|
|
•
|
regional economic factors
|
|
•
|
loss of senior officers
|
|
•
|
comparatively low legal lending limits
|
|
•
|
limited market for the Company’s stock
|
|
•
|
restrictions on ability to pay dividends
|
|
•
|
common stock may lose value
|
|
•
|
competitive environment
|
|
•
|
issuing additional shares may dilute ownership
|
|
•
|
extensive and complex governmental regulation and associated cost
|
|
•
|
interest rate risks
|
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, 2011 (incorporated by reference in Item 8 of the Form 10-K) lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, potential impairment of restricted stock, accounting for stock options, the valuation of deferred tax assets, the fair value of financial instruments, valuation of impaired loans, and the determination of other-than-temporary impairment losses on securities. Please refer to the discussion of the allowance for loan losses calculation under “Allowance for Loan Losses and Non-performing Assets” in the “Changes in Financial Condition” section.
The Company uses the modified prospective transition method to account for stock based compensation. Under this method companies are required to record compensation expense, based on the fair value of options over the vesting period.
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.
Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each Consolidated Balance Sheet date.
Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.
The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This restricted stock has not quoted market value and is carried at cost.
The FHLB incurred losses in both 2009 and 2010 and had suspended the payment of dividends. However, the FHLB has shown positive results during 2011 which includes stock redemptions and resumed dividend payments. The losses were primarily attributable to impairment of investment securities associated with the extreme economic conditions in place during the previous several years. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions the world is facing. Management also considered that the FHLB’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, and the new shares of FHLB stock continue to change hands at the $100 par value.
Management evaluates the restricted stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary decline in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge is necessary related to the restricted stock as of March 31, 2012 and December 31, 2011.
In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of time and extent to which the fair value has been less than cost, 2) the financial condition of the issuer, and 3) the intent and ability of the Company to hold the security to allow for a recovery to fair value. The Company believes that the unrealized loss on all other securities at March 31, 2012 and December 31, 2011 represent temporary impairment of the securities, related to changes in interest rates.
In connection with the acquisition of North Penn, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired 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 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, 2012 were $685.5 million compared to $668.8 million as of December 31, 2011, an increase of $16.7 million. The increase includes $21.2 million of loan growth which was funded with a $20.4 million increase in deposits.
Securities
The fair value of securities available for sale as of March 31, 2012 was $148.5 million compared to $150.3 million as of December 31, 2011. The Company purchased $14.9 million of securities principally using the proceeds from $17.4 million of securities sold, called, maturities and principal reductions.
The carrying value of the Company’s securities portfolio (Available-for Sale and Held-to Maturity) consisted of the following:
|
|
March 31, 2012 |
|
|
December 31, 2011 |
|
(dollars in thousands)
|
|
Amount
|
|
|
% of portfolio
|
|
|
Amount
|
|
|
% of portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agencies
|
|
$ |
9,016 |
|
|
|
6.1 |
% |
|
$ |
13,398 |
|
|
|
8.9 |
% |
States and political subdivisions
|
|
|
54,265 |
|
|
|
36.5 |
|
|
|
56,917 |
|
|
|
37.8 |
|
Corporate obligations
|
|
|
9,384 |
|
|
|
6.3 |
|
|
|
8,809 |
|
|
|
5.9 |
|
Mortgage-backed securities-
government sponsored entities
|
|
|
75,787 |
|
|
|
51.0 |
|
|
|
70,965 |
|
|
|
47.2 |
|
Equity securities-financial services
|
|
|
208 |
|
|
|
0.1 |
|
|
|
345 |
|
|
|
0.2 |
|
Total
|
|
$ |
148,660 |
|
|
|
100.0 |
% |
|
$ |
150,434 |
|
|
|
100.0 |
% |
The Company has securities in an unrealized loss position. In management’s opinion, the unrealized losses in state and political subdivisions and mortgage-backed securities reflect changes in interest rates subsequent to the acquisition of specific securities. The Company holds a small amount of equity securities in other financial institutions, the value of which has been impacted by the weakening conditions of the financial markets. Management believes that the unrealized losses on all other equity 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 $479.1 million at March 31, 2012 compared to $457.9 million as of December 31, 2011. The majority of the growth recorded in 2012 was centered in commercial loans. Commercial real estate loans increased $13.9 million during the period while other commercial loans increased $7.1 million.
