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 September 30, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28366
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Norwood Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2828306
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
717 Main Street, Honesdale, Pennsylvania 18431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (570)253-1455
----------------
N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of November 10, 2003
- --------------------------------------- 2,681,979
common stock, par value $0.10 per share ---------
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
INDEX
Page
Number
------
Part I - CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD
FINANCIAL CORP.
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
2003 2002
--------- ---------
ASSETS
Cash and due from banks $ 11,870 $ 9,579
Interest bearing deposits with banks 796 230
Federal Funds sold 3,400 6,435
--------- ---------
Cash and cash equivalents 16,066 16,244
Securities available for sale 127,437 114,843
Securities held to maturity, fair value 2003
$6,451, 2002 $6,504 6,193 6,204
Loans receivable (net of unearned income) 228,884 217,970
Less: Allowance for loan losses 3,272 3,146
--------- ---------
Net loans receivable 225,612 214,824
Investment in FHLB Stock 1,935 1,637
Bank premises and equipment, net 5,629 5,986
Foreclosed real estate 11 21
Accrued interest receivable 1,775 1,799
Other Assets 8,059 5,910
--------- ---------
TOTAL ASSETS $ 392,717 $ 367,468
========= =========
LIABILITIES
Deposits:
Non-interest-bearing demand $ 45,846 $ 33,453
Interest-bearing 269,614 258,399
--------- ---------
Total deposits 315,460 291,852
Short-term borrowings 9,925 9,016
Long-term debt 23,000 23,000
Accrued interest payable 1,448 1,654
Other liabilities 1,049 1,821
--------- ---------
TOTAL LIABILITIES 350,882 327,343
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares 270 180
Issued 2003: 2,705,715, 2002: 1,803,824 shares
Surplus 4,835 4,762
Retained earnings 36,260 34,082
Treasury stock at cost: 2003: 23,736 shares, 2002:
(328) (640)
31,506
Unearned ESOP shares (601) (750)
Accumulated other comprehensive income 1,399 2,491
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 41,835 40,125
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 392,717 $ 367,468
========= =========
See accompanying notes to the unaudited consolidated financial statements
3
NORWOOD FINANCIAL CORP. Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
------- ------- ------- -------
INTEREST INCOME
Loans receivable, including fees $ 3,590 $ 3,875 $10,853 $11,828
Securities 1,148 1,436 3,561 4,271
Other 22 76 87 193
------- ------- ------- -------
Total interest income 4,760 5,387 14,501 16,292
INTEREST EXPENSE
Deposits 1,114 1,486 3,641 4,716
Short-term borrowings 23 49 73 130
Long-term debt 324 324 962 974
------- ------- ------- -------
Total interest expense 1,461 1,859 4,676 5,820
------- ------- ------- -------
NET INTEREST INCOME 3,299 3,528 9,825 10,472
PROVISION FOR LOAN LOSSES 165 150 495 480
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVSION FOR LOAN LOSSES 3,134 3,378 9,330 9,992
OTHER INCOME
Service charges and fees 489 464 1,391 1,313
Income from fiduciary activities 85 70 189 177
Net realized gains on sales of securities 156 83 542 427
Gain on sale of loans 19 6 192 64
Other 136 132 381 403
------- ------- ------- -------
Total other income 885 755 2,695 2,384
OTHER EXPENSES
Salaries and employee benefits 1,232 1,219 3,681 3,675
Occupancy, furniture & equipment, net 346 313 1,061 951
Data processing related 137 143 415 406
Losses on lease residuals - 180 25 790
Taxes, other than income (3) (12) 167 144
Professional fees 67 51 195 153
Other 638 646 1,814 1,845
------- ------- ------- -------
Total other expenses 2,417 2,540 7,358 7,964
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,602 1,593 4,667 4,412
INCOME TAX EXPENSE 408 439 1,241 1,188
------- ------- ------- -------
NET INCOME $ 1,194 $ 1,154 $ 3,426 $ 3,224
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.46 $ 0.45 $ 1.32 $ 1.27
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.45 $ 0.44 $ 1.30 $ 1.25
======= ======= ======= =======
Cash dividends per share $ 0.16 $ 0.15 $ 0.48 $ 0.45
======= ======= ======= =======
See accompanying notes to the unaudited consolidated financial statements
4
NORWOOD FINANCIAL CORP
Consolidated statement of changes in stockholders' equity (unaudited)
(dollars in thousands) Accumulated
Unearned Other
Common Retained Treasury ESOP Comprehensive
Stock Surplus Earnings Stock Shares Income Total
----- ------- -------- ----- ------ ------ -----
Balance December 31, 2001 $180 $4,687 $31,265 ($1,066) ($952) $1,002 $35,116
Comprehensive Income:
Net Income 3,224 3,224
Change in unrealized gains (losses) on securities
available for sale, net of reclassification
adjustment and tax effects
1,495 1,495
-------
Total comprehensive income 4,719
-------
Cash dividends declared, $.45 per share (1,122) (1,122)
Stock options exercised (78) 434 356
Tax benefit of stock options exercised 5 5
Aquisition of treasury stock (8) (8)
Release of earned ESOP shares 108 102 210
---- ------ ------- ------- ----- ------ -------
Balance, September 30, 2002 $180 $4,722 $33,367 ($640) ($850) $2,497 $39,276
==== ====== ======= ======= ===== ====== =======
Accumulated
Unearned Other
Common Retained Treasury ESOP Comprehensive
Stock Surplus Earnings Stock Shares Income Total
----- ------- -------- ----- ------ ------ -----
Balance December 31, 2002 $180 $4,762 $34,082 ($640) ($750) $2,491 $40,125
Comprehensive Income:
Net Income 3,426 3,426
Change in unrealized gains (losses) on
securities available for sale, net of
reclassification adjustment and tax effects (1,092) (1,092)
-------
Total comprehensive income 2,334
-------
Cash dividends declared, $.48 per share (1,248) (1,248)
Three-for-two stock split in the form of a
50% stock dividend 90 (91) (1)
Stock options exercised (24) 358 334
Tax benefit of stock options exercised 20 20
Acquisition of treasury stock (46) (46)
Release of earned ESOP shares 168 149 317
---- ------ ------- ----- ----- ------ -------
Balance, September 30, 2003 $270 $4,835 $36,260 ($328) ($601) $1,399 $41,835
==== ====== ======= ===== ===== ====== =======
See accompanying notes to unaudited consolidated financial statements
5
NORWOOD FINANCIAL CORP.
