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 June 30, 2004
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ------------------------
Commission file number 0-28366
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Norwood Financial Corp.
- --------------------------------------------------------------------------------
(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
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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 August 12, 2004
- --------------------------------------- ---------------------------------
common stock, par value $0.10 per share 2,670,825
NORWOOD FINANCIAL CORP.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2004
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. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands)
June 30, December 31,
2004 2003
--------- ---------
(Unaudited)
ASSETS
Cash and due from banks $ 9,651 $ 9,110
Interest bearing deposits with banks 83 64
Federal funds sold 7,875 --
--------- ---------
Cash and cash equivalents 17,609 9,174
Securities available for sale 116,484 124,823
Securities held to maturity, fair value 2004
$6,014, 2003: $5,975 5,718 5,748
Loans receivable (net of unearned income) 246,220 233,733
Less: Allowance for loan losses 3,362 3,267
--------- ---------
Net loans receivable 242,858 230,466
Investment in FHLB Stock 1,976 2,002
Bank premises and equipment, net 5,559 5,596
Accrued interest receivable 1,638 1,783
Other Assets 8,081 7,891
--------- ---------
TOTAL ASSETS $ 399,923 $ 387,483
========= =========
LIABILITIES
Deposits:
Non-interest bearing demand $ 50,592 $ 39,517
Interest bearing 267,407 267,152
--------- ---------
Total deposits 317,999 306,669
Short-term borrowings 15,040 12,859
Long-term debt 23,000 23,000
Accrued interest payable 1,058 1,309
Other liabilities 48 815
--------- ---------
TOTAL LIABILITIES 357,145 344,652
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares
issued 2,705,715 shares 270 270
Surplus 5,081 4,933
Retained earnings 38,467 37,042
Treasury stock at cost: 2004: 14,097 shares, 2003: 21,318 (228) (295)
Unearned ESOP shares (450) (550)
Accumulated other comprehensive income (loss) (362) 1,431
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 42,778 42,831
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 399,923 $ 387,483
========= =========
See accompanying notes to the consolidated financial statements
3
NORWOOD FINANCIAL CORP. Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------------------ ----------------
2004 2003 2004 2003
------ ------ ------ ------
INTEREST INCOME
Loans receivable, including fees $3,564 $3,627 $7,116 $7,263
Securities 1,021 1,157 2,151 2,413
Other 10 32 17 65
------ ------ ------ ------
Total interest income 4,595 4,816 9,284 9,741
INTEREST EXPENSE
Deposits 862 1,222 1,770 2,527
Short-term borrowings 32 25 57 50
Long-term debt 321 321 644 638
------ ------ ------ ------
Total interest expense 1,215 1,568 2,471 3,215
------ ------ ------ ------
NET INTEREST INCOME 3,380 3,248 6,813 6,526
PROVISION FOR LOAN LOSSES 165 165 290 330
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVSION FOR LOAN LOSSES 3,215 3,083 6,523 6,196
OTHER INCOME
Service charges and fees 473 460 914 902
Income from fiduciary activities 69 54 155 104
Net realized gains on sales of securities 84 243 262 386
Gain on sale of loans 5 33 62 173
Other 131 132 308 245
------ ------ ------ ------
Total other income 762 922 1,701 1,810
OTHER EXPENSES
Salaries and employee benefits 1,262 1,219 2,564 2,449
Occupancy, furniture & equipment, net 338 359 690 715
Data processing related 156 134 302 278
Losses on lease residuals -- 25 90 25
Taxes, other than income 92 88 183 170
Professional fees 71 79 156 128
Other 525 571 1,054 1,176
------ ------ ------ ------
Total other expenses 2,444 2,475 5,039 4,941
INCOME BEFORE INCOME TAXES 1,533 1,530 3,185 3,065
INCOME TAX EXPENSE 406 408 858 833
------ ------ ------ ------
NET INCOME $1,127 $1,122 $2,327 $2,232
====== ====== ====== ======
BASIC EARNINGS PER SHARE $ 0.43 $ 0.43 $ 0.88 $ 0.86
====== ====== ====== ======
DILUTED EARNINGS PER SHARE $ 0.42 $ 0.42 $ 0.86 $ 0.85
====== ====== ====== ======
Cash dividends per share $ 0.17 $ 0.16 $ 0.34 $ 0.32
====== ====== ====== ======
See accompanying notes to the consolidated financial statements.