The allowance for loan losses totaled $5,618,000 as of March 31, 2012 and represented 1.17% of total loans, compared to $5,458,000 at December 31, 2011, and $5,780,000 as of March 31, 2011. The Company had net charge-offs for the three months ended March 31, 2012 of $190,000 compared to $56,000 in the comparable period in 2011. The Company’s loan review process assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes an analysis of the risks inherent in the loan portfolio. It includes an analysis of impaired loans and a historical review of credit losses by loan type. Other factors considered include: concentration of credit in specific industries; economic and industry conditions; trends in delinquencies and loan classifications, large dollar exposures and loan growth. Management considers the allowance adequate at March 31, 2012 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, 2012, non-performing loans totaled $9.0 million, which is 1.88% of total loans compared to $7,815,000, or 1.71% of total loans at December 31, 2011.
The following table sets forth information regarding non-performing loans and foreclosed real estate at the dates indicated:
(dollars in thousands)
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Loans accounted for on a non-accrual basis:
|
|
|
|
|
|
|
Commercial and all other
|
|
$ |
385 |
|
|
$ |
404 |
|
Real Estate
|
|
|
8,182 |
|
|
|
7,411 |
|
Total
|
|
|
8,567 |
|
|
|
7,815 |
|
|
|
|
|
|
|
|
|
|
Accruing loans which are contractually
|
|
|
|
|
|
|
|
|
past due 90 days or more
|
|
|
418 |
|
|
|
- |
|
Total non-performing loans
|
|
|
8,985 |
|
|
|
7,815 |
|
Foreclosed real estate
|
|
|
1,143 |
|
|
|
2,910 |
|
Total non-performing assets
|
|
$ |
10,128 |
|
|
$ |
10,725 |
|
Allowance for loans losses |
|
$ |
5,618 |
|
|
$ |
5,458 |
|
Coverage of non-performing loans
|
|
$ |
.63 |
x |
|
$ |
.70 |
x |
Non-performing loans to total loans
|
|
|
1.88 |
% |
|
|
1.71 |
% |
Non-performing loans to total assets
|
|
|
1.31 |
% |
|
|
1.17 |
% |
Non-performing assets to total assets
|
|
|
1.48 |
% |
|
|
1.60 |
% |
Deposits
During the period, total deposits increased $20.4 million which includes growth of $6.4 million in non-interest bearing demand deposits, a $6.4 million increase in money market and NOW accounts, and a $2.1 million increase in savings deposits. Certificates of deposit increased $5.5 million due primarily to promotions during the period.