Consolidated Statements of Cashflows (Unaudited)
Nine Months Ended September 30
------------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,426 $ 3,224
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 495 480
Depreciation 464 457
Amortization of intangible assets 70 133
Deferred income taxes (583) (870)
Net amortization of securities premiums and discounts 414 139
Net realized gain on sales of securities (542) (427)
Earnings on life insurance policy (168) (153)
Gain on sale of foreclosed real estate, net (9) (3)
Gain on sale of bank premises and equipment - (11)
Net gain on sale of mortgage loans (192) (64)
Mortgage loans originated for sale (7,060) (4,530)
Proceeds from sale of mortgage loans 7,252 4,594
Release of ESOP shares 317 258
Decrease (increase) in accrued interest receivable and other assets 994 797
Increase in accrued interest payable and other liabilities 156 (276)
-------- --------
Net cash provided by operating activities $ 5,031 $ 3,748
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales $ 16,636 $ 6,455
Proceeds from maturities and principal reductions on mortgage-backed securities 60,077 32,717
Purchases (90,850) (48,311)
Securities held to maturity proceeds 35 30
(Increase) decrease in investment in FHLB stock (298) 250
Net increase in loans (11,775) (1,037)
Purchase of life insurance policy (2,550) -
Purchase of bank premises and equipment, net (107) (554)
Proceeds from sale of bank equipment and foreclosed real estate 62 57
-------- --------
Net cash used in investing activities $(28,770) $(10,393)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 23,608 $ 21,269
Net increase in short term borrowings 909 8,528
Repayments of long-term debt - (2,000)
Stock options exercised 334 356
Acquisition of treasury stock (46) (8)
Repurchase of ESOP shares - (48)
Cash dividends paid and cash paid in lieu of fractional shares (1,244) (1,118)
-------- --------
Net cash provided by financing activities $ 23,561 $ 26,979
-------- --------
Increase (decrease) in cash and cash equivalents $ (178) $ 20,334
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,244 17,336
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,066 $ 37,670
======== ========
See accompanying notes to the unaudited consolidated financial statements
6
Notes to Unaudited Consolidated Financial Statements
- ----------------------------------------------------
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Norwood
Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and
the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp.
and WTRO Properties. All significant intercompany transactions have been
eliminated in consolidation.
2. Estimates
---------
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates. The financial statements reflect, in the opinion of management, all
normal, recurring adjustments necessary to present fairly the financial position
of the Company. The operating results for the three and nine month periods ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003 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, 2002.
3. Accounting Policies
-------------------
The accounting policies of the Company as applied in the interim
financial statements presented are substantially the same as those followed on
an annual basis as presented in the Annual Report on Form 10-K of Norwood
Financial Corp. filed for the year ended December 31, 2002.
The Company accounts for stock option plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting For Stock Issued to
Employees", and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of the grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123 "Accounting for Stock-Based Compensation",
to stock based employee compensation.
7
(in thousands, except for per share data)
Three Months Ended Nine Months Ended
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September 30 September 30
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2003 2002 2003 2002
--------- --------- --------- ---------
Net income as reported $ 1,194 $ 1,154 $ 3,426 $ 3,224
Total stock-based employee compensation determined under fair value based
method for all awards, net of taxes (10) (15) (40) (59)
--------- --------- --------- ---------
$ 1,184 $ 1,139 $ 3,386 $ 3,165
========= ========= ========= =========
Earnings per share (basic)
As Reported $ .46 $ .45 $ $ 1.32 $ 1.27
Pro forma .45 .45 1.30 1.24
Earnings per share (assuming dilution)
As Reported .45 .44 1.30 1.25
Pro forma .44 .44 1.28 1.22
During 2003, directors and officers exercised stock options to acquire 25,867
shares of stock at a weighted average exercise price of $12.90 per share.
4. Stock Dividend and Earnings Per Share
-------------------------------------
On April 8, 2003, the Board of Directors declared a three-for-two stock
split in the form of a 50% stock dividend on common stock outstanding, payable
June 16, 2003 to shareholders of record on May 30, 2003. The stock split
resulted in the issuance of 901,912 additional common shares, including 21
fractional shares paid in cash. All per share data has been adjusted for the
effect of the stock split.
