Norwood Financial Corp. Aktie

Good day, and thank you for standing by. Welcome to the Norwood Financial Corp. Second Quarter 2026 Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mackenzie Jackson, Corporate Secretary. Ma'am, please go ahead.

Thank you, Michelle. Good morning, everyone, and welcome to our second quarter 2026 earnings conference call. With me today are Jim Donnelly, our President and CEO; and John McCaffery, our CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our web page. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements.

During our discussion, we may refer to certain non-GAAP financial measures. These measures are useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation.

I will now turn the call over to Jim.

Thank you, Mackenzie, and good morning, everyone. I'm pleased to report that the entire Norwood team performed well in the second quarter, continuing our strong performance as we build momentum and deliver another quarter of improving financial results.

Net income was $26.8 million, an increase of 41% compared with last year and another record for us as we continue to elevate our performance. Organic growth plus Presence Bank's acquisition contributed to the increase. Net interest margin expanded to 3.9%, an increase of 47 basis points compared with last year. Net income and earnings per share also increased, improving 48% and 25%, respectively, on an adjusted basis with higher adjusted returns on average assets and tangible equity.

By nearly every metric, it was a great quarter as we continue to benefit from our repositioned portfolio, favorable interest rate movement, strong team performance and the acquisition. As we disclosed last month, June 18, one of our customers' loans totaling $22 million filed Chapter 11 bankruptcy. We have been involved in the process, engaging in discussions with all parties to achieve an agreeable outcome. Based on the process as it stands and the anticipated result, we have recorded a net charge-off of $700,000. I believe this is an acceptable outcome given the total exposure. The bankruptcy process is ongoing, and we are continuing to monitor its progress to understand the impact on us. I am proud of the team that has been leading this process for us, ensuring that the outcome is in the best interest of the bank and our shareholders.

Next, I'd like to review our 2026 strategic priorities. This priority is to successfully complete the Presence Bank integration. I am pleased to report that we have completed all of our planned integration activities. The integration team has done a great job leading us through this process, going above and beyond to achieve these milestones in addition to their normal daily responsibilities. The experience we have gained from this integration will serve us well as we continue to explore and pursue acquisitions in the future.

We have combined our systems to drive common operating practices across the organization with the completion of our core integration. We have completed the rollout and convergence of our brand across all entities and branches. While the integration is complete, we continue to engage in open conversations across all locations and functions to identify and adopt best-in-class practices and policies that will enable us to better serve our communities while improving our results. I'm excited about this activity and looking forward to how the combined organizations will continue to drive operational excellence well beyond the integration, making us stronger together than we were before.

On our second strategic priority is to increase operating efficiency and elevate customer experience through AI. I have previously shared how we are implementing the commercial credit system from Presence Bank broadly across our organization. The system uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed and quality to the process. We anticipate the outcome of this system will be better reporting to provide our credit officers with helpful insights to make informed decisions. This is a great example of how we plan to implement AI tools to empower our employees to perform higher-value functions by automating activities where possible. We have put together a 3-year plan for the rollout of AI in each department in the bank. We believe that this is a thoughtful and measured approach will allow our employees to fully engage AI agents to supplement their work and better serve our customers.

Our third objective is to strengthen our talent pool and deepen our leadership bench. This begins with our executive team and extends throughout the organization. Now that our team has expanded with the addition of the talented employees from Presence Bank, we are refocusing our initiatives to develop our workforce, investing in our people to empower them to serve our communities. We have been working on our succession planning and employee development for more than 3 years. The newest announcement of change in our senior leadership team is an example of investing in a talented employee and planning for the retirement of a valued leader well before the event. This allows for a smooth transition.

One update I would like to share with you is the appointment of Steve Daniels as Chief Lending Officer. Steve has been a dedicated member of the team since joining us in 2011, holding various positions over that time, including his most recent role as Chief Consumer Officer. Steve is stepping into this role following the announced retirement of Vinny O'Bell. Vinny will retire this fall, providing an opportunity to work with Steve during the transition. Vinny is ending a successful 47-year career in banking, including the last 10 years at Wayne Bank, where he's helped shape the commercial lending division into what it is today.

We wish Vinny all the best in his retirement and look forward to seeing Steve and what he will achieve in this new role. Steve's promotion gives us an opportunity to promote Deb Kennedy to the Director of Retail Banking. She currently oversees our Pennsylvania franchise and will now oversee all branches, both in New York and Pennsylvania. These organizational changes are part of our succession planning and a great testament to the strong and deep leadership we have at Norwood.

Our fourth and final priority is to ensure that everything we do increases shareholder value. This is evident in our second quarter results. When combined with our first quarter results, we have delivered very strong results during the first half of 2026. Year-to-date, net interest income has improved 39% and adjusted net income has improved 42%. Our average tangible equity increased by approximately 15%. We have now earned back the shareholder dilution that occurred with the purchase of Presence Bankshares with this increase in tangible book value.

This is 2 years ahead of estimates and is a testament to the earnings power of the combined organization, our smooth integration and our disciplined approach to M&A. Our employees are performing well, serving our customers and communities to enable them to achieve their financial goals. This has resulted in improved returns, which creates value for our shareholders. We are well positioned to continue the strong performance for the rest of 2026 and beyond.

I will now turn the call over to John to walk us through our second quarter results.

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I'll focus on the financial results and key performance metrics for the quarter. Second quarter represented an important milestone for Norwood as we begin to realize more of the earnings power from the Presence Bankshares acquisition while successfully completing our core system conversion and continuing to execute on our strategic priorities.

Most important, net income for the quarter was a record $9.3 million or $0.86 per diluted share compared to $6.2 million or $0.67 per diluted share in the same period last year. Return on average assets improved to 1.28%. Our return on average tangible equity increased to approximately 15%. The net interest margin expanded to 3.9%, up 47 basis points from a year ago and 22 basis points from the first quarter. For modeling purposes, approximately $241,000 of interest income was nonrecurring, resulting from bond calls and the acceleration of a credit mark associated with a PCD loan acquired from Presence Bank. Excluding those items, our margin performance would still have shown a meaningful improvement on both a linked quarter and year-over-year basis.

Another important metric that Jim mentioned was that we are particularly pleased with is our tangible book value per share. At quarter end, tangible book value per share was $22.96, which is not only an increase from the first quarter, but also higher than the $22.90 level reported at December 31, immediately before the Presence Bank acquisition closed.

From an operating performance perspective, pre-provision net revenue reached $13.6 million, a 55% increase from the prior year quarter and more than doubled compared to the first quarter of 2026. The improvement reflects benefits of a larger balance sheet, stronger net interest income generation and continued operating leverage across the franchise.

Turning to credit quality. Jim spoke about the ongoing impact of the bankruptcy filing of one of our customers. This pushed our provision higher due to the $700,000 charge-off and the impact on quantitative factors in the CECL model. Our allowance for credit losses totaled $25.6 million at quarter end or approximately 1.13% of total loans. On the balance sheet, total assets were approximately $2.9 billion at quarter end. Loans increased to $2.26 billion and deposits totaled approximately $2.51 billion.