The following table sets forth deposit balances as of the dates indicated:
(dollars in thousands)
|
|
March 31,
2012
|
|
|
December 31,
2011
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$ |
78,339 |
|
|
$ |
71,959 |
|
Interest bearing demand
|
|
|
56,853 |
|
|
|
51,161 |
|
Money market deposit accounts
|
|
|
114,776 |
|
|
|
114,007 |
|
Savings
|
|
|
68,970 |
|
|
|
66,866 |
|
Time deposits <$100,000
|
|
|
144,895 |
|
|
|
141,220 |
|
Time deposits >$100,000
|
|
|
82,359 |
|
|
|
80,554 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
546,192 |
|
|
$ |
525,767 |
|
Borrowings
Short-term borrowings as of March 31, 2012 totaled $15.9 million compared to $21.8 million as of December 31, 2011. Securities sold under agreements to repurchase declined $5.9 million principally due to the seasonality of municipal cash management accounts. Short-term borrowings consist of the following:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
$ |
15,854 |
|
|
$ |
21,794 |
|
Other borrowings consisted of the following:
(dollars in thousands)
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Notes with the FHLB:
|
|
|
|
|
|
|
Convertible note due October 2012 at 4.37%
|
|
$ |
5,000 |
|
|
$ |
5,000 |
|
Convertible note due May 2013 at 3.015%
|
|
|
5,000 |
|
|
|
5,000 |
|
Fixed rate note due July 2015 at 4.34%
|
|
|
7,625 |
|
|
|
7,670 |
|
Convertible note due January 2017 at 4.71%
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
$ |
27,625 |
|
|
$ |
27,670 |
|
The convertible notes contain an option which allows the FHLB, at quarterly intervals to change the note to an adjustable-rate advance at three month LIBOR plus 11 to 19 basis points. If the notes are converted, the option allows the Bank to put the funds back to the FHLB at no charge. The fixed rate borrowing due July 2015 includes a $625,000 fair value adjustment recorded at the time of the North Penn acquisition.
Off-Balance Sheet Arrangements
The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to grant loans totaled $42.5 million as of March 31, 2012 compared to $43.1 million as of December 31, 2011.
A summary of the contractual amount of the Company’s financial instrument commitments is as follows:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
Unfunded availability under loan commitments
|
|
$ |
42,538 |
|
|
$ |
43,081 |
|
Unfunded commitments under lines of credit
|
|
|
41,865 |
|
|
|
29,255 |
|
Standby letters of credit
|
|
|
11,557 |
|
|
|
11,892 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
95,960 |
|
|
$ |
84,228 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity and Capital Ratios
As of March 31, 2012, stockholders’ equity totaled $88.9 million, compared to $88.1 million as of December 31, 2011. The net change in stockholders’ equity included $2.2 million of net income, that was partially offset by $1.0 million of dividends declared and a $320,000 reduction due to an increase in Treasury Stock. In addition, accumulated other comprehensive income decreased $159,000 due to a decrease in fair value of securities in the available for sale portfolio, net of tax. This decrease 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 could materially fluctuate for each interim and year-end period.
A comparison of the Company’s regulatory capital ratios is as follows:
|
|
|
March 31, 2012 |
|
December 31, 2011 |
Tier 1 Capital |
|
|
|
|
|
(To average assets) |
|
|
11.48% |
|
11.29% |
Tier 1 Capital |
|
|
|
|
|
(To risk-weighted assets) |
|
|
15.36% |
|
15.86% |
Total Capital |
|
|
|
|
|
(To risk-weighted assets) |
|
|
16.51% |
|
17.04% |
|
|
|
|
|
|
|
|
|
|
|
|
The minimum capital requirements imposed by the FDIC on the Bank for leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The Company has similar capital requirements imposed by the Board of Governors of the Federal Reserve System (FRB). The Bank is also subject to more stringent Pennsylvania Department of Banking (PDB) guidelines. The Bank’s capital ratios do not differ significantly from the Company’s ratios. Although not adopted in regulation form, the PDB utilizes capital standards requiring a minimum of 6.5% leverage capital and 10% total capital. The Company and the Bank were in compliance with FRB, FDIC and PDB capital requirements as of March 31, 2012 and December 31, 2011.
Liquidity
As of March 31, 2012, the Company had cash and cash equivalents of $20.2 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 $148.5 million which could be used for liquidity needs. This totals $168.7 million and represents 24.6% of total assets compared to $171.7 million and 25.7% of total assets as of December 31, 2011. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of March 31, 2012 and December 31, 2011. Based upon these measures, the Company believes its liquidity is adequate.
Capital Resources
The Company has a line of credit commitment available from the Federal Home Loan Bank (FHLB) of Pittsburgh for borrowings of up to $20,000,000 which expires in December 2016. There were no borrowings under this line at March 31, 2012 and December 31, 2011.