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.
8
Three Months Ended Nine Months Ended
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September 30 September 30
------------ ------------
2003 2002 2003 2002
----- ----- ----- -----
(In Thousands) (In Thousands)
Basic EPS weighted average
shares outstanding 2,614 2,557 2,599 2,547
Dilutive effect of stock options 57 45 47 41
----- ----- ----- -----
Diluted EPS weighted average
shares outstanding 2,671 2,602 2,646 2,588
===== ===== ===== =====
5. Cash Flow Information
---------------------
For the purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, interest-bearing deposits with
banks and federal funds sold.
Cash payments for interest for the nine-month period ended September
30, 2003 and 2002 were $4,882,000 and $6,447,000 respectively. Cash payments for
income taxes in 2003 were $1,351,000 compared to $2,415,000 in 2002. Non-cash
investing activity for 2003 and 2002 included foreclosed mortgage loans
transferred to foreclosed real estate and repossession of other assets of
$492,000 and $1,050,000.
6. Comprehensive Income
--------------------
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although certain changes
in assets and liabilities such as unrealized gains and losses on available for
sale securities, are reported as a separate component of the equity section of
the balance sheet, such items, along with net income, are components of
comprehensive income. The components of other comprehensive income and related
tax effects are as follows.
(in thousands) Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
2003 2002 2003 2002
------- ------- ------- -------
Unrealized holding gains/(losses)
on available for sale securities $(1,428) $ 774 $(1,105) $ 2,692
Reclassification adjustment for gains
realized in income (156) (83) (542) (427)
------- ------- ------- -------
Net unrealized gain/(losses) (1,584) 691 (1,647) 2,265
Income tax (benefit) (538) 231 (555) 770
------- ------- ------- -------
Other comprehensive income $(1,046) $ 460 $(1,092) $ 1,495
======= ======= ======= =======
9
7. Reclassification of Comparative Amounts
---------------------------------------
Certain comparative amounts for the prior period have been reclassified
to conform to the current period's presentation. Such reclassifications did not
affect net income.
8. Recent Accounting Standards
---------------------------
In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This Interpretation expands the disclosures to be made by a guarantor
in its financial statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value of an
obligation assumed under certain specified guarantees. FIN 45 clarifies the
requirements of FASB Statement No. 5, "Accounting for Contingencies." In
general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, liability or
equity security of the guaranteed party, which would include financial standby
letters of credit. Certain guarantee contracts are excluded from both the
disclosure and recognition requirements of this Interpretation, including, among
others, guarantees related to commercial letters of credit and loan commitments.
The disclosure requirements of FIN 45 require disclosure of the nature of the
guarantee, the maximum potential amount of future payments that the guarantor
could be required to make under the guarantee and the current amount of the
liability, if any, for the guarantor's obligations under the guarantee. The
accounting recognition requirements of FIN 45 are to be applied prospectively to
guarantees issued or modified after December 31, 2002. Adoption of FIN 45 did
not have any impact on the Company's financial condition or results of
operations.
Outstanding letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for standby letters of credit is represented
by the contractual amount of those instruments. The Company had $811,000 of
standby letters of credit as of September 30, 2003. The Bank uses the same
credit policies in making conditional obligations as it does for on-balance
sheet instruments.
The majority of these standby letters of credit expire within the next twelve
months. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending other loan commitments. The Company requires
collateral and personal guarantees supporting these letters of credit as deemed
necessary. Management believes that the proceeds obtained through a liquidation
of such collateral and the enforcement of personal guarantees would be
sufficient to cover the maximum potential amount of future payments required
under the corresponding guarantees. The current amount of the liability as of
September 30, 2003 for guarantees under standby letters of credit issued after
December 31, 2002 is not material.
In April 2003, the Financial Accounting Standards Board issued Statement No.,
149, "Amendment of Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities". This statement clarifies the definition of a derivative and
incorporates certain decisions made by the Board as part of the Derivatives
Implementation Group process. This statement is effective for contracts entered
into or modified, and for hedging relationships designated after June 30, 2003
and should be applied prospectively. The provisions of the Statement that relate
to implementation issues addressed by the Derivatives Implementation Group that
have been effective should continue to be applied in accordance with their
respective effective dates. Adoption of this standard did not have a significant
impact on the Corporation's financial condition or results of operations.
10
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". This interpretation provides new guidance for the
consolidation of variable interest entities (VIEs) and requires such entities to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risk among parties involved. The interpretation also adds
disclosure requirements for investors that are involved with unconsolidated
VIEs. The disclosure requirements apply to all financial statements issued after
January 31, 2003. The consolidation requirements apply to all financial
statements issued after January 31, 2003 and are effective for the first fiscal
year or interim period beginning after June 15, 2003 for VIEs acquired before
February 1, 2003. The adoption of this interpretation did not have any impact on
the Company's financial condition or results of operations.
In May 2003, the Financial Accounting Standards Board issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement requires that an issuer classify a
financial instrument that is within its scope as a liability. Many of these
instruments were previously classified as equity. This Statement was effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise was effective beginning July 1, 2003. The adoption of this standard
did not have any impact on the Company's financial condition or results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes, "anticipates," "contemplates," "expects," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions.