Below the margin line, merger-related expenses were largely behind us. During the quarter, we recorded only about $53,000 of merger expenses compared to nearly $5 million in the first quarter. We also recognized a onetime BOLI restructuring fee of approximately $225,000 in the first quarter. The second quarter did include some $75,000 in legal bills related to the loan workout previously mentioned. Yes, there was a credit event. Yes, there was some modest nonrecurring income, but the bigger story is that we've already earned back the tangible book value dilution from the acquisition, and we are now creating incremental shareholder value.

Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking your question.

[Operator Instructions] And our first question is going to come from the line of Matthew Breese with Stephens Inc.

I just wanted to start on the NIM. So up 22 basis points, John, you moved a little quick there. How much of that was onetime? And how is that spread across bonds and loans? I'm sorry, your comments were just a little quick.

Sure. I'm sorry. Yes, there was $241,000 in nonrecurring, which is about 3 or 4 basis points in the NIM for the quarter. There was about $170,000 in loans and $65,000 in bonds.

Okay. Okay. So still -- I mean, the guide was NIM up 3 to 5 basis points, so quite a bit higher than that. Maybe recalibrate for us near-term expectations. And then I think last quarter, you talked about the pipeline, pipeline yields were around 7%. Maybe update us on that as well.

I would say pipeline yields are probably in the high to mid-6s. The pickup in NIM in Q2 was -- a lot of it was related to deposit costs. We were able to manage down money market costs, money market yields to a bit. And CDs, we've been running specials on CDs over the last couple of years. And so we had kind of a wave event in Q2 where some of the specials matured, a lot of them rolled into additional other specials, but not as at higher rate. So again, most of the margin improvement away from the onetimers was in the deposit cost line. And you can see that in the NIM table.

And we've been hearing from a lot of folks, especially in the Northeast Mid-Atlantic that competitive dynamics around deposits are starting to pick up. And for a lot of folks, this quarter might be the turning point in terms of seeing higher deposit costs. Do you feel like that's the case for you? And maybe if you have it, what was spot deposits cost at the end of the quarter?

I don't -- I can get spot deposit costs for you. But I would say that, yes, we do hear from the branches that it's -- so I guess for the month of June, spot deposit costs were about 2 basis points higher than the quarterly average. But again, that's for the whole month. I couldn't tell you like at June 30, what they were right now. But we are hearing anecdotally that there is competition. We're getting a few more inbound calls on larger deposits to get special rates. So I think going forward, I wouldn't expect us to repeat the same Q2 experience in CDs. So I think loans are maintaining given where the pipeline is. We did have -- the production of loans in Q2 was good. We just had a few higher-than-expected payoffs happened during the quarter, which is why the growth wasn't what we expected it to be. But...

Yes. The other -- the good news on deposits that's in there is we've -- our DDAs continue to grow at a good rate. So the number of accounts and the number of dollars in those, which should help temper a little bit the higher cost money markets and CDs.

Okay. And then last one for me, and I'll hop out. Maybe just talk about M&A from here, deal appetite. Your opening commentary suggests that you're open and willing. Hasn't been that many deals in our neck there was this year. I'm curious if deal announcements mimic kind of conversations behind the scenes. How is that all going?

Yes. I mean we're still out meeting and talking to people. the urgency for some of those deals seems a little bit less. The banking environment is better. So the pressure that people were feeling maybe a year ago. So a better regulatory environment, better earnings season, credit quality holding up maybe is taking away some of the urgency for people that are otherwise sellers. But we're continuing our discipline of going out and talking and making sure people understand that we're a good acquirer. We're good to their employees. We're good for their shareholders, and it's a good opportunity to join a high-quality community bank.

And our next question is going to come from the line of Daniel Cardenas with Brean Capital.

A couple of quick questions here. For nonperforming assets, what was the total dollar amount this quarter?

The total dollar amount was, I believe, around $23 million or $24 million at the end of the quarter.

So that one credit was the lion's share of it.

So absent that one credit, we would have seen some pretty strong improvement on a sequential quarter basis.

Yes. I think something else got cleared up during the quarter. I don't have the breakout in front of me right now.

It might be a little higher than that. Yes. So it's -- loan quality, when you take that one out is still pretty good.

Okay. Yes, it's kind of [indiscernible] I just wanted to make sure. And then kind of going back to the margin. So the 3.90% margin that you guys reported, there was roughly 4 basis points of nonrecurring. What was your yield accretion this quarter? And how should we be thinking about that on a go-forward basis?

You mean from the purchase accounting?

Yes, sir.

For the quarter, there was -- so above the line in loans. There was, I would say -- so probably $700,000 in loan accretion. And then yes. And then below the line, there's what is it there's mostly CDI, which I would put it about $300,000 in CDI.

Okay. And is that kind of a good run rate then for both those numbers on a go-forward basis?

So CDI, yes, we're kind of -- I think we're keeping that flat for the year. On loans, yes, it's going to be about the same for the loans for the rest of -- on the next 6 months, I'd say.

Okay. Perfect. Perfect. And then the loan growth that we saw...

Barring any other payoffs or whatever. But yes, sorry. Go ahead, Dan.

Got you. No worries. And then on the loan growth we saw this quarter, categorically, where is that coming from?

The loan growth was -- so in commercial real estate and it was in indirect. I mean, seasonally, indirect is usually pretty busy this time of year. We had a little bit of -- we had a slight paydown in C&I. So it was again, CRE and consumer.

Okay. And what are competitive factors looking like on the lending side? I mean it sounds like it's still kind of a bit of a fist fight on the deposit front, but what's -- what are competitive factors like on the lending front?

It's a competitive market. I mean, in each one of the markets we serve, we have good competitors, but we can compete with anybody that's rational. So I think it's competitive but rational. Our pipe looks good still. We're probably losing the same percent of loans that we normally would lose to rate or terms. So there's nothing that's showing that it's overheated anywhere from a competitor standpoint. So it's still looking pretty good.

And most of the competition, is that coming from similar sized institutions or bigger guys?

Both. Mostly -- we run mostly in that community bank space, but some of the -- our larger competitors are active as well.

Just back to the nonaccrual, Dan, total nonaccrual at the end of the quarter was [ 22.5. ] I was [ 18 ] was the total. So really, it's about flat from Q1.

Okay. As far as dollars go.

Thank you. And I'm showing no further questions at this time. I would like to hand the conference back over to Jim Donnelly for closing remarks.

Thank you again for joining us this morning. We continued our strong performance in the second quarter, further building momentum with strengthening our financial position. Organic growth plus the Presence Bank acquisition contributed to our success. We are a stronger organization and well positioned to deliver a brighter future as we serve our communities, moving forward with disciplined execution to deliver improved financial results and lasting value for our shareholders.

I look forward to updating you on our progress as we go. Have a great day. Thank you for joining us.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Hello, and welcome to the Annual Meeting of Shareholders of Norwood Financial Corp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Andy Forte. The floor is yours.

Thank you. The 2026 Annual Meeting of Shareholders will please come to order. Welcome to the Annual Meeting of Shareholders of Norwood Financial Corp. I am Andy Forte, Chairman of the Board of Directors, and I will act as Chairman of the meeting. Mackenzie Jackson will act as Secretary of the meeting. I would also like to introduce to you other members of your Board of Directors present today who are also participating in the meeting by remote communications; James O. Donnelly, our President and CEO; Attorney Ralph A. Matergia, Kevin Lamont, Meg Hungerford, Alexandra Nolan, Jeffrey Gifford, Dr. Kenneth Phillips, Ronald Schmalzle, Marissa Nacinovich, Jim Shook, Spencer Andress, and Joseph Carroll. We posted the meeting procedures and rules for conduct of the annual meeting on the meeting web page for your review.