4
NORWOOD FINANCIAL CORP
Consolidated statement of changes in stockholders' equity (unaudited)
(dollars in thousands, except per share data)
Accumulated
Number of Unearned Other
shares Common Retained Treasury ESOP Comprehensive
issued Stock Surplus Earnings Stock Shares Income(Loss) Total
------ ----- ------- -------- ----- ------ ------------ -----
Balance December 31, 2002 1,803,824 $180 $4,762 $34,082 ($640) ($750) $2,491 $40,125
Comprehensive Income:
Net Income 2,232 2,232
Change in unrealized gains (losses) on
securities available for sale, net of
reclassification adjustment and tax effects (46) (46)
-------
Total comprehensive income 2,186
-------
Cash dividends declared, $.32 per share (829) (829)
Three-for-two stock split in the form of a
50% stock dividend 901,891 90 (91) (1)
Stock options exercised 1 93 94
Tax benefit of stock options exercised 9 9
Acquisition of treasury stock (46) (46)
Release of earned ESOP shares 95 100 195
--------- ---- ------ ------- ----- ----- ------ -------
Balance, June 30, 2003 2,705,715 $270 $4,776 $35,485 ($593) ($650) $2,445 $41,733
========= ==== ====== ======= ===== ===== ====== =======
Accumulated
Number of Unearned Other
shares Common Retained Treasury ESOP Comprehensive
issued Stock Surplus Earnings Stock Shares Income(Loss) Total
------ ----- ------- -------- ----- ------ ------------ -----
Balance December 31, 2003 2,705,715 $270 $4,933 $37,042 ($295) ($550) $1,431 $42,831
Comprehensive Income:
Net Income 2,327 2,327
Change in unrealized gains (losses)on
securities available for sale, net of
reclassification adjustment and tax effects (1,793) (1,793)
-------
Total comprehensive income 534
-------
Cash dividends declared $.34 per share (902) (902)
Stock options exercised (26) 162 136
Tax benefit of stock options exercised 9 9
Acquisition of treasury stock (95) (95)
Release of earned ESOP shares 165 100 265
--------- ---- ------ ------- ----- ----- ----- -------
Balance, June 30, 2004 2,705,715 $270 $5,081 $38,467 ($228) ($450) ($362) $42,778
========= ==== ====== ======= ===== ===== ===== =======
See accompanying notes to the Consolidated Financial Statements
5
NORWOOD FINANCIAL CORP.
Consolidated Statements of Cashflows (Unaudited)
(dollars in thousands)
Six Months Ended June 30,
-------------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,327 $ 2,232
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 290 330
Depreciation 136 315
Amortization of intangible assets 26 57
Deferred income taxes (168) (521)
Net amortization of securities premiums and discounts 260 277
Net realized gain on sales of securities (262) (386)
Earnings on life insurance policy (158) (97)
Net gain on sale of mortgage loans (62) (173)
Proceeds from sale of Bank equipment 6 --
Gain on sale of foreclosed real estate (19) --
Mortgage loans originated for sale (3,837) (4,821)
Proceeds from sale of mortgage loans 3,899 4,994
Tax benefit of stock options exercised 9 9
Release of ESOP shares 265 195
Decrease in accrued interest receivable and other assets 275 762
Increase in accrued interest payable and other liabilities 71 149
-------- --------
Net cash provided by operating activities 3,195 3,322
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 6,622 11,941
Proceeds from maturities and principal reductions on mortgage-backed securities 26,045 40,362
Purchases (27,050) (57,700)
Securities held to maturity proceeds 35 35
(Increase) decrease in investment in FHLB stock 26 (228)
Net increase in loans (12,892) (7,742)
Purchase of bank premises and equipment (242) (69)
Proceeds from sale of foreclosed real estate 41 10
-------- --------
Net cash used in investing activities (7,415) (13,391)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,330 15,340
Net increase in short term borrowings 2,181 (1,427)
Stock options exercised 136 94
Acquisition of treasury stock (95) (46)
Cash dividends paid and cash paid in lieu of fractional shares (897) (828)
-------- --------
Net cash provided by financing activities 12,655 13,133
-------- --------
Increase in cash and cash equivalents 8,435 3,064
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,174 16,244
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,609 $ 19,308
======== ========
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 six month periods ended
June 30, 2004 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2004 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, 2003.
3. Earnings Per Share
------------------
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and are determined using the treasury stock
method.
The following table sets forth the computations of basic and diluted
earnings per share:
(in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
------------------ ----------------
2004 2003 2004 2003
----- ----- ----- -----
Basic EPS weighted average shares outstanding 2,642 2,593 2,639 2,591
Dilutive effect of stock options 57 46 57 41
----- ----- ----- -----
Diluted EPS weighted average shares outstanding 2,699 2,639 2,696 2,632
===== ===== ===== =====
7
4. Stock Option Plans
------------------
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.