Critical Accounting Policies
- ----------------------------
Note 2 to the Company's consolidated financial statements (incorporated
by reference in Item 8 of the 10-K) lists significant accounting policies used
in the development and presentation of its financial statements. This discussion
and analysis, the significant accounting policies, and other financial statement
disclosures identify and address key variables and other qualitative and
quantitative factors that are necessary for an understanding and evaluation of
the Company and its results of operations.
The most significant estimates in the preparation of the Company's
financial statements are for the allowance for loans losses and accounting for
stock options. Please refer to the discussion of the allowance for loan losses
calculation under "Non-performing Assets and Allowance for Loan Losses" in the
"Financial Condition" section below. The Company accounts for their stock option
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees, " and related Interpretations. No
stock-based employee compensation is reflected in net income, as all options
granted had an exercise price equal to the market value of the underlying common
stock on the grant date. The Company currently has no intentions of adopting the
expense recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
11
Changes in Financial Condition
- ------------------------------
General
- -------
Total assets at September 30, 2003 were $392.7 million compared to
$367.5 million at year-end 2002.
Securities
- ----------
The fair value of securities available for sale at September 30, 2003
was $127.4 million, compared to $114.8 million at December 31, 2002. Total
purchases for the period ended September 30, 2003 were $90.9 million with
securities called and principal reductions of $60.1 million and sales of $16.6
million. The purchases were principally obligations of U.S. Government sponsored
agencies, including callable bonds and mortgage-backed-securities. Generally,
the purchases have average lives of less than 4 years.
Loans
- -----
Total loans receivable, net of unearned income, were $228.9 million at
September 30, 2003, compared to $218.0 million at December 31, 2002. The
increase was principally due to growth in the commercial real estate loan
portfolio which increased $10.5 million or 13.1%. The Company sold $7.3 million
of 30-year fixed-rate residential mortgages, for interest rate risk management,
into the secondary market, at a gain of $192,000, included in other income. The
Company saw a continued decline in its indirect automobile portfolio, included
in consumer loans, which experienced a net run-off of $8.2 million to total
$31.3 million as of September 30, 2003. The decrease is due to competition from
larger banks, automakers, finance companies and a slow down in the auto market.
The Company is also focusing its retail efforts on direct lending through its
branch system.
The Company no longer originates automobile leases, and as a result,
the portfolio declined $1,125,000 from December 31, 2002 to $467,000 at
September 30, 2003, which includes residual value of $424,000. The Company
liquidates its returned off-lease vehicles through various used car dealers and
automobile auction centers. As of September 30, 2003 the Company had an
inventory of vehicles to liquidate of $116,000, declining from $166,000 at
December 31, 2002. Total provision for losses incurred on off-lease vehicles,
included in other expense, was $25,000 for the nine months ended September 30,
2003, compared to $790,000 for the same period ended September 30, 2002. The
Company's reserve for future residual value losses was $52,000 at September 30,
2003 compared to $213,000 at December 31, 2002.
12
Set forth below is selected data relating to the composition of the loan
portfolio at the dates indicated:
Types of loans
(dollars in thousands) September 30, 2003 December 31, 2002
------------------ -----------------
$ % $ %
--------- ----- --------- -----
Real Estate-Residential 73,805 32.2 69,040 31.6
Commercial 90,116 39.3 79,623 36.5
Construction 5,717 2.5 4,109 1.9
Commercial, financial and agricultural 18,954 8.3 15,074 6.9
Consumer loans to individuals 40,229 17.5 48,951 22.4
Lease financing, net of unearned income 467 0.2 1,592 0.7
--------- ----- --------- -----
Total loans 229,288 100.0% 218,389 100.0%
Less:
Unearned income and deferred fees (404) (419)
Allowance for loan losses (3,272) (3,146)
--------- ---------
Total loans, net $ 228,842 $ 217,970
========= =========
Allowance for Loan Losses and Non-performing Assets
Following is a summary of changes in the allowance for loan losses for
the periods indicated:
Three Nine
(dollars in thousands) Months Ended September 30 Months Ended September 30
------------------------- -------------------------
2003 2002 2003 2002
------- ------- ------- -------
Balance, beginning $ 3,294 $ 3,260 $ 3,146 $ 3,216
Provision for loan losses 165 150 495 480
Charge-offs (197) (279) (448) (620)
Recoveries 10 12 79 67
------- ------- ------- -------
Net charge-offs (187) (267) (369) (553)
------- ------- ------- -------
Balance, ending $ 3,272 $ 3,143 $ 3,272 $ 3,143
======= ======= ======= =======
Allowance to total loans 1.43% 1.47% 1.43% 1.47%
Net charge-offs to average loans
(annualized) .33% .50% .22% .35%
13
The allowance for loan losses totaled $3,272,000 as of September 30,
2003 and represented 1.43% of total loans, compared to $3,146,000 as of December
31, 2002, and $3,143,000 as of September 30, 2002. Net charge-offs for the nine
months ended September 30, 2003, totaled $369,000 and consisted principally of
losses on the sale of repossessed automobiles and the write-down of a commercial
credit secured by automobiles. 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 an 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, large
dollar exposures and loan growth trends. Management considers the allowance
adequate at September 30, 2003 based upon the factors in the analysis. 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.