In order to conduct an orderly meeting, I ask that everyone please follow these rules. At this time, I would like to turn over the meeting to Mr. James Donnelly, the corporation's President and Chief Executive Officer who will conduct the formal business of the annual meeting.

Thank you, Andy. Good morning, everyone. I would like to thank you for participating in our 155th Annual Meeting. We feel we have an informative program to present to you this morning. John McCaffery, our Chief Financial Officer, will review last year's financial results as well as the review of the first quarter results. We will then answer any questions that you may have. At this point, however, there are some formal matters which must be completed at the Annual Meeting of our shareholders. The only person entitled to vote at this annual meeting are stockholders of record as of the close of business on March 18, 2026, the voting record date. In accordance with the bylaws, the company has prepared a complete alphabetical list of stockholders entitled to vote at the annual meeting with their addresses and number of shares held on the record date.

We have previously received an affidavit that notice of the annual meeting was mailed on or about March 25, 2026, to each stockholder of record as of the close of business on the voting record date. Accordingly, this annual meeting has been duly called. This affidavit will be attached as an exhibit to the minutes of the annual meeting. The Board of Directors has previously appointed Philip Meyer, representing Computershare Trust Company NA, to act as the Inspector of Election at this annual meeting. The inspector is taking -- has taken an oath to fairly and impartially perform his duties, which oath will be filed as an exhibit to the minutes of the annual meeting. We have previously delivered to the inspector a certificate -- a certified list of stockholders as of the voting record date and all proxies which have been received.

Also, the company has delivered the signed master ballot for the voted proxies voted by the Board of Directors, as indicated by such proxies. Our record show that there were outstanding on the record date and entitled to the notice of and to vote at this annual meeting, a total of 10,890,166 shares of common stock. Our records further show that a majority of such shares are present at the annual meeting in person or by proxy. The inspector is making an exact count and will submit a formal report on the number of shares present or representing during the course of the annual meeting. Based on our preliminary count, a quorum is declared present, subject to the confirmation of the fact by the inspector in his report.

In order to save time at this meeting, we propose to arrange the proceedings so that the vote will be taken -- will not be taken until all items are before the shareholders. Questions from stockholders attending the webcast will be addressed while voting is underway. If you have voted by proxy, you do not need to vote at this annual meeting. As stated in the notice of the annual meeting, the first item of business is to -- business to be acted upon by shareholders is the election of 3 directors. In accordance with the bylaws, Kevin M. Lamont; Dr. Kenneth A. Phillips and Jeffrey S. Gifford have each been nominated by the Board of Directors for election to a 3-year term and until their respective successors have been elected and qualified. I, therefore, declare the Board's slate to be in nomination. No timely notice of any other nominations having been received, and therefore, I declare nominations to be closed.

The second item of business on the agenda is the ratification of the appointment of S.R. Snodgrass, P.C. as independent auditors for the fiscal year ending December 31, 2026. Mr. Faulk from S.R. Snodgrass, P.C. is available on an open conference line during the annual meeting and can respond to questions from stockholders attending the webcast while the voting is underway. The third and final proposal to be considered at this meeting is a consideration of a nonbinding advisory resolution regarding the compensation of the company's named executive officers, frequently referred to as say-on-pay proposal.

The following resolution is proposed, resolved that the stockholders of Norwood Financial Corp., approve, on an advisory basis, the overall compensation of the company's named executive officers as described in proposal 1, election of Directors, Executive Compensation section set forth in the proxy statement for this annual meeting. The vote will now be taken on proposals 1, 2 and 3. Remember, if you have voted by proxy in advance of the meeting, you do not need to vote at this meeting. In order to vote today, please press the Vote Now button on your meeting web page and follow the directions. At this time, while the online voting is underway, we will take questions from meeting participants through our meeting web page. If you have a question regarding any of the proposals, please click on the question button on the meeting web page and text your questions to me.

Do not see any questions about these proposals. Once again, is there anyone who has any questions on the proposals before this annual meeting. It is now 11:08 a.m. As everyone had an opportunity to vote, I declare the polls closed. While the inspector is counting the votes, we will review our results from 2025 and quarter 1 2026. Before I start, here's our legal disclaimer on the forward-looking statements that John or I may make today. What this basically says is that when we talk about future events, there is no guarantee that everything will occur exactly as we say here today, and that we have no obligation to report if anything does change.

Please see Slide 2 for the full forward-looking statement disclosure. Thank you for your trust and interest in Norwood Financial Corp. and its wholly owned subsidiary, Wayne Bank. We are a community bank headquartered in Honesdale, Pennsylvania. We have served the banking borrowing and investing needs of individuals, families, not-for-profit organizations and businesses since 1871. As a true community bank, we have deep ties to the people, neighborhoods and customers in the communities where we live and work. Our employees come from diverse backgrounds and bring unique experiences coming together as one unified team with a shared commitment to delivering exceptional customer service as their North Star. We strive to make every day better for each and every customer. Our mission remains the same to help our customers and communities build strong financial futures so that every day, every year, every generation is better than the last.

We began 2026 with a strong performance, extending the momentum we began to build last year. This is the first quarter that included results from the Presence Bank acquisition, increasing our assets, loan portfolio, geographic presence and earnings power. I am proud of our team's ability to focus on our mission to make every day better by serving our customers and communities while making significant progress on our integration activities. It is remarkable to think that what began 155 years ago as a mission to bring banking to Main Street in Honesdale has grown to a commitment to serve main streets across Pennsylvania and New York. Today, we proudly support our customers and communities through 33 branches and a business production office, spanning from our roots in Honesdale to Walton. Cooperstown, Geneva, New York -- Milford and now extending the Coatesville and Camp Hill, Pennsylvania and all of the places between but we have not forgotten our core values of serving our community while we have grown.

We commit to the service every day that by delivering high-tech and high-touch service to our customers. We are now a $2.9 billion community bank with $2.2 billion in loans and $2.4 billion in deposits. The combination of the 2 banks makes us better together so that we can serve more communities and create a stronger bank. We stay grounded on our 4 core tenets: our customers, our employees, our communities and our shareholders, guiding every decision we make. During our fourth quarter earnings call, I introduced our 2026 strategic priorities to deliver results for these 4 core tenets. I would like to provide you with an update on these.

The first priority was and continues to be the successful integration of Presence Bank. I am pleased to report that we are on track with those efforts. Our positive results include driving uniform systems and operating practices across the new combined entity, uniting the acquired businesses and branches under our new brand and engaging in open conversations across locations and functions to identify and adopt the best-in-class policies that will enable us to better serve our communities while improving our results.

Among our early accomplishments, is the completion of our core integration, unifying our IT and HR systems. We have also begun work on all acquired locations including signage logos and branding materials to drive consistency and unity across the organization. The integration has required extensive planning, coordination and execution across teams and locations. And I'm actually proud to say we've accomplished all of that at this point. Even as we've worked across these complex system integrations, we remain fully focused on serving our customers and communities, resulting in strong loan growth and deposit growth throughout this period. I am proud of our team for going above and beyond to ensure our integration plans are being accomplished and for taking great care of our customers while doing so.