The Company has a line of credit commitment from Atlantic Central Bankers Bank for $7,000,000 which expires June 30, 2012. There were no borrowings under this line as of March 31, 2012 and December 31, 2011.
The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $16,000,000. Borrowings under this line were $-0- as of March 31, 2012 and December 31, 2011.
The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $228,000,000 as of March 31, 2012, of which $27,000,000 was outstanding at March 31, 2012 and December 31, 2011 respectively. Advances 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 are non-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 34%. 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 and tax-exempt sources and is consistent with industry practice. Net interest income (fte) is reconciled to GAAP net interest income on page 37. Although the Company believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.
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, |
|
|
|
2012 |
|
|
2011 |
|
|
|
Average
Balance
(2)
|
|
|
Interest
(1)
|
|
|
Average
Rate
(3)
|
|
|
Average
Balance
(2)
|
|
|
Interest
(1)
|
|
|
Average
Rate
(3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$ |
- |
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
167 |
|
|
$ |
- |
|
|
|
0.24 |
% |
Interest bearing deposits with banks
|
|
|
5,718 |
|
|
|
4 |
|
|
|
0.28 |
|
|
|
10,564 |
|
|
|
8 |
|
|
|
0.30 |
|
Securities held-to-maturity
|
|
|
171 |
|
|
|
2 |
|
|
|
4.68 |
|
|
|
170 |
|
|
|
3 |
|
|
|
7.06 |
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
92,769 |
|
|
|
533 |
|
|
|
2.30 |
|
|
|
97,489 |
|
|
|
650 |
|
|
|
2.67 |
|
Tax-exempt(1)
|
|
|
53,735 |
|
|
|
745 |
|
|
|
5.55 |
|
|
|
46,629 |
|
|
|
664 |
|
|
|
5.70 |
|
Total securities available for sale (1)
|
|
|
146,504 |
|
|
|
1,278 |
|
|
|
3.49 |
|
|
|
144,118 |
|
|
|
1,314 |
|
|
|
3.65 |
|
Loans receivable (1) (4) (5)
|
|
|
469,937 |
|
|
|
6,437 |
|
|
|
5.48 |
|
|
|
353,118 |
|
|
|
4,970 |
|
|
|
5.63 |
|
Total interest earning assets
|
|
|
622,330 |
|
|
|
7,721 |
|
|
|
4.96 |
|
|
|
508,137 |
|
|
|
6,295 |
|
|
|
4.96 |
|
Non-interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
8,299 |
|
|
|
|
|
|
|
|
|
|
|
6,798 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(5,543 |
) |
|
|
|
|
|
|
|
|
|
|
(5,742 |
) |
|
|
|
|
|
|
|
|
Other assets
|
|
|
40,505 |
|
|
|
|
|
|
|
|
|
|
|
21,619 |
|
|
|
|
|
|
|
|
|
Total non-interest earning assets
|
|
|
48,839 |
|
|
|
|
|
|
|
|
|
|
|
22,675 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
671,169 |
|
|
|
|
|
|
|
|
|
|
$ |
530,812 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand and money
market
|
|
$ |
165,561 |
|
|
|
139 |
|
|
|
0.34 |
|
|
$ |
108,944 |
|
|
|
108 |
|
|
|
0.40 |
|
Savings
|
|
|
67,913 |
|
|
|
25 |
|
|
|
0.15 |
|
|
|
51,326 |
|
|
|
25 |
|
|
|
0.19 |
|
Time
|
|
|
225,959 |
|
|
|
797 |
|
|
|
1.41 |
|
|
|
172,924 |
|
|
|
752 |
|
|
|
1.74 |
|
Total interest bearing deposits
|
|
|
459,433 |
|
|
|
961 |
|
|
|
0.84 |
|
|
|
333,194 |
|
|
|
885 |
|
|
|
1.06 |
|
Short-term borrowings
|
|
|
18,459 |
|
|
|
11 |
|
|
|
0.24 |
|
|
|
27,819 |
|
|
|
24 |
|
|
|
0.35 |
|