At September 30, 2003, non-performing loans totaled $290,000, which
is .13% of total loans compared to $221,000, or .10% of total loans at December
31, 2002 and $278,000 and .13% as of September 30, 2002. The increase from
year-end is due to a commercial credit secured by automobiles, which had an
$80,000 write-down in the third quarter, with the remaining collateral scheduled
for liquidation in the fourth quarter. The following table sets forth
information regarding non-performing loans and foreclosed real estate at the
dates indicated:
(dollars in thousands) September 30, 2003 December 31, 2002
------------------- -----------------
Loans accounted for on a non accrual basis:
Commercial and all other $116 $ -
Real Estate 69 213
Consumer - 3
---- ----
Total 185 216
Accruing loans which are contractually
past due 90 days or more 105 5
---- ----
Total non-performing loans $290 $221
Foreclosed real estate 11 21
---- ----
Total non-performing assets $301 $242
==== ====
Allowance for loans losses as a percent
of non-performing loans 1,128.3% 1,423.5%
Non-performing loans to total loans .13% .10%
Non-performing assets to total assets .08% .07%
Deposits
- --------
Total deposits as of September 30, 2003 were $315.5 million compared
to $291.9 million as of December 31, 2002. Non-interest-bearing demand deposits
as of September 30, 2003 were $45.8 million compared to $33.5 million at
December 31, 2002. The increase is due in part to new commercial relationships,
the seasonality of certain commercial and municipal accounts, and a new retail
checking product introduced in the fourth quarter of 2002. Time deposits in
denominations of $100,000 or more were $28.1 million at September 30, 2003
compared to $29.5 million at December 31, 2002. Retail savings accounts
increased $5 million to $56.6 million. The Company, as of September 30, 2003,
had $7.8 million of commercial cash management accounts included in short-term
borrowings, which represents funds of commercial customers invested in overnight
repurchase agreements. The Company considers these accounts as core funding.
14
The following table sets forth deposit balances as of the dates indicated.
(dollars in thousands) September 30, 2003 December 31, 2002
------------------ -----------------
Non-interest-bearing demand $ 45,846 $ 33,453
Interest-bearing demand 43,747 40,407
Money Market 43,563 38,908
Savings 56,595 51,629
Time 125,709 127,455
-------- --------
Total $315,460 $291,852
======== ========
Stockholders' Equity and Capital Ratios
- ---------------------------------------
At September 30, 2003, total stockholders' equity totaled $41.8
million, a net increase of $1,710,000 from December 31, 2002. The net increase
in stockholders' equity was primarily due to $3,426,000 in net income, that was
partially offset by $1,248,000 of cash dividends declared. In addition,
accumulated other comprehensive income decreased $1,092,000 due to a decrease in
fair value of securities in the available for sale portfolio. This decrease in
fair value is the result of a change in interest rates, which may unfavorably
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:
September 30, 2003 December 31, 2002
------------------ -----------------
Tier 1 Capital
(To average assets) 10.41% 10.13%
Tier 1 Capital
(To risk-weighted assets) 15.38% 15.06%
Total Capital
(To risk-weighted assets) 16.89% 16.57%
The minimum capital requirements imposed by the FDIC on the Bank for
leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The Company
has similar capital requirements imposed by the Board of Governors of the
Federal Reserve System (FRB). The Bank is also subject to more stringent
Pennsylvania Department of Banking (PDB) guidelines. The Bank's capital ratios
do not differ significantly from the Company's ratios. Although not adopted in
regulation form, the PDB utilizes capital standards requiring a minimum of 6.5%
leverage capital and 10% total capital. The Company and the Bank were in
compliance in FRB, FDIC and PDB capital requirements as of September 30, 2003
and December 31, 2002.
15
Results of Operations
NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)
Three Months Ended September 30,
------------------------------------------------------------------------
2003 2002
--------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 7,901 $ 21 1.06% $17,757 $ 73 1.67%
Interest-bearing deposits with banks 138 1 2.90 845 3 1.42
Securities held-to-maturity 6,180 162 10.49 6,201 135 8.71
Securities available-for-sale:
Taxable 106,714 944 3.54 93,459 1,181 5.05
Tax-exempt 18,491 197 4.26 13,871 252 7.27
-------- ------ -------- ------
Total securities available-for-sale (1) 125,205 1,141 3.65 107,330 1,433 5.34
Loans receivable (4) (5) 226,742 3,611 6.37 212,082 3,888 7.40
-------- ----- -------- -----
Total interest-earning assets 366,166 4,936 5.39 344,215 5,532 6.43
Non-interest-earning assets:
Cash and due from banks 10,168 9,147
Allowance for loan losses (3,336) (3,197)
Other assets 14,552 14,366
-------- --------
Total non-interest-earning assets 21,384 20,316
-------- --------
Total Assets $387,550 $364,531
======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand and money market $83,915 121 0.58% $78,481 192 0.98%
Savings 56,400 94 0.67 49,950 171 1.37
Time 127,317 899 2.82 123,669 1,123 3.63
-------- ------ -------- ------
Total interest-bearing deposits 267,632 1,114 1.66 252,100 1,486 2.36
Short-term borrowings 9,140 23 1.01 11,006 49 1.78
Long-term debt 23,000 324 5.63 23,000 324 5.63
-------- ------ -------- ------
Total interest-bearing liabilities 299,772 1,461 1.95 286,106 1,859 2.60
Non-interest-bearing liabilities:
Demand deposits 43,691 36,042
Other liabilities 2,557 4,166
-------- --------
Total non-interest-bearing liabilities 46,248 40,208
Stockholders' equity 41,530 38,217
-------- --------
Total Liabilities and Stockholders' Equity $387,550 $364,531
======== ========
Net interest income (tax equivalent basis) 3,475 3.44% 3,673 3.83%
==== ====
Tax-equivalent basis adjustment (176) (145)
----- ------
Net interest income $3,299 $3,528
====== ======
Net interest margin (tax equivalent basis) 3.80% 4.27%
==== ====
(1) Interest and yields are presented on a tax-equivalent basis using a
marginal tax rate of 34%.