Our second strategic priority is to increase the operational efficiency and elevate the customer experience through the use of AI. This is an area where we are implementing the best practices from Presence Bank and deploying systems and processes across our combined organization. One item that I'm really excited about is the commercial credit system, which we will integrate in July. The system uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed and quality to the process. For example, automated spreading will streamline workflow for our credit analysts. Enhanced reporting will equip our credit officers with deeper insights for more informed decision-making and AI-assisted credit memo drafting will improve both speed and quality of our documentation. Together, these advancements allow our teams to focus on higher-value work while accelerating underwriting time lines and improving overall deal flow.

Our third objective is to strengthen our talent pool and deepen our leadership bench. As I've met with the employees across our markets, including the newly added sites in Chester, Lancaster and Dauphin Counties, I am continually reminded of the great team we have. I firmly believe our key to success is our people. They are dedicated to serving their communities and working hard to find ways to make every day better. The team became bigger and stronger during the quarter as we welcome the former Presence Bank employees to our organization, including additions to our executive leadership team. I am confident that together, we can continue to deliver financial solutions that improve the lives of our customers, allowing them to achieve their financial goals. Our fourth and final priority is to ensure that everything we do increases shareholder value. The results we report today demonstrate how we have accomplished this during the quarter, a result of our performance in Q1 and actions in previous periods.

The first 3 priorities I have reviewed position us to create even more value in future periods. One shining example of how we are creating shareholder value is our recent acquisition. The transaction delivered immediate and meaningful growth. We are realizing both the strategic and financial benefits faster than originally anticipated. We now expect accretion to shareholder value ahead of our initial projections, driven by the strength of the Presence Bank team and assets along with the favorable interest rate environment. As a result, we anticipate a quicker tangible book value earn-back period, just one quarter post close, it's evident we acquired high-quality business with strong credit metrics and an excellent team.

The addition of the several talented executives to Wayne Bank further reinforces the strength of the organization and their confidence in our shared future. The powerful strategic fit and cultural alignment is contributing to our early success. I am encouraged by our initial progress and even more optimistic about our future and ability to generate meaningful and lasting shareholder value. I will now turn the call over to John to walk us through the results.

Thank you, Jim. Before I start, I would refer you to the disclosures about forward-looking statements and non-GAAP statements found on Page 2 of this presentation. A reconciliation of non-GAAP numbers can be found in the appendix to this presentation. Earnings per share and total net income on an adjusted basis grew during 2025 versus 2024. This is mostly due to the portfolio repositioning that took place in December 2024, along with solid balance sheet growth and a more favorable rate environment. The growth was supported by the capital that we raised, along with the repositioning. Total assets increased by 4.7% to $2.4 billion. All loan and deposit categories increased during 2025, including a 10% increase in noninterest-bearing deposits. Adjusted returns on assets and tangible equity also increased during the past year, showing that we are growing profitably as well.

Net interest margin for 2025 rebounded from 2024 and continued to increase through most of '25. This helped improve our efficiency ratio down to 56% from 67.5% in 2024. We continue the long-term trend of increasing our dividend each year. Dividend increased 3.3% and provided a dividend yield of 4.2% based on recent stock price. Our capital levels continue to remain above the regulatory well-capitalized benchmark. The first quarter of 2026 was a busy time for Norwood Financial and Wayne Bank. We closed on the acquisition of Presence Bancshares and its subsidiary Presence Bank. Our bankers did not miss a step, posting annualized growth of loans and deposits of 8% and 12%, respectively. We posted solid adjusted returns during the quarter including expansion of our net interest margin and record net interest income. We believe we are positioned for a great 2026 and beyond. I will now turn the presentation back to Jim.

It is my pleasure to recognize our outstanding employees and retirees in 2025. We recognize those who hit milestones. Nancy Hart, 47 years, Barb Ridd, 45 years, Aaron Gasper, 25 years, Diane Scullian, 20 years and Sheryl Crandall, 20 years. As part of our rebranding, we rolled out awards for those employees who live our values as well. They are the shining example of the attributes that we aspire to each day. The boldness award went to Joanne Rivera Ortiz. Enthusiasm went to Lindsey Bailey. Teamwork to Doug Atherton. Trust went to Katy Doan and education to Tiffany Dzwieleski and resilience to Jennifer Hooks. Congratulations to all of the award winners. Congratulations to all of the employees who are promoted in 2025.

And they are Kayla Dixon, Vice President and Business Intelligence Manager; Mike Rollison, Senior Vice President and Commercial Team Leader; Deb Kennedy, Senior Vice President; and Pennsylvania Retail Banking Market Manager. Alison Menotti, Vice President and Loan Operations Manager; Fred Malloy, Senior Vice President and Controller; Joe Moran, Vice President and Commercial Loan Officer. Matthew Schuermann, Vice President and Mortgage Loan Officer; Donald Sutton, Vice President and Information Technology Manager; Alexander Treslar, Assistant Vice President and Business Development Officer; Brian Ehrhardt, Commercial Loan Officer; and Valerie A. O'Hare, Corporate Training manager.

Congratulations to all of these employees, and we wish you the very best as you continue your trip. Finally, our retirements, and these are some sad ones for me personally. Lori Bishop retired after 50 years with Wayne Bank. Nancy Hart retired after 47 years and Jill Hessling after 30 years. Scott White retired after 18 years of service; Diane Scullion, with 21 years and Barb Varrone with 19 years of service; and Doug Atherton with 12. We had some changes on our Board of Directors since the last annual meeting as well. Lewis Critelli and Susan Campfield retired from the Board in 2025. Lewis served the bank as CFO, CEO and Chairman of the Board for 30 years. Su served on the Board for 19 years.

The Board elected Dr. Andrew Forte as the new Chairman and Kevin Lamont was elected the Vice Chairman. Norwood Financial and Wayne Bank added 2 new directors in 2025, James Shook and Marissa Nacinovich are both strong community leaders and have both brought some good expertise to the Board. In addition to picking up some strong employees with Presence Bank, we had the former Chairman and Vice Chairman of their Board, join Norwood Financial and Wayne Bank Boards. Joseph Carroll and Spencer Andress, each bring years of governance experience with them as well extensive professional experience. Thank you for your support. John and I would be happy to answer any questions.

We have a question. Can you speak to how the integration is going? What are the impacts on the employees and customers?

The integration is going very well and as planned. As you integrate technology, there's always a couple of bumps along the way, but I can proudly say that our teams have stepped up, smoothed out those bumps and delivered the White Glove service to the new customers by being on-premise and available to them. The integration of the employees has almost been seamless. You would think that these 2 teams have been working together for 20 years. They're relying on each other; they're joking with each other. And the production from the first quarter, I think, shows that they're also focused on the mission ahead of serving our customers and profitably growing the bank.

We have another question, how is bench strength getting stronger after the integration.

So we were able to keep most of the executives from Presence Bank and integrate them into the team. So Gene Ackerman was the CEO with a -- if you read his background online, tremendous banking background, very smart guy and very focused on achieving results has joined us as our Chief Operating Officer. Doug Byers, who was the Chief Banking Officer, is now the market executive and leading the team in the Presence Bank -- former Presence Bank footprint. And then Larry Witt was the CIO for Presence Bank is now the CIO for the joint bank. Doug also, just to hop back, Tim also was heading up treasury management for the whole bank. So I think this is one of those times where the integration not only deepened the bench strength, but I think sets us up for some really good successes going forward.