Three Months Six Months
ended June ended June
---------------------- ----------------------
In thousands, except for per share data)
2004 2003 2004 2003
--------- --------- --------- ---------
Net income as reported $ 1,127 $ 1,122 $ 2,327 $ 2,232
Total stock based employee compensation determined
Under fair value based method for all awards, net of taxes (36) (15) (72) (30)
--------- --------- --------- ---------
Pro forma net income $ 1,091 $ 1,107 $ 2,255 $ 2,193
========= ========= ========= =========
Earnings per share (basic)
As Reported $ .43 $ .43 $ .88 $ .86
Pro forma .41 .43 .85 .85
Earnings per share (assuming dilution)
As Reported .42 .42 .86 .85
Pro forma .40 .42 .84 .84
During the six months ended June 30, 2004, there were 10,860 stock options
exercised at an average exercise price of $12.46.
8
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 periods ended June 30, 2004 and 2003
were $2,722,000 and $3,508,000 respectively. Cash payments for income taxes in
2004 were $954,000 compared to $898,000 in 2003. Non-cash investing activity for
2004 and 2003 included foreclosed mortgage loans and repossession of other
assets of $140,000 and $308,000, respectively.
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 Six Months
------------------ ------------------
Ended June 30 Ended June 30
------- ------- ------- -------
2004 2003 2004 2003
------- ------- ------- -------
Unrealized holding gains/(losses)
on available for sale securities $(3,186) $ 669 $(2,457) $ 323
Reclassification adjustment for gains
realized in income (84) (243) (262) (386)
------- ------- ------- -------
Net unrealized gains/(losses) $(3,270) $ 426 $(2,719) $ (63)
Income tax (benefit) (1,112) 148 (926) (17)
------- ------- ------- -------
Other comprehensive income (loss) $(2,158) $ 278 $(1,793) $ (46)
======= ======= ======= =======
9
7. 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:
June 30
-----------------
2004 2003
------- -------
Commitments to grant loans $11,734 $11,906
Unfunded commitments under lines of credit 29,472 25,178
Standby letters of credit 1,930 811
------- -------
$43,136 $37,895
======= =======
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 payment required under the corresponding guarantees. The current amount
of the liability as of June 30, 2004 for guarantees under standby letters of
credit issued is not material.
10
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 "Allowance for Loan Losses and Non-performing Assets" and in
the "Changes in 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."
Changes in Financial Condition
- ------------------------------
General
- -------
Total assets as of June 30, 2004 were $399.9 million compared to $387.5
million as of December 31, 2003. The increase was principally due to loan growth
of $12.5 million funded in part by $11.3 million of deposit growth.
Securities
- ----------
The fair value of securities available for sale as of June 30, 2004 was
$116.5 million declining from $124.8 million as of December 31, 2003. The
decrease was principally due to a decline of $2.8 million in callable bonds of
U.S. Government agencies and the sale of $6.6 million of mortgage-backed
securities and corporate bonds. The Company is reducing its exposure to callable
bonds and to mortgage backed securities issued by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corp. (Freddie Mac). Total
mortgage-backed securities decreased $7.0 million from December 31, 2003 to June
30, 2004. Cash flow from the portfolio was reinvested in short-term corporate
bonds, U.S. Government Agencies and invested in federal funds sold. As a result,
federal funds sold totaled $7.9 million as of June 30, 2004, compared to $-0- at
year-end.
Loans Receivable
- ----------------
Total loans receivable were $246.2 million as of June 30, 2004, an
increase of $12.5 million or 5.1% compared to $233.7 million as of December 31,
2003. An increase in commercial lending was offset by a continued decline in
indirect lending of $2.8 million.
The Company's indirect lending portfolio (included in consumer loans to
individuals) declined $4.4 million to $23.9 million as of June 30, 2004. As the
Company is focusing its efforts on increasing direct and real estate lending
through its branch system, it anticipates a further decrease in indirect
financing throughout 2004.
11
The Company sold $3.8 million of 30 year fixed rate residential
mortgages at a gain of $61,000 (included in other income) for the six months
ended June 30, 2004. As a result of a spring home equity campaign, residential
real estate loans increased $8.3 million to total $85.8 million compared to
$77.5 million as of December 31,2003.
The Company's automobile leasing portfolio totaled $14,000 as of June
30, 2004 compared to $316,000 at year-end. The Company expects the seven
remaining vehicles to be liquidated by September 30 2004. The Company maintains
a reserve for residual losses (included in other liabilities) which totaled
$26,000 as of June 30, 2004 compared to $66,000 as of December 31, 2003.