Other borrowings
|
|
|
27,651 |
|
|
|
244 |
|
|
|
3.53 |
|
|
|
35,600 |
|
|
|
336 |
|
|
|
3.78 |
|
Total interest bearing liabilities
|
|
|
505,543 |
|
|
|
1,216 |
|
|
|
0.96 |
|
|
|
396,613 |
|
|
|
1,245 |
|
|
|
1.26 |
|
Non-interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
72,078 |
|
|
|
|
|
|
|
|
|
|
|
61,858 |
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,969 |
|
|
|
|
|
|
|
|
|
|
|
3,723 |
|
|
|
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
|
76,047 |
|
|
|
|
|
|
|
|
|
|
|
65,581 |
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
89,579 |
|
|
|
|
|
|
|
|
|
|
|
68,618 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$ |
671,169 |
|
|
|
|
|
|
|
|
|
|
$ |
530,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (tax equivalent basis)
|
|
|
|
|
|
|
6,505 |
|
|
|
4.00 |
% |
|
|
|
|
|
|
5,050 |
|
|
|
3.70 |
% |
Tax-equivalent basis adjustment
|
|
|
|
|
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
(269 |
) |
|
|
|
|
Net interest income
|
|
|
|
|
|
$ |
6,187 |
|
|
|
|
|
|
|
|
|
|
$ |
4,781 |
|
|
|
|
|
Net interest margin (tax equivalent basis)
|
|
|
|
|
|
|
|
|
|
|
4.18 |
% |
|
|
|
|
|
|
|
|
|
|
3.98 |
% |
(1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 34%.
(2)
|
Average balances have been calculated based on daily balances.
|
(4)
|
Loan balances include non-accrual loans and are net of unearned income.
|
(5)
|
Loan yields include the effect of amortization of deferred fees, net of costs.
|
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, 2012 Compared to
Three months ended March 31, 2011
Variance due to
|
|
|
|
Volume |
|
|
Rate |
|
|
Net |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks…………..
|
|
$ |
(3 |
) |
|
$ |
(1 |
) |
|
$ |
(4 |
) |
Securities held to maturity............................
|
|
|
- |
|
|
|
(1 |
) |
|
|
(1 |
) |
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable...................................................
|
|
|
(30 |
) |
|
|
(87 |
) |
|
|
(117 |
) |
Tax-exempt securities..................................
|
|
|
189 |
|
|
|
(108 |
) |
|
|
81 |
|
Total securities..........................................
|
|
|
159 |
|
|
|
(195 |
) |
|
|
(36 |
) |
Loans receivable........................................
|
|
|
2,342 |
|
|
|
(875 |
) |
|
|
1,467 |
|
Total interest earning assets...........................
|
|
|
2,498 |
|
|
|
(1,072 |
) |
|
|
1,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand and money market….
|
|
|
126 |
|
|
|
(95 |
) |
|
|
31 |
|
Savings................................................
|
|
|
28 |
|
|
|
(28 |
) |
|
|
- |
|
Time...................................................
|
|
|
731 |
|
|
|
(686 |
) |
|
|
45 |
|
Total interest bearing deposits.......................
|
|
|
885 |
|
|
|
(809 |
) |
|
|
76 |
|
Short-term borrowings................................
|
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(13 |
) |
Other borrowings......................................
|
|
|
(71 |
) |
|
|
(21 |
) |
|
|
(92 |
) |
Total interest bearing liabilities.....................
|
|
|
807 |
|
|
|
(836 |
) |
|
|
(29 |
) |
Net interest income (tax-equivalent basis).........