And we have another question: What message would you like to shareholders to take away today?

I think the message for the shareholders today is the bank is running well. We're running profitably. The integration of the -- which can be a risky proposal when you acquire a bank is going particularly well. And it's also the shareholder value is being enhanced and will be enhanced by this integration. I think the shareholders can look going forward that they have a good management team in place, we have good employees across the footprint, serving customers, and we see great things ahead for the bank and for the shareholder value. And I always like to thank shareholders for investing in Norwood Financial and having confidence in our ability to deliver for you.

Thank you, Jim, that concludes our questions.

Okay. The inspector has completed his count and provided me with a report. Mr. Inspector, would you like to read the voting results?

Mr. Donnelly, the report of the inspector of election confirms that a quorum is and has been in attendance at the annual meeting for all purposes. The report further confirms that each of the nominees for Director has been duly elected. The appointment of S.R. Snodgrass, P.C. as the company's independent registered public accounting firm for the year ending December 31, 2026, has been ratified and that the nonbinding advisory resolution regarding the compensation of the company's named executive officers has been approved.

Thank you, Mr. Inspector. The report of the inspector confirms that a quorum is and has been in attendance at the annual meeting for all purposes. It also shows that Kevin M. Lamont, Dr. Kenneth A. Phillips and Jeffrey S. Gifford have each been duly elected as Directors for a 3-year term. The report further shows that a majority of the votes cast have been in favor of the ratification of the appointment of S.R. Snodgrass, P.C. and the company's independent auditors for the 2026 fiscal year. And at the nonbinding advisory resolution regarding the compensation of the company's named executive officers has been approved. The report of the inspector is hereby accepted and approved and will be attached to the minutes of the annual meeting. I would like to thank all of you for attending today's meeting and for the interest that you have shown in the affairs of your company. This meeting is now adjourned.

This concludes the meeting. You may now disconnect.

Good day, and thank you for standing by. Welcome to Norwood Financial Corp. First Quarter 2026 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to [ Mackenzie Jackson ], Corporate Secretary. Please go ahead.

Thank you, Liz. Good morning, everyone, and welcome to our First Quarter 2026 Earnings Conference Call. With me today are Jim Donnelly, our President and CEO; and John McCaffery, our CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks are available on the Investor Relations section of our web page. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements.

During our discussion, we may refer to certain non-GAAP financial measures. These measures are useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials. I will now turn the call over to Jim.

Thank you, [ Mackenzie ]. Good morning, everyone. We began 2026 with strong performance, extending the momentum we began to build last year. This is the first quarter that included results from the Presence Bank acquisition, increasing our assets, loan portfolio, geographic presence and earnings power. I am proud of our team's ability to focus on our mission to make every day better by serving our customers and communities, while making significant progress on our integration activities.

Net interest income was a record $24,600,000, an increase of 38% compared with the first quarter of 2025. Net interest income margin expanded by 38 basis points to 3.68%. It was a great quarter for the bank as we benefited from our repositioned bond portfolio and favorable interest rate movement. Net income and earnings per share increase improved 35% and 14%, respectively, on an adjusted basis with higher adjusted returns on average assets and tangible equity.

I am pleased with our first quarter performance and remain optimistic that 2026 will be a great year for the bank. During our fourth quarter earnings call, I introduced our 2026 strategic priorities. I would like to provide you with an update on these.

The first priority is to successfully complete the Presence Bank integration. I am pleased to report that we are on plan with these activities. Our plans include driving uniform systems and operating practices across the new combined entity, uniting the acquired businesses and branches under our new brand and engaging in open conversations across our locations and functions to identify and adopt the best-in-class policies that will enable us to better serve our communities while improving our results.

Among our early accomplishments is the completion of our core integration, unifying our IT and HR systems. We have also begun the work of unifying all acquired locations under our brand, including signage logos and other branded materials to drive consistency and unity across our organization. The integration requires a lot of planning, organization and executing across sites and functions to complete. While we have been actively integrating the systems, we have not taken our eye off serving our customers and communities, which have resulted in impressive loan and deposit growth during the same period. I am proud of our team for going above and beyond to ensure our integration plans have been -- are being accomplished and for taking great care of our customers while doing so.

Our second strategic priority is to increase operating efficiency and elevate the customer experience through AI. This is an area where you're implementing best practices from Presence Bank and deploying their developed systems and processes across the combined organization. One item I am really excited about is the commercial credit system, which we will integrate in July. This uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed and quality to the process.

For example, automatic spreading will allow our credit analysts to save time, better reporting will provide our credit officers with helpful insights to make informed decisions and the ability to draft credit memos will be -- will improve the speed and quality of the documentation process. These benefits will enable our employees to perform higher-value functions as well as underwriting deals more quickly to improve deal flow.

Our third objective is to strengthen the talent pool and deepen our leadership bench. As I've met with our employees across the sites, including the newly added sites in Chester, Lancaster and [ Orphan ] Counties, I am continually reminded of the great team we have, and I firmly believe our key to success is our people. They are dedicated to serving the communities and working hard to find the ways to make every day better. The team became bigger and stronger during the quarter as we welcomed the former Presence Bank employees to our organization, including additions to our executive leadership team. I'm confident that together, we can continue to deliver financial solutions that improve the lives of our customers, allowing them to achieve their financial goals.

Our fourth and final priority is to ensure everything we do increases shareholder value. The results we reported today demonstrate how we have accomplished this during the quarter, accumulation of our performance in Q1 and actions taken in previous periods, including the portfolio rebalancing we completed in 2024. The first 3 priorities I have reviewed position us to create even more value in future periods.

One shining example of how we are creating value for shareholders is through our recent acquisition. Not only did the transition bring immediate and meaningful growth to our bank, but we are also realizing the strategic and financial benefits of our acquisition more quickly than planned. One demonstration of this is that we now expect accretion to shareholder value ahead of our original projections. As a result of the quality of the Presence Bank team and assets plus interest rates that have moved in our favor, we anticipate the tangible book value payback to occur more quickly than planned.

After only one quarter since we closed the acquisition, it is obvious that we acquired a solid business with high-quality credit metrics and an excellent team, including several talented executives that have joined the Wayne Bank team, demonstrating their confidence in our joint future. The strong strategic fit and cultural alignment is contributing to our early success. I'm encouraged by our initial progress and even more optimistic about our future and ability to generate meaningful and lasting shareholder value.

I will now turn the call over to John to walk us through the results.

Thank you, Jim. Good morning, everyone. In the first quarter, we delivered improved financial results on an adjusted basis, continuing to benefit from our repositioned balance sheet and the outstanding performance of the entire Norwood team. It was a great start to the year, continuing the momentum from 2025.

We achieved record net interest income increasing $3.6 million on a linked quarter basis due to higher interest-earning assets. Margin improved 8 basis points due to a slight decline in deposit costs, coupled with a 7 basis point increase in interest-earning asset yields. Below the margin line, our quarterly results do continue to include merger charges. We had about $5 million in merger charges in the quarter. We provided adjusted returns in the press release to show you performance ratios, excluding these expenses. We're also providing pre-provisioned net revenue across the entire span of the press release.