Set forth below is selected data relating to the composition of the
loan portfolio at the dates indicated:
Types of loans
(dollars in thousands)
June 30, 2004 December 31, 2003
----------------- --------------------
Amount % Amount %
------ ----- ------ -----
Real Estate-Residential $ 85,790 34.8% $ 77,459 33.1%
Commercial 102,730 41.6 96,276 41.1
Construction 2,928 1.2 5,904 2.5
Commercial, financial and agricultural 22,847 9.3 17,022 7.3
Consumer loans to individuals 32,309 13.1 37,219 15.9
Lease financing, net of unearned income 14 -- 316 0.1
--------- ----- --------- -----
Total loans 246,618 100.0% 234,196 100.0%
Unearned income and deferred fees (398) (463)
--------- ---------
246,220 233,733
Allowance for loan losses (3,362) (3,267)
--------- ---------
Net loans receivable $ 242,858 $ 230,466
========= =========
12
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 Months Six Months
------------------- -------------------
Ended June 30 Ended June 30
------------------- -------------------
(dollars in thousands) 2004 2003 2004 2003
------- ------- ------- -------
Balance, beginning $ 3,302 $ 3,212 $ 3,267 $ 3,146
Provision for loan losses 165 165 290 330
Charge-offs (111) (119) (209) (252)
Recoveries 6 36 14 70
------- ------- ------- -------
Net charge-offs (105) (83) (195) (182)
------- ------- ------- -------
Balance, ending $ 3,362 $ 3,294 $ 3,362 $ 3,294
======= ======= ======= =======
Allowance to total loans 1.37% 1.46% 1.37% 1.46%
Net charge-offs to average loans
(annualized) .17% .15% .16% .16%
The allowance for loan losses totaled $3,362,000 as of June 30, 2004
and represented 1.37% of total loans, compared to $3,267,000 at year end. Net
charge-offs for the six month period ended June 30, 2004, totaled $195,000 and
consisted principally of losses on the sale of repossessed 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 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, large dollar exposures and loan growth.
Management considers the allowance adequate at June 30, 2004 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 June 30, 2004, non-performing loans totaled $297,000, which is
..12% of total loans compared to $143,000, or .06% of total loans at December 31,
2003. The increase is due to one credit secured by real estate which was 90 days
past due as of June 30, 2004. A payment was subsequently made in early July. The
borrower is actively working to sell real estate to reduce the debt. The
following table sets forth information regarding non-performing loans and
foreclosed real estate at the date indicated:
(dollars in thousands) June 30 ,2004 December 31, 2003
------------- -----------------
Loans accounted for on a non accrual basis:
Commercial and all other $ - $ -
Real Estate 60 125
Consumer - -
------- -------
Total 60 125
Accruing loans which are contractually
past due 90 days or more 237 18
------- -------
Total non-performing loans 297 143
Foreclosed real estate - -
------- -------
Total non-performing assets $ 297 $ 143
======= =======
Allowance for loans losses
coverage of non-performing loans 11.3x 22.8x
Non-performing loans to total loans .12% .06%
Non-performing assets to total assets .07% .04%
13
Deposits
- --------
Total deposits as of June 30, 2004 were $318.0 million increasing
from $306.7 million as of December 31, 2003. The increase in non-interest
bearing demand is due in part to new commercial accounts and the seasonality of
certain corporate and municipal accounts.
The following table sets forth deposit balances as of the dates indicated.
(dollars in thousands) June 30, 2004 December 31, 2003
------------- -----------------
Non-interest bearing demand $50,592 $39,517
Interest bearing demand 45,692 40,926
Money Market 46,649 46,481
Savings 59,625 55,895
Time deposits <$100,000 93,033 94,478
Time deposits >$100,000 27,514 29,372
-------- --------
Total $317,999 $306,669
======== ========
Short-term Borrowings
- ---------------------
Short-term borrowings as of June 30, 2004 were $15.0 million compared
to $12.9 million as of December 31, 2003. The increase was principally due to a
higher level of cash management account balances.
Off Balance Sheet Arrangements
- ------------------------------
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
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.
A summary of the contractual amount of the Company's financial
instrument commitments is as follows:
June 30, December 31,
-------- ------------
2004 2003
---- ----
(In thousands)
Commitments to grant loans $11,734 $12,197
Unfunded commitments under lines of credit 29,472 26,269
Standby letters of credit 1,930 2,128
------- -------
$43,136 $40,594
======= =======
14
Stockholders' Equity and Capital Ratios
- ---------------------------------------
At June 30, 2004, total stockholders' equity totaled $42.8 million, a
net decrease of $53,000 from December 31, 2003. The net change in stockholders'
equity was primarily due to $2,327,000 in net income, that was partially offset
by $902,000 of dividends declared. In addition, accumulated other comprehensive
income decreased $1,793,000 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 impact the fair 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:
June 30, 2004 December 31, 2003
------------- -----------------
Tier 1 Capital
(To average assets) 10.99% 10.52%
Tier 1 Capital
(To risk-weighted assets) 15.64% 15.58%
Total Capital
(To risk-weighted assets) 17.09% 17.09%
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 June 30, 2004 and
December 31, 2003.
Liquidity
- ---------
As of June 30, 2004, the Company had cash and cash equivalents of $17.6
million in the form of cash, due from banks, federal funds sold and short-term
deposits with other institutions. In addition, the Company had total securities
available for sale of $116.5 million which could be used for liquidity needs.
