10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One):

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

For the fiscal year ended December 31, 2016

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 No. 0-28364

NORWOOD FINANCIAL CORP.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	23-2828306
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

717 Main Street, Honesdale, Pennsylvania	18431
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code: (570) 253-1455

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.10 par value	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES     ☒ NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ YES     ☒ NO

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ YES     ☐ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒ YES     ☐ NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).☐ Yes     ☒ No

The registrant's voting stock trades on the NASDAQ Global Market under the symbol "NWFL."  The aggregate market value of the voting stock held by non‑affiliates of the registrant, based on the closing price of the registrant's Common Stock as of June 30, 2016, $28.00 per share, was $97.2 million based on 3,469,941 shares of Common Stock held by non-affiliates on that date.  For purposes of this calculation, the term "affiliate" refers to all directors and executive officers of the registrant, and all persons beneficially owning more than 5% of the registrant's common stock.

As of March 1, 2017, there were 4,162,414 shares outstanding of the registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

1.Portions of the Annual Report to Stockholders for the Fiscal Year Ended December 31, 2016. (Parts I, II, and IV)

2.Portions of the definitive Proxy Statement for the 2017 Annual Meeting of Shareholders. (Part III)

NORWOOD FINANCIAL CORP.

ANNUAL REPORT ON FORM 10-K

Table of Contents

23
Part I		Page
Item 1.	Business.	2
Item 1A.	Risk Factors.	23
Item 1B.	Unresolved Staff Comments.	32
Item 2.	Properties.	32
Item 3.	Legal Proceedings.	32
Item 4.	Mine Safety Disclosures.	32
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	32
Item 6.	Selected Financial Data.	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	33
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk.	33
Item 8.	Financial Statements and Supplementary Data.	33
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	33
Item 9A.	Controls and Procedures.	33
Item 9B.	Other Information.	33
Part III
Item 10.	Directors, Executive Officers and Corporate Governance.	34
Item 11.	Executive Compensation.	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	34
Item 13.	Certain Relationships and Related Transactions and Director Independence.	35
Item 14.	Principal Accounting Fees and Services.	35
Part IV
Item 15.	Exhibits, Financial Statement Schedules.	35
Item 16.	Form 10-K Summary	37
SIGNATURES		38

PART I

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 as detailed in Item 1A include:

• our ability to realize the anticipated benefits from our acquisition of Delaware Bancshares, Inc.

• possible future impairment of intangible assets

• our ability to effectively manage future growth

• loan losses in excess of our allowance

• risks inherent in commercial lending

• real estate collateral which may be subject to declines in value

• potential other-than-temporary impairments

• soundness of other financial institutions

• interest rate risks

• potential liquidity risk

• availability of capital

• regional economic factors

• loss of senior officers

• comparatively low legal lending limits

• risks of new capital requirements

• limited market for the Company's stock

• restrictions on ability to pay dividends

• common stock may lose value

• insider ownership

• issuing additional shares may dilute ownership

• certain anti-takeover provisions

• competitive environment

• extensive and complex governmental regulation and associated cost

•   cybersecurity

Norwood Financial Corp. undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Item 1. Business

General

Norwood Financial Corp. (the "Company"), a Pennsylvania corporation, was incorporated in 1995 to become the holding company for Wayne Bank.  The Company is a registered bank holding company subject to regulation and supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve").  As of December 31, 2016, the Company had total consolidated assets of $1.1 billion, consolidated deposits of $925.4 million, and consolidated stockholders' equity of $111.1 million.

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The Company's ratio of average equity to average assets was 11.95%, 13.76% and 13.62% for fiscal years 2016, 2015 and 2014, respectively.

Wayne Bank is a Pennsylvania chartered bank and trust company headquartered in Honesdale, Pennsylvania. The Bank was originally chartered on February 17, 1870 as Wayne County Savings Bank and changed its name to Wayne County Bank and Trust in December 1943. In September 1993, the Bank adopted the name Wayne Bank. The Bank's deposits are currently insured to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") and the Bank is a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh. The Bank is regulated and examined by the Pennsylvania Department of Banking and Securities ("Department") and the FDIC.