The provision was higher in Q1 versus the fourth quarter of 2025, sort of the increase was the result of annual updating and historical factors in the model as well as the integration of the Presence Bank portfolio. Our coverage ratio stands at 1.09% compared to 1.07% at year-end. I will also note that we elected to adopt early [ ASU-202508 ] and therefore, did not experience a CECL double count on the acquired non-PCD loans.

Adjusted pre-provision net revenue was up about 11% on a linked-quarter basis, mostly due to the improved margin on a larger balance sheet, offset by higher expenses. Noninterest income increased compared to the same period last year. This was due to higher service charges and debit card income. Quarterly expenses were up as a percent of average assets compared to Q4 2025. Most of this increase is in technology related. This is as we are investing in new systems that will ultimately drive efficiency in the future. On that note, I would like to give a shout out to the finance team who implemented a new accounting system while executing a merger and a core conversion.

The first quarter was a transition period as we integrated the acquisition with GAAP results impacted by [ related ] expenses. On an adjusted basis, we achieved strong growth in net interest income, partially offset by higher expenses. To expand on Jim's point earlier, growth since January 5, loans grew approximately $46 million or 8.4% annualized and deposits grew about $70 million or $11.6 million on an annualized basis. Overall, we are pleased with our performance and believe that our sound balance sheet management and credit metrics position us well for the future.

Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking questions.

[Operator Instructions]

Our first question comes from Daniel Cardenas with Brean Capital.

So a couple of questions. On the operating expense number that came in this quarter, how much -- you said part of that was tech related. How much was that? And then are all of the tech-related investments, have those been made and I'm just trying to get a sense for what's a good run rate on the operating expenses going forward?

So the tech increase in tech expenses were mostly due to -- well, again, we are increasing investments, as Jim mentioned in the [ Abrigo ] system and our new accounting system. So their ongoing expenses. We tried to exclude all of the conversion and other charges that were onetimers in Q1. So I think for OpEx going forward, the level that we're at is probably a pretty good run rate.

So kind of a 6.1 per quarter is kind of where you think things will kind of shake out here?

Yes, I'd like to see them come down a little bit. Again, we're trying to pull apart how much actually was related to activity during the quarter because of the merger, but I do think we'll get efficiencies, but I wouldn't drop it more than below [indiscernible] I think, for the quarter.

All right. Good. And then on the margin, the [ 3.68 ] margin, I probably missed it in the press release, but what was the contribution from yield accretion in the quarter?

Yield accretion in the quarter was -- I think actually it was, the total pretax impact of purchase accounting was [ 4.35 ]. That's substantially margin-related. There's some for the leases, but -- that's kind of a minimal amount.

[Audio Gap]

competitive with our current rates, and we're not seeing seen a lot of upward pressure. I'm still seeing some competitors bringing their rates down.

Got it. Okay. How much more room do you think there is to squeeze deposit costs lower than? If I look at your CD costs this quarter in knocking on 3.6%. Is the blended rate of maturities still in kind of that 3.30% range with some downside?

Yes. It's -- most of that is just really churning our -- the special we've had out there. So -- and there is a push on to, again, try to get our CD number to be down below 40% of total deposits. So we hope that, that will give us some more levers to push on going forward. But I think it's going to be, like you said, we had like a pretty -- just a couple of basis point drop in some of the deposit categories, just 1 basis point overall, but I want to try to get a better feel for the full portfolio now that they've got -- now that we have the deposits in one system, it's going to be easier for me to kind of look at where we are from a go-forward basis, which we completed the core conversion on April 5.

So get -- trying to get that kind of data is on the come.

I think there's -- we're not seeing downward pressure on the lending rates to the level that you might be seeing in the Northeast as well. And -- but I think our ability to squeeze out of the deposits will be smaller than it had been. It's there, but it will be at a smaller amount.

And then maybe on the lending side, same question around competitive conditions and would love to hear kind of what what new origination yields are on the pipeline right now? And how does the pipeline look?

Pipeline very healthy and has been. So when we look ahead, $30 million, $60 million, $90 million we're ahead of our general pipeline. Quality is very good and pricing is in line with our expectations, where the closings that we just had averaged 7.05 for the last $18.5 million we booked.

Yes. I'm still seeing, I guess, most -- almost all the rates that are coming across are still higher than what the portfolio yield is. So we think there's still room there for some expansion.

Thank you once again for joining us this morning. We made a great start to 2026, continuing the momentum built in 2025 and as we live out our mission to help our customers and communities build strong financial futures, so that every day, every year, every generation is better than the last. As we continue to integrate the Presence Bank acquisition and benefit from the shared best practices, we will be better positioned to deliver that better future united to serve our communities. As we move forward, our disciplined approach, high-quality credit metrics and careful execution enables us to deliver improved financial results and lasting value for our shareholders. I look forward to updating you on our progress. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

[Audio Gap]

Thank you, Michelle. Good morning, everyone. Welcome to our Q4 2025 earnings conference call. With me today are Jim Donnelly, CEO; and John McCaffery, CFO. The press release we issued earlier this morning, together with the presentation materials that accompanies our remarks, are available on the Investor Relations section of our web page.

Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements.

During our discussion, we may refer to certain non-GAAP financial measures. These measures are used for analysts, investors and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials.

I will now turn the call over to Jim.

Thank you, Kristen. Good morning to everyone. We ended 2025 on a positive note and with good momentum, as the team achieved strong results by continuing to serve our customers and communities. We maintain focus on our mission to make every day better while -- even while we closed on the Presence Bank acquisition. We expanded our net interest spread by 62 basis points, increasing net interest income, 62% compared with the fourth quarter of 2024.

Net income and earnings per share more than doubled on an adjusted basis, and we improved returns on both average assets and tangible equity. By nearly any measure, 2025 was a great year. The improvement in our results and financial position are a result of our portfolio repositioning we completed in 2024 -- December of 2024 as well as strong loan and deposit growth. That activity combined result in a more robust balance sheet and higher quality earnings. That was the right thing to do for our bank, our customers and our shareholders. It served us well in 2025 and should continue to benefit us in 2026.

Our biggest achievement in 2025 was announcing and preparing for the acquisition of Presence Bank that closed on January 5. Presence Bank is a nearly 106-year-old institution that shared our values, culture and commitment to high-quality customer service. With this acquisition, we have grown our asset base by 20%, increased our size by adding 4 branches in the coveted Southeast and South Central Pennsylvania region and has enhanced our talent base with additional excellent employees.

These additions better position us to serve our communities and bring value to our customers, whether they be small business owners looking to invest and expand their enterprises, homeowners looking to utilize the equity in their residents to fund college education for their children or consumers online tools to help manage their finances. I am pleased with our performance in 2025 and proud of what we were able to accomplish. We have had great momentum, achieving strong results and we're able to do the additional work to close the Presence Bank acquisition at the beginning of this year.

Looking forward, we have established 4 strategic priorities as we enter 2026 to continue to build on that momentum. The first is successfully integrate all activity with Presence Bank and the acquisition. With the acquisition now closed, we are moving forward with a sense of urgency to integrate the 2 organizations, driving uniform systems, and operating practices across the new combined entity. We will be bringing the acquired businesses and branches under our new brand and unifying all the branches. This alignment enhances the brand recognition and makes it easier for customers to connect to us online -- connect with us online in a branch or in a community and we will also engage in open conversations across locations, functions, evaluating current practices of each company and adopting the best-in-class policies that will allow us to serve our communities in the best way possible.