This totals $134.1 million and represents 33.5% of total assets compared to
$134.0 million and 34.6% of total assets as of December 31, 2003. The Company
also monitors other liquidity measures, all of which were within the Company's
policy guidelines as of June 30, 2004 and December 31, 2003. Based upon these
measures, the Company believes its liquidity is adequate.
The Company maintains established lines of credit with the Federal Home
Loan Bank of Pittsburgh (FHLB), the Atlantic Central Bankers Bank (ACBB) and
other correspondent banks, which are available to support liquidity needs. The
approximate borrowing capacity from the FHLB was $123.8 million, of which $23
million of long-term borrowings was outstanding as of June 30, 2004 and December
31, 2003
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 June 30,
----------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ----
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 4,212 $ 9 0.85% $ 10,566 $ 31 1.17%
Interest bearing deposits with banks 139 1 2.88 117 1 3.42
Securities held-to-maturity 5,740 127 8.85 6,196 136 8.78
Securities available for sale:
Taxable 101,144 753 2.98 100,808 869 3.45
Tax-exempt 17,563 276 6.29 16,778 297 7.08
-------- ------ -------- ------
Total securities available for sale (1) 118,707 1,029 117,586 1,166 3.97
3.47
Loans receivable (4) (5) 241,343 3,598 5.96 223,938 3,645 6.51
-------- ------ -------- ------
Total interest earning assets 370,141 4,764 5.15 358,403 4,979 5.56
Non-interest earning assets:
Cash and due from banks 9,160 8,983
Allowance for loan losses (3,330) (3,260)
Other assets 14,740 12,891
------ ------
Total non-interest earning assets 20,570 18,614
------ ------
Total Assets $390,711 $377,017
======== ========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and money market $ 87,497 127 0.58% $ 80,453 136 0.68
Savings 57,336 67 0.47 54,504 130 0.95
Time 118,121 668 2.26 129,176 956 2.96
-------- ------ -------- ------
Total interest bearing deposits 262,954 862 1.31 264,133 1,222 1.85
Short-term borrowings 12,977 32 0.89 8,684 25 1.15
Long-term debt 23,000 321 5.62 23,000 321 5.58
-------- ------ -------- ------
Total interest bearing liabilities 298,931 1,215 1.63 295,817 1,568 2.12
Non-interest bearing liabilities:
Demand deposits 46,793 36,928
Other liabilities 1,554 3,059
-------- --------
Total non-interest bearing liabilities 48,347 39,987
Stockholders' equity 43,433 41,213
-------- --------
Total Liabilities and Stockholders' Equity $390,711 $377,017
======== ========
Net interest income (tax equivalent basis) 3,549 3.52% 3,411 3.44%
====== ======
Tax-equivalent basis adjustment (169) (163)
------ ------
Net interest income $3,380 $3,248
====== ======
Net interest margin (tax equivalent basis) 3.84% 3.81%
====== ======
(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.
Increase/(Decrease)
Three months ended June 30, 2004 Compared to
Three months ended June 30, 2003
Variance due to
Net Volume Rate
--- ------ ----
(dollars in thousands)
Assets
Interest earning assets:
Federal funds sold ......................... $ (15) $ (7) $ (22)
Interest bearing deposits with banks ....... 1 (1) --
Securities held to maturity ................ (16) 7 (9)
Securities available for sale:
Taxable .................................. 20 (136) (116)
Tax-exempt securities .................... 72 (93) (21)
------- ------- -------
Total securities ....................... 92 (229) (137)
Loans receivable ........................... 1,155 (1,202) (47)
------- ------- -------
Total interest earning assets .............. 1,217 (1,432) (215)
Interest bearing liabilities:
Interest-bearing demand and money market.. 55 (64) (9)
Savings .................................. 43 (106) (63)
Time ..................................... (77) (211) (288)
.. ------- ------- -------
Total interest bearing deposits ..... 21 (381) (360)
Short-term borrowings ...................... 28 (21) 7
Other borrowings ........................... -- -- --
Total interest bearing liabilities ....... 49 (402) (353)
.. ------- ------- -------
Net interest income (tax-equivalent basis).. $ 1,168 $(1,030) $ 138
======= ======= =======
(1) Changes in net interest income that could not be specifically identified as
either a rate or volume change were allocated proportionately to changes in
volume and changes in rate.
17
Comparison of Operating Results for The Three Months Ended June 30, 2004 to
- --------------------------------------------------------------------------------
June 30, 2003
- -------------
General
- -------
For the three months ended June 30, 2004, net income totaled
$1,127,000, an increase of $5,000, over $1,122,000 earned in the similar period
of 2003. Earnings per share for the current period were $.43 basic and $.42 on a
diluted basis, compared to $.43 basic and $.42 on a diluted basis for the three
months ended June 30, 2003. The resulting return on average assets and return on
average equity for the three months ended June 30, 2004, were 1.16% and 10.41%,
respectively compared to 1.19% and 10.92%, respectively for the similar period
in 2003.