(2) Average balances have been calculated based on daily balances.
(3) Annualized
(4) Loan balances include non-accrual loans and are net of unearned income.
(5) Loan yields include the effect of amortization of deferred fees, net of
costs.
16
Rate/Volume Analysis. The following table shows the fully taxable equivalent
effect of changes in volumes and rates on interest income and interest expense.
Changes in net interest income that could not be specifically identified as
either a rate or volume change were allocated proportionately to changes in
volume and changes in rate.
Increase/(Decrease)
-------------------
Three months ended September 30, 2003 Compared to
-------------------------------------------------
Three months ended September 30, 2002
-------------------------------------
Variance due to
---------------
Volume Rate Net
------------------------------
(dollars in thousands)
Interest-earning assets:
Federal funds sold $ (32) $ (20) $ (52)
Interest-bearing deposits with banks (12) 10 (2)
Securities held to maturity (3) 30 27
Securities available for sale:
Taxable 834 (1,071) (237)
Tax-exempt securities 347 (402) (55)
------- ------- -------
Total securities 1,181 (1,473) (292)
Loans receivable 1,313 (1,590) (277)
------- ------- -------
Total interest-earning assets 2,447 (3,043) (596)
Interest-bearing liabilities:
Interest-bearing demand deposits 81 (152) (71)
Savings 126 (203) (77)
Time 208 (432) (224)
------- ------- -------
Total interest-bearing deposits 415 (787) (372)
Short-term borrowings (7) (19) (26)
Long-term debt - - -
------- ------- -------
Total interest-bearing liabilities 408 (806) (398)
------- ------- -------
Net interest income (tax-equivalent basis) $ 2,039 $(2,237) $ (198)
======= ======= =======
17
Comparison of Operating Results for Three Months Ended September 30, 2003 and
- --------------------------------------------------------------------------------
September 30, 2002
- ------------------
General
- -------
For the three months ended September 30, 2003 net income totaled
$1,194,000 or $.46 per share basic, and $.45 per share diluted compared to
$1,154,000, or $.45 per share basic and $.44 diluted earned in the third quarter
of 2002. The resulting annualized return on average assets and annualized return
on average equity for the quarter were 1.22% and 11.41%, respectively, compared
to 1.26% and 11.98%, respectively, for the corresponding period in 2002.
Net Interest Income
- -------------------
Net interest income, on a fully taxable equivalent basis (fte) for
the three months ended September 30, 2003 totaled $3,475,000 compared to
$3,673,000 in 2002, a decrease of $198,000. The resultant fte net interest
spread and net interest margin were 3.44% and 3.80%, respectively, compared to
3.83% and 4.27%, respectively, for the 2002 period.
Interest income (fte) totaled $4,936,000 with a yield of 5.39% for
the period in 2003, compared to $5,532,000 and 6.43% in 2002. The decrease in
yield was due in part to lower interest rates in 2003, with prime rate at 4.00%
and Federal Funds rate at 1.00% as of September 30, 2003, declining from 4.75%
and 1.75%, respectively, as of September 30, 2002. The earning asset yield was
also unfavorably impacted by increased cash flows and maturities in the
investment portfolio, which were reinvested at lower yields. The reinvestment
purchases were also relatively short-term instruments with average lives of less
than 3.5 years. Loan yields were also unfavorably impacted by increased
refinancing activity and cash flows.
Interest expense for the three months ended September 30, 2003
totaled $1,461,000 at a cost of 1.95%, compared to $1,859,000 and 2.60% in 2002.
All categories of liability costs decreased in the lower interest rate
environments. Average interest-bearing deposits increased $15.5 million, with
the proceeds principally invested in commercial and residential real estate
loans.
Other Income
- ------------
Other income totaled $885,000 for the three months ended September
30, 2003 compared to $755,000 for the same period in 2002. Net realized gains on
securities transactions were $156,000 for the second quarter of 2003 compared to
$83,000 in 2002, with the gains principally due to the sale of corporate bonds
and mortgage backed securities. Gain on the sale of long-term mortgages was
$19,000 for 2003, compared to $6,000 in 2002. The increase in cash surrender on
life insurance was $78,000 for the period in 2003 compared to $51,000 in 2002
due to purchase of an additional $2,550,000 of bank owned life insurance in
2003.