One example is our use of AI, which is foundational in the second objective of exploring ways to increase operational efficiency and elevate customer experience. Presence Bank has implemented advanced AI tools in their commercial systems, which we are adopting as part of our integration. We are using AI to supplement and enhance the work of our talented credit officers in drafted credit narratives, summarizing financials and confirm required documentation. This will allow us to underwrite deals more quickly and to do more deals with our existing team.

As we move with our integration, we will evaluate these tools and deploy those that increase operating efficiency across our organization. This will empower our employees to focus on high-value activities that improve customer experience, which is critical to the success of our company. Although we are moving forward with a sense of urgency, we are not rushed, and we will be thoughtful and measured in our progress to limit and eliminate disruptions for our customers and our employees.

Third, we are focused on strengthening our talent pool and deepening our leadership bench. As a regional bank with a prominent presence within communities we serve, it is much more than a cliche to say that our people are our greatest asset. Whether teller customer service representative, branch manager, regional manager or executive leadership, our entire organization is committed to the proposition of delivering financial solutions along with an outstanding experience for all of our customer engagements.

Beyond that, as members of our community, our team members act in ways that make our communities better. With the Presence Bank acquisition, I am pleased to welcome Janak Amin as our new Chief Operating Officer. We have also recently added Larry Witt as the Chief Information Officer; and Doug Byers as the Market Executive and Head of Treasury Management. Finally, I am pleased to welcome Joseph Carroll and Spencer Andress to the Norwood Board of Directors. All of these additions plus the entire Presence Bank team make us a stronger bank and I am excited to see what we are able to accomplish together. Our results in 2025 were strong before adding these growth areas served by Presence Bank. I think they will only make us better and stronger.

Finally, everything we do as an executive leadership team is designed to increase shareholder value. John McCaffery will cover a nice accretion that we have added to shareholder value in 2025 as we have grown the balance sheet and profitably later this -- in this call will let me say an impressive testament to our shareholder focus. We will manage our deposits and assets to maintain our strong financial position, ensuring that we are positioned to continue serving our communities for years to come. We will actively grow our assets through increased deposits and investment decisions as well as strategic M&A when attractive and fairly valued target is available.

Finally, we will combine these activities with capital allocation framework that includes returning cash to shareholders through a reliable and growing dividend. I firmly believe that these priorities will allow us to continue to create value and building momentum in 2026 and beyond.

I will now turn the call over to John to walk us through the results.

Thanks you, Jim. Good morning, everybody. I'm going to just walk through the fourth quarter results. And for the fourth quarter, we once again demonstrated our ability to improve financial results, continuing the trend that began with our balance sheet repositioning back in December 2024. Our net interest income increased by $0.5 million on a linked-quarter basis, while the margin itself did drop 3 basis points, this was due to loan growth in the quarter as well as some outflow -- seasonal outflow of municipal deposits on a temporary basis.

Below the margin line, our quarterly results do continue to include merger charges. We had about $520,000 in merger charges in the quarter. We've adjusted our returns in the press release to be able to show you performance ratios without the impact of these expenses. We also reported last year's numbers net of the loss on these securities as well. We're also, again, trying to look at a pre-provision net revenue number across the entire span of the press release.

Our unadjusted preprovision net revenue decreased by 2% on a linked quarter basis and an invested basis, mostly due to higher expenses during the quarter, and we'll get to that in a minute.

Excluding losses from sales of securities related to our portfolio repositioning in 2024, noninterest income for the year increased in the same period, most of the growth coming from fees on our loans and deposit products. Quarterly expenses year-over-year were up 1.5% from the fourth quarter of '24.

On a linked quarter basis, expenses were up 5% and due to several factors in the quarter, including lower loan volumes resulting in lower expense deferrals, and we had some vesting of restricted stock for long-term retiring employees in the quarter. In addition, we had some elevated incentive accruals based upon the improved performance in the second half of 2025.

Credit metrics continue to improve year-over-year as nonperforming loans as a percentage of total loans decreased and our reserves to nonperforming assets increased. The overall theme of the quarter were continued profitable growth, sound balance sheet management and benign credit. These themes have aligned to deliver a solid quarter and leave our company well positioned for the future.

Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking a question.

[Operator Instructions] Okay. I am not showing any questions at this time. So I will now turn it back over to Jim.

Thank you, and thank you once again for joining us this morning. We are pleased with our accomplishments in 2025 and optimistic for what we will achieve in 2026 with a larger asset base, expanded geographic coverage and a stronger team to serve our customers and our communities. I believe that our best days are ahead, and I look forward to updating you as we continue to make progress. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Norwood Financial's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Kristen Lancia, Vice President and Marketing Manager. Please go ahead.

Thank you, Tanya. Good morning, everyone. Welcome to our Q3 2025 earnings conference call. With me today are Jim Donnelly, CEO; and John McCaffery, CFO. The press release we issued earlier this morning together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our web page.

Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements.

During our discussion, we may refer to certain non-GAAP financial measures. These measures are useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation materials.

I will now turn the call over to Jim.

Thank you, Kristen. Good morning, everyone. Our teams delivered strong results in the third quarter and growing assets over 100 -- around $100 million year-to-date, while expanding our margins. This is the result of delivering good growth in loans and strong growth in deposits. Our credit metrics remained strong while delivering this growth. Our yield also continues to benefit from the bond portfolio repositioning we did in the fourth quarter of 2024. Our fee income has also grown year-over-year as we focused on our wealth management, trust and other fee income businesses. It was a good quarter for us, and we entered the fourth quarter on solid footing and with good momentum.

I am proud of the performance of the entire Norwood team as they remain focused on delivering the products and services that help our customers achieve their goals, truly living out our tagline every day better. It is this embodiment of our mission within the high-performing culture that distinguishes us, that gives me belief that we are on our way to creating a bright future for us our customers and our shareholders.

Stepping back and looking at our year-to-date performance, it is clear that our results in the third quarter and throughout 2025 have benefited from our repositioning of our bond portfolio that was completed in December of 2024. Recall that we successfully completed the capital raise through the issuance of common stock to help support our growth, improve our financial position through the repositioning of our available-for-sale securities portfolio and increase our earnings potential.

And I am pleased to say that we achieved all of these objectives. The increased earnings potential is evident in the improved yields we have generated in 2025. And with the stronger financial position, we have been able to better serve our customers across our footprint with loans that enable them to purchase homes or cars and to start or expand their businesses.

Turning to another item. We have filed all regulatory applications necessary for approval of our merger with Presence Bank that was announced on July 7. The applications of our filings are pending. I refer you to the Investor Relations section of our website for more information.

During the third quarter, we completed the leadership transition in our Board of Directors, and we added 2 new directors, strengthening the Board by bringing on board new talent as we embark on the next phase of our growing growth. This was a bittersweet transition for me and many of the employees of Wayne Bank as we set goodbye to our long-term colleague and friend, Lew Critelli. Lew is my predecessor and served as Chairman of the Board since 2022. Lewis had a tremendous impact on the bank and me personally, as well as many employees over his 30 years of dedication to the company. It would be hard to overstate the impact that he has had on making us the company that we are today. His legacy will carry on, and he will be missed. On behalf of the rest of the Board and the entire company, we wish Lew all the best in his retirement.