The following table sets forth changes in net income:
Dollars in thousands Three months ended
------------------------------
June 30, 2004 to June 30, 2003
------------------------------
Net income three months ended June 30, 2003 $1,122
------
Net interest income 132
Provision for loan losses -
Net realized gains on sales of securities (159)
Gains on sale of loans (28)
All other income 27
Salaries and employee benefits (43)
Losses on lease residuals 25
All other expenses 49
Income tax effect 2
------
Net income three months ended June 30, 2004 $1,127
======
Net Interest Income
- -------------------
Net interest income on a fully taxable equivalent basis (fte) for the
three months ended June 30, 2004, totaled $3,549,000, an increase of $138,000 or
4.0%, over the similar period in 2003. The fte net interest spread and net
interest margin were 3.52% and 3.84% increasing from 3.44% and 3.81% for the
three months ended June 30, 2003.
Interest income (fte) totaled $4,764,000 at a yield of 5.15% compared
to $4,979,000 and a yield of 5.56% in 2003. The decrease in yield was due in
part, to lower short-term interest rates in 2004, with the average prime rate at
4.00% and the Federal Funds rate at 1.00% as of June 30, 2004, declining from an
average of 4.24% and 1.24%, respectively, as of June 30, 2003. The decrease in
rates, was partially offset by an increase in volume. Average loans increased
$17.4 million, and represented 65.2% of total average earning assets for the
three months ended June 30, 2004 compared to 62.5% for the similar period in the
prior year.
Interest expense for the three months ended June 30, 2004 totaled
$1,215,000 at a cost of 1.63% compared to $1,568,000 and 2.12% in the prior
period. The cost of each type of deposit decreased in the lower interest rate
environment in 2004. The cost of deposits was also favorably impacted by a
change in the mix, with a higher percentage of lower costing transaction and
savings accounts in 2004. For the three months ended, June 30, 2004, the average
transaction and savings accounts to total average deposits was 61.9% compared to
57.0% for the similar period in 2003.
18
Other Income
- ------------
Other income totaled $762,000 for the three months ended June 30, 2004,
compared to $922,000 during the similar period in 2003. Net realized gains on
the sales of securities were $84,000 in 2004, declining from $243,000 in the
similar period of 2003. The decrease was principally due to gains on corporate
bonds sold in 2003. Service charges and fees increased $13,000 to $473,000,
principally due to increased fees related to customer non-sufficient funds as a
result of the increase in checking accounts. Earnings on the cash surrender
value of bank-owned life insurance (BOLI, included in other) was $92,000 for the
three months ended June 30, 2004, increasing from $78,000 in the similar period
of 2003. The increase was due to the purchase of an additional $2.5 million of
BOLI, during the third quarter of 2003, the proceeds of which were used to
offset expenses of employee benefit plans.
Other Expenses
- --------------
Other expenses for the three months ended June 30, 2004 totaled
$2,444,000, a decrease of $31,000. Salaries and employee benefits increased
$43,000 to $1,262,000 principally due to increases in expense related to the
Employee Stock Ownership Plan (ESOP) of $18,000 and health insurance cost of
$12,000. The expense associated with losses on lease residuals was -0- for 2004
compared to $25,000 for the similar period of 2003. The Company expects to sell
the remaining seven vehicles by September 30, 2004.
In July, the Company opened a new branch in the Marshalls Creek area of
Monroe County. The Company anticipates an increase in salary and occupancy
expense as well as certain one-time marketing costs, which may be incurred
during the third quarter.
Income Tax Expense
- ------------------
Income tax expense totaled $406,000 for an effective tax rate of
26.5% for the three months ended June 30, 2004 compared to $408,000 and 26.7%
for the similar period in 2003. The effective rate is lower than the statutory
rate due to tax-exempt interest income on certain investments and loans.