Other Expense
- -------------
Other expense for the three months ended September 30, 2003 totaled
$2,417,000, a decrease of $123,000 from $2,540,000 for the three months ended
September 30, 2002. The decrease was principally due to lower losses on lease
residuals with $-0- for the third quarter of 2003, compared to $180,000 in the
similar period in 2002, as more cars were liquidated in 2002. The Bank made a
$100,000 charitable contribution (included in other expenses - other) in the
third quarter of 2003. The contribution qualifies for the Pennsylvania
Educational Improvement Tax Program. As a result, a $90,000 tax credit was
recorded against the Bank's Pennsylvania Shares Tax Liability (included in Other
expense-Taxes other than income). Salary and employee benefits expense was
$1,232,000 in 2003, compared to 1,219,000 in 2002, with increases in retirement
plan expense and health insurance offset by deferred salaries related to loan
activity.
Income Tax Expense
- ------------------
Income tax expense totaled $408,000 for an effective tax rate of
25.5% for the period ending September 30, 2003, compared to $439,000 and 27.6%
in the third quarter of 2002. The effective tax rate is less than 34%, due to
tax-exempt income on municipal securities and loans and the earnings on the cash
surrender value of bank-owned life insurance.
18
Results of Operations
NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)
Nine Months Ended September 30,
------------------------------------------------------------------------
2003 2002
--------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $9,811 $86 1.17% $15,215 $189 1.66%
Interest-bearing deposits with banks 149 1 0.89 395 4 1.35
Securities held-to-maturity 6,194 434 9.34 6,216 409 8.77
Securities available-for-sale:
Taxable 101,789 2,795 3.66 86,767 3,515 5.40
Tax-exempt 16,651 770 6.17 13,535 737 7.26
--------- ------- -------- -------
Total securities available-for-sale (1) 118,440 3,565 4.01 100,302 4,252 5.65
Loans receivable (4) (5) 223,079 10,906 6.52 213,406 11,857 7.41
-------- ------- -------- ------
Total interest-earning assets 357,673 14,992 5.59 335,534 16,711 6.64
Non-interest-earning assets:
Cash and due from banks 9,034 8,307
Allowance for loan losses (3,268) (3,248)
Other assets 13,591 14,219
-------- --------
Total non-interest-earning assets 19,357 19,278
-------- --------
Total Assets $377,030 $354,812
======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand and money market. $ 80,194 398 0.66% $ 73,006 559 1.02%
Savings 54,494 358 0.88 47,607 495 1.39
Time 128,879 2,885 2.98 127,421 3,662 3.83
--------- ------- -------- -------
Total interest-bearing deposits 263,567 3,641 1.84 248,034 4,716 2.54
Short-term borrowings 8,543 73 1.14 8,874 130 1.95
Long-term debt 23,000 962 5.58 23,308 974 5.57
-------- ------- -------- -------
Total interest-bearing liabilities 295,110 4,676 2.11 280,216 5,820 2.77
Non-interest-bearing liabilities:
Demand deposits 37,936 33,521
Other liabilities 2,909 4,222
-------- --------
Total non-interest-bearing liabilities 40,845 37,743
Stockholders' equity 41,075 36,853
-------- --------
Total Liabilities and Stockholders' Equity $377,030 $354,812
======== ========
Net interest income (tax equivalent basis) 10,316 3.48% 10,891 3.87%
==== ====
Tax-equivalent basis adjustment (491) (419)
------- -------
Net interest income $ 9,825 $10,472
======= =======
Net interest margin (tax equivalent basis) 3.85% 4.33%
==== ====
(1) Interest and yields are presented on a tax-equivalent basis using a
marginal tax rate of 34%.
(2) Average balances have been calculated based on daily balances.
(3) Annualized
(4) Loan balances include non-accrual loans and are net of unearned income.
(5) Loan yields include the effect of amortization of deferred fees, net of
costs.
19
Rate/Volume Analysis. The following table shows the fully taxable equivalent
effect of changes in volumes and rates on interest income and interest expense.
Changes in net interest income that could not be specifically identified as
either a rate or volume change were allocated proportionately to changes in
volume and changes in rate.
Increase/(Decrease)
-------------------
Nine months ended September 30, 2003 Compared to
------------------------------------------------
Nine months ended September 30, 2002
------------------------------------
Variance due to
---------------
Volume Rate Net
-------------------------------------
(dollars in thousands)
Interest-earning assets:
Federal funds sold $ (54) $ (49) $ (103)
Interest-bearing deposits with banks (2) (1) (3)
Securities held-to-maturity (2) 27 25
Securities available-for-sale:
Taxable 804 (1,524) (720)
Tax-exempt securities 199 (166) 33
------- ------- -------
Total securities 1,003 (1,690) (687)
Loans receivable 779 (1,730) (951)
------- ------- -------
Total interest-earning assets 1,724 (3,443) (1,719)
Interest-bearing liabilities:
Interest-bearing demand deposits 79 (240) (161)
Savings 98 (235) (137)
Time 67 (844) (777)
------- ------- -------
Total interest-bearing deposits 244 (1,319) (1,075)
Short-term borrowings (5) (52) (57)
Long-term debt (13) 1 (12)
------- ------- -------
Total interest-bearing liabilities 226 (1,370) (1,144)
------- ------- -------
Net interest income (tax-equivalent basis) $ 1,498 $(2,073) $ (575)
======= ======= =======
20
Comparison of Operating Results for Nine Months Ended September 30, 2003 and
- --------------------------------------------------------------------------------
September 30, 2002.