The Bank is an independent community bank with 27offices in Northeastern Pennsylvania and the Southern Tier of New York.  The Bank has five offices in Wayne County, three offices in Pike County, four offices in Monroe County and three offices in Lackawanna County, Pennsylvania.  As a result of the acquisition of Delaware Bancshares, Inc., Wayne Bank now has six offices in Delaware County and six offices in Sullivan County, New York.  The Bank offers a wide variety of personal and business credit services and trust and investment products and real estate settlement services to the consumers, businesses, nonprofit organizations, and municipalities in each of the communities that the Bank serves. The Bank primarily serves the northeastern Pennsylvania counties of Wayne, Pike, Monroe and Lackawanna and, to a much lesser extent, Susquehanna County and the Southern Tier New York counties of Delaware and Sullivan. In addition, the Bank operates 28automated teller machines, each one located at a branch facility.

The Company's main office is located at 717 Main Street, Honesdale, Pennsylvania and its main telephone number is (570) 253-1455. The Company maintains a website at www.waynebank.com.  Information on our website should not be treated as part of this Annual Report on Form 10-K.  The Company makes copies of its SEC filings available free of charge as soon as reasonably practicable after they are filed, through a link on its website to the SEC's website.

Recent Acquisitions

Delaware Bancshares, Inc. On July 31, 2016, the Company completed the acquisition of Delaware Bancshares, Inc. ("Delaware") and its wholly owned subsidiary, The National Bank of Delaware County ("NBDC").  At the time of acquisition, Delaware had approximately $375.6 million in assets and 12 banking offices in Delaware and Sullivan Counties, New York.  Pursuant to the terms of the Agreement and Plan of Merger, dated March 10, 2016, by and among the Company, Wayne Bank, Delaware and NBDC (the "Delaware Agreement"), Delaware was merged with and into the Company, with the Company as the surviving corporation of the merger (the "Merger") and NBDC was merged with and into Wayne Bank immediately thereafter.  At the effective time of the Merger, each outstanding share of the common stock of Delaware was converted, at the election of the holder but subject to the limitations and allocation and proration provisions set forth in the Delaware Agreement, into either $16.68 in cash or 0.6221 of a share of the Company's common stock, par value $0.10 per share (the "Common Stock").  In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of the Common Stock.

In connection with the Merger, the Company assumed the obligations of Delaware under an Indenture, dated as of October 31, 2007, by and between Delaware, as issuer, and Wells Fargo Bank, National Association, as trustee (the "Indenture") and Delaware's Junior Subordinated Debt Securities, due January 1, 2038 (the "Debt Securities") issued thereunder.  The Debt Securities were issued by Delaware in connection with a private placement completed on October 31, 2007 of $8.0 million of trust preferred securities issued through the Delaware Bancshares Capital Trust I (the "Trust").  The proceeds

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from the initial sale of the trust preferred securities were used by the Trust to purchase the Debt Securities.  The Debt Securities bore interest at a variable rate which reset quarterly at LIBOR plus 2.4%, and were redeemable, in whole or in part, without penalty, at the option of the Issuer, beginning on January 1, 2013 and on any January 1, April 1, July 1 or October 1 thereafter.  The interest payments on the Debt Securities made by the Issuer were used to pay the quarterly distributions payable by the Trust to the holders of the trust preferred securities.  On October 3, 2016, the Company redeemed the Debt Securities and the trust preferred securities in full.

North Penn Bancorp, Inc.  On May 31, 2011, the Company completed its acquisition of North Penn Bancorp, Inc. ("North Penn") and its wholly owned subsidiary, North Penn Bank, as contemplated by the Agreement and Plan of Merger, dated as of December 14, 2010, by and among the Company, Wayne Bank, North Penn and North Penn Bank (the "North Penn Agreement").  At the time of acquisition, North Penn had approximately $168.3 million in assets and five banking offices in Lackawanna and Monroe Counties, Pennsylvania.  The Company acquired all of the outstanding shares of North Penn for an aggregate cash consideration of approximately $12.2 million and 532,000 shares of the Common Stock.  The cash and stock transaction was valued at approximately $26.9 million based on the closing price of the Common Stock on May 31, 2011.  In accordance with the North Penn Agreement, each outstanding share of North Penn common stock was converted, at the election of the holder, into either the right to receive $19.12 in cash or 0.6829 shares of the Common Stock, subject to the election and allocation procedures in the North Penn Agreement, including the requirement that $12,194,000 of the merger consideration (which included amounts paid in cancellation of existing stock options, for the unallocated shares held by the Employee Stock Ownership Plan ("ESOP") and any shares as to which the holders exercised dissenters' rights) be paid in cash and that the remainder be paid in the Common Stock.