19
Results of Operations
NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands) Sux Months Ended June 30,
----------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- ----
(2) (1) (3) (2) (1) (3)
Assets
Interest-earning assets:
Federal funds sold $ 3,461 $ 16 0.92% $ 10,832 $ 65 1.20%
Interest bearing deposits with banks 122 1 1,54 154 1 1.30
Securities held-to-maturity 5,744 253 8.81 6,201 272 8.77
Securities available for sale:
Taxable 102,586 1,596 3.11 99,285 1,851 3.73
Tax-exempt 18,060 581 6.43 15,716 573 7.29
-------- ------ -------- -------
Total securities available for sale (1) 120,646 2,177 3.61 115,001 2,424 4.22
Loans receivable (4) (5) 236,604 7,169 6.06 221,217 7,295 6.60
-------- ------ -------- -------
Total interest earning assets 366,577 9,616 5.25 353,405 10,057 5.69
Non-interest earning assets:
Cash and due from banks 8,637 8,459
Allowance for loan losses (3,316) (3,233)
Other assets 14,858 13,051
-------- --------
Total non-interest earning assets 20,179 18,277
-------- --------
Total Assets $386,756 $371,682
======== ========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and money market $ 86,968 258 0.59% $ 78,303 277 0.71%
Savings 56,853 132 0.46 53,524 264 0.99
Time 119,715 1,380 2.31 129,673 1,986 3.06
-------- ------ -------- -------
Total interest bearing deposits 263,536 1,770 1.34 261,500 2,527 1.93
Short-term borrowings 11,930 57 0.96 8,240 50 1.21
Long-term debt 23,000 644 5.60 23,000 638 5.55
-------- ------ -------- -------
Total interest bearing liabilities 298,466 2,471 1.66 292,740 3,215 2.20
Non-interest bearing liabilities:
Demand deposits 42,936 34,904
Other liabilities 1,867 3,195
-------- --------
Total non-interest bearing liabilities 44,803 38,099
Stockholders' equity 43,487 40,843
-------- --------
Total Liabilities and Stockholders' Equity $386,756 $371,682
======== ========
Net interest income (tax equivalent basis) 7,145 3.59% 6,842 3.49%
====== ======
Tax-equivalent basis adjustment (332) (316)
------- ------
Net interest income $ 6,813 $6,526
======= ======
Net interest margin (tax equivalent basis) 3.90% 3.87%
====== ======
(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.
20
Increase/(Decrease)
Six months ended June 30, 2004 Compared to
Six months ended June 30, 2003
Variance due to
Net Volume Rate
--- ------ ----
(dollars in thousands)
Assets
Interest earning assets:
Federal funds sold ......................... $ (36) $ (13) $ (49)
Interest bearing deposits with banks ....... -- -- --
Securities held to maturity ................ (22) 3 (19)
Securities available for sale:
Taxable .................................. 162 (417) (255)
Tax-exempt securities .................... 155 (147) 8
------- ------- -------
Total securities ....................... 317 (564) (247)
Loans receivable ........................... 1,035 (1,161) (126)
------- ------- -------
Total interest earning assets........... 1,294 (1,735) (441)
Interest bearing liabilities:
Interest-bearing demand and money market.. 65 (84) (19)
Savings .................................. 45 (177) (132)
Time ..................................... (145) (461) (606)
------- ------- -------
Total interest bearing deposits ........ (35) (722) (757)
Short-term borrowings ...................... 34 (27) 7
Other borrowings ........................... -- 6 6
------- ------- -------
Total interest bearing liabilities...... (1) (743) (744)
------- ------- -------
Net interest income (tax-equivalent basis).. $ 1,295 $ (992) $ 303
======= ======= =======
(1) Changes in net interest income that could not be specifically identified as
either a rate or volume change were allocated proportionately to changes in
volume and changes in rate.
21
Comparison of operating results for six months ended June 30, 2004 and June 30,
2003.
General
- -------
For the six months ended June 30, 2004, net income totaled $2,327,000
which represents an increase of $95,000, or 4.3%, when compared to $2,232,000
earned in the similar period of 2003. Basic and diluted earnings per share were
$.88 and $.86, respectively in 2004 compared to $.86 and $.85, respectively in
2003. The resulting return on average assets for the six months ended June 30,
2004 was 1.21%, with a return on average equity of 10.76%.
The following table sets forth changes in net income:
Dollars in thousands
Net income six months ended June 30, 2003 $ 2,232
=======
Net interest income
287
Provision for loan losses
40
Net realized gains on sales of securities
(124)
Gains on sale of loans
(111)
All other income
126
Salaries and employee benefits
(115)
Losses on lease
residuals (65)
All other expenses
82
Income tax effect
(25)
-------
Net income six months ended June 30, 2004 $ 2,327
=======
Net Interest Income
Net interest income on a fully taxable equivalent basis (fte) for the
six months ended June 30, 2004 totaled $7,145,000, an increase of $303,000, or
4.4% over the similar period in 2003. The fte net interest spread and net
interest margin were 3.59% and 3.90%, increasing from 3.49% and 3.87% for the
six months ended June 30, 2003.
Interest income (fte) totaled $9,616,000 with yield of 5.25% compared
to $10,057,000 and yield of 5.69% in 2003. The decrease in yield was due in part
to lower short term interest rates in 2004. The decrease in rates was partially
offset by an increase in volume and change in asset mix. Average loans increased
$15.2 million and represented 64.5% of total average earning assets for the six
months ended June 30, 2004 compared to 62.6% for the similar period in 2003.