- -------------------
General
- -------
For the nine months ended September 30, 2003 net income totaled
$3,426,000 with basic earnings per share (eps) of $1.32 and diluted eps of
$1.30. This compares to $3,224,000 earned for the corresponding period in 2002
with basic eps of $1.27 and diluted eps of $1.25. The resulting annualized
return on average assets (ROA) was 1.22% for 2003, with an annualized return on
equity (ROE) of 11.16% compared to an ROA of 1.21% in 2002 and ROE of 11.70%.
Net Interest Income
- -------------------
Net interest income on a fully taxable equivalent basis (fte) for the
nine months ended September 30, 2003, totaled $10,316,000, decreasing from
$10,891,000 for the same period in 2002.
The net interest spread and net interest margin for 2003 were 3.48%
and 3.85%, respectively, compared to 3.87% and 4.33%, respectively in 2002. The
decrease in net interest income was due to asset yields declining faster than
the cost of funds. This is due in part to the increase in cash flow, caused by
low interest rates and high levels of refinancing, in both the investment and
loan portfolios. The proceeds were reinvested at the current low yields. Net
interest income was also unfavorably affected by the asset mix, with a lower
average loan to average deposit ratio of 74% in 2003, compared to 75.8% in 2002.
Interest income (fte) for the nine months ended September 30, 2003
totaled $14,992,000 compared to $16,711,000 in 2002. The decrease was
principally due to the lower interest rate environment, with the average prime
rate of 4.14% in 2003 compared to 4.75% in 2002. Treasury rates were also
considerably lower in 2003, which reduced the reinvestment yield on the
investment portfolio. The yield on earning assets for the period in 2003 was
5.59% compared to 6.64% in 2002. Interest expense for 2003 was $4,676,000 with a
cost of 2.11%, compared to $5,820,000 and 2.77% in 2002. All deposit categories
experienced a decrease in costs, with total interest-bearing deposits at 1.84%,
declining from 2.54% in 2002.
The Company has also shortened the average repricing term of the
investment portfolio, from 3.3 years as of September 30, 2002 to 2.2 years as of
September 30, 2003. This has a negative effect on yields in the short-term, but
positions the bank to take advantage of any increase in market interest rates.
Other Income
- ------------
Other income totaled $2,695,000 for the nine months ended September
30, 2003 compared to $2,384,000 for the 2002 period. Service charges and fees
increased $78,000 to $1,391,000 due in part to fees related to loan activity and
increased debit card revenues. Other income included $192,000 on gains on the
sale of long-term fixed-rate mortgages compared to $65,000 in 2002. The gains on
sales of securities were $542,000, and consisted principally of sales of equity
holdings in other financial institutions, corporate bonds and mortgage-backed
securities, compared to $427,000 in similar gains in 2002.
Other Expense
- -------------
Other expense for nine months ended September 30, 2003 was
$7,358,000, decreasing from $7,964,000 in 2002. The decrease was principally due
to a lower level of losses on lease residuals, as a result of a decrease in the
number of leases, $25,000 in 2003 compared to $790,000 in 2002. Salary and
benefit expense totaled $3,681,000 in 2003 compared to $3,675,000. Increases in
health insurance costs and retirement plans were partially offset by a higher
level of deferred salaries related to loan activity.
Income Tax Expense
- ------------------
Income tax expense for the nine months ended September 30, 2003 was
$1,241,000 for an effective tax rate of 26.6% compared to $1,188,000 and 26.9%
in 2002.
21
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
There were no significant changes as of September 30, 2003 from the
information presented in the Form 10-K for the year-ended December 31, 2002.
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.
22
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
23
Item 6. Exhibits and Reports on Form 8-K
(a) 3(i) Articles of Incorporation of Norwood Financial Corp*
3(ii) Bylaws of Norwood Financial Corp.*
4.0 Specimen Stock Certificate of Norwood Financial Corp.*
10.1 Amended Employment Agreement with William W. Davis, Jr.***
10.2 Amended Employment Agreement with Lewis J. Critelli ***
10.3 Form of Change-In-Control Severance Agreement with seven key employees of the Bank*
10.4 Consulting Agreement with Russell L. Ridd**
10.5 Wayne Bank Stock Option Plan*
10.6 Salary Continuation Agreement between the Bank and William W. Davis, Jr.***
10.7 Salary Continuation Agreement between the Bank and Lewis J. Critelli***
10.8 Salary Continuation Agreement between the Bank and Edward C. Kasper***
10.9 1999 Directors Stock Compensation Plan***
31.1 Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
32.1 Section 1350 Certification
(b) Reports on Form 8-K
On July 18, 2003, the Registrant filed a report on Form 8-K
reporting under Item 9 the announcement of earnings for the quarter
ended June 30, 2003. No financial statements were filed with this
report.
- ---------------------------
* Incorporated herein by reference into the identically numbered exhibits
of the Registrant's Form 10 Registration Statement initially filed with
the Commission on April 29, 1996.
** Incorporated herein by reference into the identically numbered exhibits
of the Registrant's Form 10-K filed with the Commission on March 31,
1997.
*** Incorporated herein by reference into the identically numbered exhibits
of the Registrant's Form 10-K filed with the Commission on March 23,
2000.
24
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: November 13, 2003 By: /s/William W. Davis, Jr.
-------------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2003 By:/s/Lewis J. Critelli
--------------------------------------
Lewis J. Critelli
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
25