|
|
$ |
1,691 |
|
|
$ |
(236 |
) |
|
$ |
1,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2012 to March 31, 2011
General
For the three months ended March 31, 2012, net income totaled $2,186,000 compared to $1,660,000 earned in the similar period in 2011. The increased net income for the three months ended March 31, 2012 reflects the full impact of the acquisition of North Penn Bancorp, Inc. (“North Penn”), which was completed on May 31, 2011. Earnings per share for the current period were $.67 for basic and fully diluted compared to $.60 per share for the three months ended March 31, 2011. The resulting annualized return on average assets and annualized return on average equity for the three months ended March 31, 2012 was 1.31% and 9.81%, respectively, compared to 1.27% and 9.76%, respectively, for the similar period in 2011.
The following table sets forth changes in net income:
(dollars in thousands)
|
|
Three months ended
March 31, 2012 to March 31, 2011
|
|
Net income three months ended March 31, 2011
|
|
$ |
1,660 |
|
Change due to:
|
|
|
|
|
Net interest income
|
|
|
1,406 |
|
Provision for loan losses
|
|
|
(130 |
) |
Gain on sales of loans and securities
|
|
|
52 |
|
Other income
|
|
|
31 |
|
Salaries and employee benefits
|
|
|
(450 |
) |
Occupancy, furniture and equipment
|
|
|
(89 |
) |
Merger related expenses
|
|
|
249 |
|
Foreclosed real estate expense
|
|
|
(103 |
) |
All other expenses
|
|
|
(220 |
) |
Income tax expense
|
|
|
(220 |
) |
|
|
|
|
|
Net income three months ended March 31, 2012
|
|
$ |
2,186 |
|
|
|
|
|
|
Net Interest Income
Net interest income on a fully taxable equivalent basis (fte) for the three months ended March 31, 2012 totaled $6,505,000, an increase of $1,455,000 or 28.8% from the similar period in 2011. The increase in net interest income largely reflects the increase in interest-earning assets from the North Penn acquisition. The fte net interest spread and net interest margin were 4.00% and 4.18%, respectively, for the three months ended March 31, 2012 compared to 3.70% and 3.98%, respectively, for the similar period in 2011.
Interest income (fte) totaled $7,721,000 with a yield on average earning assets of 4.96% compared to $6,295,000 and 4.96% for the 2011 period. Average loans increased $116.8 million over the comparable period of last year which led to the improved interest income in spite of lower yields on loans and securities due to reinvestment at today’s lower interest rates. A decreased level of low yield money market assets also contributed to the improved net interest margin. Average earning assets totaled $622.3 million for the three months ended March 31, 2012, an increase of $114.2 million over the average for the similar period in 2011. This increase in average earning assets helped offset the decline in asset yields.
Interest expense for the three months ended March 31, 2012 totaled $1,216,000 at an average cost of .96% compared to $1,245,000 and 1.26% for the similar period in 2011. As a result of the continued low interest rate environment, the Company further reduced rates paid on its money market accounts and cash
management products, which are included in short-term borrowings. The cost of time deposits, which is the most significant component of funding, declined to 1.41% from 1.74% for the similar period in the prior year. As time deposits matured, they repriced at the current lower rates resulting in the decrease.
Provision for Loan Losses
The Company’s provision for loan losses for the three months ended March 31, 2012 was $350,000 compared to $220,000 for the three months ended March 31, 2011. The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level. The increase in the provision reflects an increase in net charge-offs during the quarter as well as loan growth recorded during the period. Net charge-offs were $190,000 for the quarter ended March 31, 2012 compared to $56,000 for the similar period in 2011.
Other Income
Other income totaled $1,291,000 for the three months ended March 31, 2012 compared to $1,208,000 for the similar period in 2011. The current period includes a $402,000 gain on the sale of investment securities compared to a $212,000 gain in the first quarter of 2011. All other service charges and fees increased $31,000 compared to the first quarter of last year. Gains on the sale of residential mortgage loans decreased $138,000 compared to the first quarter of last year due to minimal sales during the current period.