We now move forward with Dr. Andrew Ford, leading the Board as Chairman and Kevin Lamont, replacing him as Vice Chairman. These are 2 long-serving directors and the Board is in great hands under their leadership. We also welcomed 2 new directors to the Board, Marissa Nacinovich; and James Shook, both outstanding leaders within their respective fields and even more importantly, shining examples of individuals with strong commitment to serving their community.

I'm excited about the changes to our Board and have every confidence that they will be valuable advisers as we move forward. While we have built strong financial position and operated well to deliver strong financial results, it is our employees that truly make us unique. They continue to live according to our tradition of community involvement, donating time and money to causes that make the places we live and call home better places to live and work. I am proud of all they do for our communities and thankful for their dedication and commitment.

In conclusion, we delivered good results as we also delivered on strategic initiatives that have given our team and our brand lift. We rolled out our new brand this year, the eye-catching marketing materials are a small piece of what we have delivered with this rollout. We have worked over the last 2 years to improve our culture with our everyday better focus -- better every day focus. We have united our 3 brands into one. Our customers are reading their win bank experiences with an average of 4.7 stars. Our employees have a new lift in their step as we recognize them for delivering on everyday better service. This is the secret sauce behind these good results. I am proud of our team and their commitment to our customers, our communities and each other and in returning good results for our investors.

I will now turn the call over to our CFO, John McCaffery, to walk us through the results.

Thank you, Jim. Good morning, everyone. The third quarter results continued an improving trend that began with our balance sheet repositioning in December 2024. Our net interest margin increased by 20 basis points on a linked quarter basis and resulted in a $1.4 million increase in net interest income versus the second quarter. This was due to asset yield increasing while at the same time, liability costs decreasing.

Below the margin line, our quarterly results included $568,000 in merger charges, and we have included adjusted return metrics in both the press release and the presentation to show our performance ratios but the impact of these expenses. Additionally, our CECL model calculated a release of the allowance for credit losses this quarter, so we included pre-provisioned net revenue numbers as well. The ACL release of $502,000 was mostly driven by several loans moving out of nonaccrual status. Our unadjusted pre-provision net revenue increased by 15% on a linked-quarter basis and 19% adjusting for nonrecurring merger charges.

Noninterest income for the 9 months ended September 30 increased 9% over the same period last year, with growth coming from our wealth and trust activities as well as increased gains on loan sales.

Quarterly expenses were up 7.5% over the third quarter of 2024. Excluding merger charges, the increase was only 2.8%. Credit metrics continued to improve year-over-year as nonperforming loans as a percent of total loans decreased and our reserves to nonperforming assets also increased.

The overall themes of the quarter were improving net interest margins and benign credit combined measured expense control. These themes have aligned to deliver a solid quarter and leave our company well positioned for the future.

Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking questions.

[Operator Instructions] And our first question will come from Tyler Cacciatori of Stephens.

This is Tyler on for Matt Breese. Can you just talk about the ability to further reduce deposit costs from here with another 2 rate cuts expected and maybe some sense for the full cycle beta versus the hiking cycle?

Sure. So one thing we have is we have -- as you know, we have about $400 million plus in municipal deposits. A lot of those are tied to market rates. So they will come down with market rates kind of on a step-by-step basis. We are very aggressive in moving other specialized rates down with the move in Fed rates. So I would say that the beta on the way down is going to be somewhere in the neighborhood of 50%.

I think we can -- we still have room, and we have been showing, if you look in the presentation, we've seen even before the Fed cut, we have seen our deposit costs coming down over time.

And then can you remind us how much is in munis and what's roughly the high watermark versus the low?

We're probably right now at the high watermark. So it goes from between, I think, [$450 million down to $400 million]. There is -- we have New York and Pennsylvania municipal deposits. So they will offset each other as far as the timing goes on when tax receipts come in. And then even after tax receipts come in, some of the other municipalities that receive the tax money, you get the mix where it kind of [dribbles] out slowly.

Yes. And we also have some school districts that work on a slightly different cycle as well that are in that mix. So the highs and lows are a little less dramatic than it might otherwise be.

Great. And then along those same lines, can you discuss your NIM outlook and where you think you start seeing some stability here?

That's tough one, Tyler. Thanks. It's -- our NIM outlook, I think, is still positive. We're still getting -- our loan book is still pricing up. So although that has been -- as the longer part of the curve has come down, that's begun to level off a little bit. So I think I had at 3.63% for this quarter, I hope we can start reaching towards 4%, but I'm not sure where we go from there over the next few quarters.

Great. And if I could just squeeze one more in. The window here for M&A certainly feels a bit more open. Can you maybe just talk about where you stand from here? And or post deal close and update us on when the updating deal close is expected to happen?

We are opportunistic on M&A, and we'll look for strategic opportunities to continue to see what's out there and how it would be a strategic alignment. Our current Presence Bank, I commented on earlier, we're waiting for regulatory approval and don't really have a date that we know that will come through. But looking at the overall environment and how other deals have proceeded, we feel pretty confident on -- we believe that things will go smoothly.

Yes. If you look at the calender, Tyler, we don't see it -- it would be very difficult for us to get it done in Q4. And then there are other obviously operational and accounting issue with closing in December. So at this point, they haven't mailed their proxy out yet. We think that will be happening soon. And when that happens, then we can sort of like -- we can start the calendar accounting. And then that on a parallel path is obviously the regulators who have been -- they've been asking questions, but they haven't given us any flags or yellow or red kind at this point.

[Operator Instructions] And our next question will be coming from Ross Haberman of Rlh Investments.

I just have a quick question. Assuming we get another 0.25 drop in the -- I don't know, in the next month or so, could you tell us how accretive that will be to your margin or your spread?

I mean we have -- there's a lot going on underneath in the portfolio. So just by itself, without any comment on the change in the shape of the yield curve out past year, it would be accretive to us as far as dropping our cost of deposits, but I hesitate for a dollar amount on it now or a basis point amount right now, depending on timing and where in the quarter it happens. Then we'll get into the first quarter when hopefully we'll be closing on a transaction and then will be a lot of noise then as well.

And just one follow-up question, if I may. Could you tell us where you're seeing the best loan growth and demand today? What category. And do you see that continuing into the fourth quarter or if everything happened in D.C. and the expectation of lower rates, is that sort of mitigating loan growth?

Yes, Ross, good question. Our loan growth this year has pretty much been across the board in the different categories. So we haven't -- it hasn't tipped us into one category or another as being the major growth factor. The only area I'd say that we may have grown -- shrunk a little bit in as our ag percent of our portfolio may have gone from about 9% to about 8% of our portfolio.

And our CRE breakout remains well under -- we're well within the regulatory guidelines and have lots of room there. So there is no one category driving it. So our consumer lending has been good and strong and is performing well as is across our portfolio for the various types of commercial, including C&I.

And I'm showing no further questions at this time. I would now like to turn the call back to Jim for closing remarks.

Thank you, and thank you all for joining us today. We're really pleased to be talking about and delivering the kinds of results that we have today. It's the employees working hard every day to take great care of our customers that are able to put these numbers up. So thank you for calling in today, and we appreciate it, and we look forward to talking to you really soon on our next quarterly release.

And this concludes today's conference call. Thank you for participating. You may now disconnect.