Interest expense for the six months ended June 30, 2004 totaled
$2,471,000 at a cost of 1.66% compared to $3,215,000 and 2.20% in the prior
year. The cost of each type of deposit decreased in the lower interest rate
environment in 2004. The cost of deposits was also favorably impacted by a
change in the mix, with a higher percentage of lower costing transaction and
savings accounts in 2004. For the six months ended June 30, 2004, the average
transaction and savings accounts to total average deposits was 60.9% compared to
56.3% for the similar period in 2003.
Other Income
- ------------
Other income totaled $1,701,000 for the six months ended June 30, 2004
compared to $1,810,000 for the similar period in 2003. Net realized gains on
sales of securities were $262,000 in 2004, declining from $386,000 in 2003, on
the sale of $11.9 million. The decrease was principally due to gains on
corporate bonds sold in 2003. Gains on sales of loans was $61,000 on the sale of
$3.8 million in 2004 decreasing from $173,000 on the sale of $5.0 million in
2003. Income from fiduciary activities increased $51,000, to $155,000 due to
higher level of estate fees collected in 2004. Earnings on the cash surrender
value of BOLI (included in Other) was $158,000 for the six months ended June 30,
2004 increasing from $97,000 in the similar period of 2003. The increase was due
to the purchase of an additional $2.5 million of BOLI (included in Other Assets)
during the third quarter of 2003, which was used to offset expenses of employee
benefit plans.
22
Other Expense
- -------------
Other expense totaled $5,039,000 for the six months ended June 30,
2004, an increase of $98,000, or 2%, over the $4,941,000 in the similar period
of 2003.
Salaries and employee benefits increased $115,000 to $2,564,000
principally due to increases in ESOP expense, $47,000, and health insurance
costs of $25,000. The expense associated with losses on lease residuals was
$90,000 in the current period compared to $25,000 for the similar period in
2003. The Company expects to sell the remaining seven vehicles by September 30,
2004.
In July, the Company opened a new branch in the Marshalls Creek area
of Monroe County. As a result, the Company anticipates an increase in salary and
occupancy expense, as well as certain one-time marketing costs, which may be
incurred during the third quarter.
Income Tax Expense
- ------------------
Income tax expense totaled $858,000 for an effective tax rate of 26.9%
for the six months ended June 30, 2004, compared to $833,000 and 27.2% for the
similar period in 2003. The effective rate is lower than the statutory rate due
to tax-exempt interest income on certain investments and loans.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
- -----------
There were no significant changes as of June 30, 2004 from the
information presented in the Form 10-K for the year-ended December 31, 2003.
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.
23
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Issuer Purchases of
--------------------
Equity Securities
-----------------
Maximum number
Total number of of shares (or approximate
--------------- -------------------------
shares purchased dollar value) that may yet
---------------- --------------------------
Total number Average price as part of publicly be purchased
------------ ------------- -------------------- -------------
of shares paid per announced plans under the plans
--------- -------- --------------- ---------------
purchased share or programs or programs
--------- ----- ----------- -----------
April 1 - April 30, 2004 95 (1) $26.24 - -
May 1 - May 31, 2004 - - - -
June 1 - June 30, 2004 - -
----- ------ ------ ------
95 $26.24 - -
===== ====== ====== ======
(1) Purchases related to the Company's Employee Stock Ownership Plan (ESOP)
related to forfeitures of shares by participants and purchase of shares
from participants.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on April 27, 2004.
The following incumbent directors were nominated and duly elected to the Board
of Directors for a three-year term expiring in 2007.
FOR WITHHELD
--- --------
Russell L. Ridd 2,041,358 141,130
Richard L. Snyder 2,132,601 49,877
There were no abstentions or broker non-votes.
Ratify the appointment of Beard Miller company LLP as independent accountant of
the Company for the fiscal year ending December 31, 2004.
FOR AGAINST ABSTAIN
--- ------- -------
2,041,358 32,817 --
There were no broker non-votes.
24
Item 5. Other Information
None
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***
10.10 Salary Continuation Agreement between the Bank and Joseph A. Kneller****
10.11 Salary Continuation Agreement between the Bank and John H. Sanders****
31.1 Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
32 Section 1350 Certification
(b) Reports on Form 8-K
On April 21, 2004, the Registrant filed a report on Form 8-K reporting
under Item 12 the announcement of earnings for the quarter ended March 31, 2004.
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 20, 2000.
**** Incorporated herein by reference to the identically numbered exhibit to the
Registrants Form 10-K filed with the Commission on March 22, 2004.
25
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: August 13, 2004 By: /s/William W. Davis, Jr.
--------------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2004 By: /s/Lewis J. Critelli
--------------------------------------
Lewis J. Critelli
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
26