Other Expense
Other expense for the three months ended March 31, 2012 totaled $4,147,000, or an increase of $613,000 from $3,534,000 for the similar period in 2011. Expense increases related to the North Penn acquisition including staffing increases and higher occupancy costs on five community offices contributed to the increase. Foreclosed real estate costs also increased $103,000 due to the costs of disposition and maintaining several properties, while merger related expenses decreased $249,000 compared to last year’s comparable period.
Income Tax Expense
Income tax expense totaled $795,000 for an effective tax rate of 26.7% for the period ending March 31, 2012 compared to $575,000 for an effective tax rate of 25.7% for the similar period in 2011. The increased effective rate reflects a 34% tax rate on $746,000 of additional pre-tax income.
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, 2012, the level of net interest income at risk in a 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 8% 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, 2012, the Company had a positive 90 day interest sensitivity gap of $56.7 million or 8.3% of total assets, a decrease from the $76.7 million or 11.5% of total assets as of December 31, 2011. Rate sensitive assets repricing within 90 days were relatively stable as a $5.6 million increase in loans repricing within the period offset a decline in interest bearing deposits and securities repricing. Time deposits repricing within 90 days increased $20.7 million, while non-maturity interest bearing balances increased $1.3 million. Other borrowings decreased $1.5 million due to a net reduction in cash management accounts. 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 could increase faster than the cost of interest-bearing liabilities in the 90 day time frame. The repricing intervals are managed by ALCO strategies, including adjusting the average life of the investment portfolio, pricing of deposit liabilities to attract longer term time deposits, loan pricing to encourage variable rate products and evaluation of loan sales of long-term fixed rate mortgages.
March 31, 2012
Rate Sensitivity Table
(dollars in thousands)
|
|
3 Months
|
|
|
3-12 Months
|
|
|
1 to 3 Years
|
|
|
Over
3 Years
|
|
|
Total
|
|
Federal funds sold and interest bearing deposits
|
|
$ |
5,991 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,991 |
|
Securities
|
|
|
12,042 |
|
|
|
27,501 |
|
|
|
53,058 |
|
|
|
56,059 |
|
|
|
148,660 |
|
Loans Receivable
|
|
|
127,064 |
|
|
|
98,558 |
|
|
|
153,049 |
|
|
|
100,411 |
|
|
|
479,082 |
|
Total RSA
|
|
|
145,097 |
|
|
|
126,059 |
|
|
|
206,107 |
|
|
|
156,470 |
|
|
|
633,733 |
|
|
|
|
|
|
|
|
|
|
|
`
|
|
|
|
|
|
|
|
|
|
Non-maturity interest-bearing deposits
|
|
|
38,349 |
|
|
|
43,033 |
|
|
|
114,040 |
|
|
|
45,177 |
|
|
|
240,599 |
|
Time Deposits
|
|
|
46,367 |
|
|
|
81,536 |
|
|
|
69,485 |
|
|
|
29,866 |
|
|
|
227,254 |
|
Other
|
|
|
3,636 |
|
|
|
10,579 |
|
|
|
11,639 |
|
|
|
17,625 |
|
|
|
43,479 |
|
Total RSL
|
|
|
88,352 |
|
|
|
135,148 |
|
|
|
195,164 |
|
|
|
92,668 |
|
|
|
511,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Gap
|
|
$ |
56,745 |
|
|
$ |
(9,089 |
) |
|
$ |
10,943 |
|
|
$ |
63,802 |
|
|
$ |
122,401 |
|
Cumulative Gap
|
|
|
56,745 |
|
|
|
47,656 |
|
|
|
58,599 |
|
|
|
122,401 |
|
|
|
|
|
RSA/RSL-cumulative
|
|
|
164.2 |
% |
|
|
121.3 |
% |
|
|
114.0 |
% |
|
|
123.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Gap
|
|
$ |
76,745 |
|
|
$ |
(21,350 |
) |
|
$ |
(6,566 |
) |
|
$ |
68,689 |
|
|
$ |
117,518 |
|
Cumulative Gap
|
|
|
76,745 |
|
|
|
55,395 |
|
|
|
48,829 |
|
|
|
117,518 |
|
|
|
|
|
RSA/RSL-cumulative
|
|
|
213.2 |
% |
|
|
125.2 |
% |
|
|
111.8 |
% |
|
|
125.3 |
% |
|
|
|
|
Item 4. Controls and Procedures
The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as
of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
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 Form 10-K for the year ended December 31, 2011.
Item 2. Unregistered Sales of Equity Sales and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclsoures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
No.
|
Description
|
|
|
3(i)
|
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)
|
10.1
|
Employment Agreement with Lewis J. Critelli (2)
|
10.2
|
Change in Control Severance Agreement with William S. Lance(2)
|
10.3
|
Norwood Financial Corp. Stock Option Plan (3)
|
10.4
|
Salary Continuation Agreement between the Bank and William W. Davis, Jr. (4)
|
10.5
|
Salary Continuation Agreement between the Bank and Lewis J. Critelli (4)
|
10.7
|
1999 Directors Stock Compensation Plan (3)
|
10.8
|
Salary Continuation Agreement between the Bank and Joseph A. Kneller (5)
|
10.9
|
Salary Continuation Agreement between the Bank and John H. Sanders (5)
|
10.10
|
2006 Stock Option Plan (6)
|
10.11
|
First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (7)
|
10.12
|
First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli (7)
|
10.14
|
First and Second Amendments to Salary Continuation Agreement with Joseph A. Kneller (7)
|
10.15
|
First and Second Amendments to Salary Continuation Agreement with John H. Sanders (7)
|
31
|
Rule 13a-14(a)/15d-14(a) Certification of CEO and CFO
|
32
|
Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002
|
101.INS
|
XBRL Instance Document *
|
|
101.SCH
|
XBRL Schema Document *
|
|
101.CAL
|
XBRL Calculation Linkbase Document *
|
|
101.LAB
|
XBRL Labels Linkbase Document *
|
|
101.PRE
|
XBRL Presentation Linkbase Document *
|
|
101.DEF
|
XBRL Definition Linkbase Document *
|
|
______________________
*
|
Submitted as Exhibits 101 to this Form 10-Q are documents formatted in XBRL (Extensible Business Reporting Language). Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
|
(1)
|
Incorporated herein by reference into this document from the Exhibits to Form 10, Registration Statement initially filed with the Commission on April 29, 1996, Registration No. 0-28364
|
(2)
|
Incorporated by reference into this document from the identically numbered exhibits to the Registrant’s Form 10-K filed with the Commission on March 15, 2010.
|
(3)
|
Incorporated herein by reference to the identically numbered exhibits of the Registrant’s Form 10-K filed with the Commission on March 23, 2000.
|
(4)
|
Incorporated by reference into this document from the Exhibits to Form S-8 filed with the Commission on August 14, 1998, File No. 333-61487.
|
(5)
|
Incorporated herein by reference to the identically numbered exhibit to the Registrant’s Form 10-K filed with the Commission on March 22, 2004.
|
(6)
|
Incorporated by reference to this document from Exhibit 4.1 to Registrant’s Registration Statement on Form S-8 (File No. 333-134831) filed with the Commission on June 8, 2006.
|
(7)
|
Incorporated herein by reference from the Exhibits to the Registrant’s Current Report on Form 8-K filed on April 4, 2006.
|
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 10, 2012 |
By: |
|
/s/ Lewis J. Critelli |
|
|
|
|
|
Lewis J. Critelli |
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
(Principal Executive Officer) |
|
Date: |
May 10, 2012 |
By: |
|
/s/ William S. Lance |
|
|
|
|
|
William S. Lance |
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
(Principal Financial Officer) |
|