Competition

The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, and multi-state regional banks in the Company's market area of Wayne, Pike, Monroe and Lackawanna Counties, Pennsylvania and Delaware and Sullivan Counties, New York. Based on data compiled by the FDIC as of June 30, 2016 (the latest date for which such data is available), the Bank had the third largest share of FDIC-insured deposits in Wayne County with approximately 21.0%, the third largest share in Pike County with 18.5%, seventh largest share in Monroe County with 4.3% and tenth largest share in Lackawanna County with 1.6%.  At June 30, 2016, NBDC had the third largest share of FDIC-insured deposits in Delaware County with 25.7% and the sixth largest share in Sullivan County with 6.0%.  This data does not reflect deposits held by credit unions with which the Bank also competes. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition varies depending upon market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, multi-state regional banks, and mortgage bankers.

Personnel

As of December 31, 2016, the Bank had 209 full‑time and 6 part‑time employees. None of the Bank's employees are represented by a collective bargaining group.

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Lending Activities

The Bank's loan products include loans for personal and business use. Personal lending includes mortgage lending to finance principal residences and to a lesser extent second home dwellings. The Bank's loan products include fixed-rate mortgage products with terms up to 30 years which may be sold, in the secondary market through the Federal National Mortgage Association ("Fannie Mae"), the FHLB or held in the Bank's portfolio to the extent consistent with our asset/liability management strategies. Fixed-rate home equity loans are originated on terms up to 180 months.  Home equity lines of credit tied to the prime rate are also offered. The Bank to a lesser extent also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvania and the Southern Tier of New York.  At December 31, 2016, there were $41.5 million of indirect loans in the portfolio.  In connection with the acquisition of Delaware Bancshares, Inc., the Company acquired approximately $116.7 million in loans, including $68.7 million in residential real estate loans, $22.5 million in commercial real estate loans, $13.6 million in commercial, financial and agricultural loans, $6.5 million in consumer loans and $5.4 in construction loans.  As of December 31, 2016, the approximate outstanding balance of these acquired loans was $112.1 million.  In connection with the acquisition of North Penn Bancorp, Inc., the Company acquired approximately $119.7 million in loans, including $36.2 million in residential real estate loans, $70.8 million in commercial real estate loans, $10.5 million in commercial, financial and agricultural loans, $1.8 million in consumer loans and $358,000 in construction loans.  As of December 31, 2016, the approximate outstanding balance of these acquired loans was $43.3 million.

Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures.  Also included in commercial loans are municipal finance lending in which the Bank has been active in recent years.  Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue producing projects such as sewer authorities and educational units.  At  December 31, 2016, the Bank had approximately $71.8 million in loans on commercial rentals, as well as $50.9  million of loans outstanding to the hospitality lodging industry, which are its largest lending concentrations.  Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate or adjustable at set intervals.

The Bank's construction lending has primarily involved lending for commercial construction projects and for single-family residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage.

The Bank also, from time to time, originates loans secured by undeveloped land. Land loans granted to individuals have a term of up to five years. Land loans granted to developers may have an interest only period during development. The substantial majority of land loans have a loan-to-value ratio not exceeding 75%. The Bank has limited its exposure to land loans but may expand its lending on raw land, as market conditions allow, to qualified borrowers experienced in the development and sale of raw land.

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Loans involving construction financing and loans on raw land have a higher level of risk than loans for the purchase of existing homes since collateral values, land values, development costs and construction costs can only be estimated at the time the loan is approved. The Bank has sought to minimize its risk in construction lending and in lending for the purchase of raw land by offering such financing primarily to builders and developers to whom the Bank has loaned funds in the past and to persons who have previous experience in such projects. The Bank also limits construction lending and loans on raw land to its market area, with which management is familiar.

Adjustable-rate loans decrease the risks associated with changes in interest rates by periodically repricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for payment default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate may also be limited by the maximum periodic interest rate adjustment permitted in certain adjustable-rate mortgage loan documents, and, therefore is potentially limited in effectiveness during periods of rapidly rising interest rates. These risks have not had an adverse effect on the Bank.

Consumer lending, including indirect financing, provides benefits to the Bank's asset/liability management program by reducing the Bank's exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly.

Commercial lending including real-estate related loans entail significant additional risks when compared with residential real estate and consumer lending. For example, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse space. In periods of decreasing cash flows, the commercial borrower may permit a lapse in general maintenance of the property causing the value of the underlying collateral to deteriorate. The liquidation of commercial property is often more costly and may involve more time to sell than residential real estate. The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and by obtaining the personal guaranties of the principals. In addition, a majority of the Bank's commercial real estate portfolio is owner occupied property.

Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending. The repayment of unsecured commercial business loans is wholly dependent on the success of the borrower's business, while secured commercial business loans may be secured by collateral that may not be readily marketable in the event of default.  Municipal financing includes lending to local taxing authorities and revenue producing projects.  Such loans may constitute  the general obligation of the taxing authority or may rely on a specific revenue source which is responsible for the repayment of the debt.  General obligations are considered to carry a lower level of risk than other loan types since they are backed by the full faith and credit of the taxing authority  Revenue obligations are backed solely by revenues generated by the project financed and repayment may be affected by the success of the project.

Due to the type and nature of the collateral, consumer lending generally involves more credit risk when compared with residential real estate lending. Consumer lending collections are typically dependent on the borrower's continuing financial stability, and thus, are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. The remaining deficiency is usually turned over to a collection agency.

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There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis. We seek to mitigate these risks by only dealing with dealers with whom we have a long-standing relationship.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") prohibits lenders from making residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to repay the mortgage loan according to its terms.  A borrower may recover statutory damages equal to all finance charges and fees paid within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time.  As authorized by the Dodd-Frank Act, the Consumer Financial Protection Bureau ("CFPB") has adopted regulations defining "qualified mortgages" that would be presumed to comply with the Dodd-Frank Act's ability-to-repay rules.  Under the CFPB regulations, qualified mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments, or a term greater than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower's income and assets are verified and documented; and (iv) the borrower's debt-to-income ratio generally may not exceed 43%.  Qualified mortgages are conclusively presumed to comply with the ability-to-pay rule unless the mortgage is a "higher cost" mortgage, in which case the presumption is rebuttable.

Loan Solicitation and Processing

The Bank has established various lending limits for its officers and also maintains an Officer Loan Committee to approve higher loan amounts. The loan committee is comprised of the President and Chief Executive Officer, Chief Lending Officer and other Bank officers. The Loan Committee has the authority to approve all loans up to set limits based on the type of loan and the collateral. Requests in excess of these limits must be submitted to the Directors' Loan Committee or Board of Directors for approval. Additionally, the President and Chief Executive Officer, and the Chief Lending Officer and other officers have the authority to approve secured and unsecured loans up to amounts approved by the Board of Directors and maintained in the Bank's Loan Policy. Notwithstanding individual lending authority, certain loan policy exceptions must be submitted to the loan committee for approval.

Hazard insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required, when applicable.

Loan applicants are notified of the credit decision by letter. If the loan is approved, the loan commitment specifies the terms and conditions of the proposed loan including the amount, interest rate, amortization term, a brief description of the required collateral, and the required insurance coverage. The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan.

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Loan Portfolio Composition. Set forth below is selected data relating to the composition of the Bank's loan portfolio at the dates indicated.

C
	As of December 31,
	2016			2015			2014			2013				2012
	$		%	$		%	$		%	$			%	$			%
	(dollars in thousands)
Commercial loans	$	85,508	12.0	$	71,090	12.7	$	42,514	8.5	$	35,745		7.1	$	25,113		5.3
Real Estate-Construction		19,709	2.8		18,987	3.4		19,221	3.9		20,551		4.1		13,435		2.8
Real Estate-Residential		237,177	33.2		161,820	28.9		158,139	31.5		158,842		31.6		150,043		31.4
Real Estate-Commercial		320,187	44.8		279,123	49.8		261,956	52.2		273,144		54.2		274,484		57.5
Consumer loans		51,524	7.2		29,231	5.2		19,704	3.9		15,295		3.0		14,154		3.0
		714,105	100.0		560,251	100.0		501,534	100.0		503,577		100.0		477,229		100.0
Deferred fees, net		(216)			(326)			(399)			(480	)			(519	)
Allowance for loan losses		(6,463)			(7,298)			(5,875)			(5,708	)			(5,502	)
Loans receivable, net	$	707,426		$	552,627		$	495,260		$	497,389			$	471,208

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Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2016. Scheduled repayments are reported in the maturity category in which payment is due.  Demand loans, loans having no stated schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less.

	One Year or Less		After One to Five Years		Over Five Years		Total
	(dollars in thousands)
Commercial loans	$	15,989	$	21,973	$	47,546	$	85,508
Real Estate – Construction		5,976		1,972		11,761		19,709
Total	$	21,965	$	23,945	$	59,307	$	105,217
Loans with fixed rates	$	9,897	$	13,954	$	37,559	$	61,410
Loans with floating rates		15,067		11,057		17,683		43,807
Total	$	24,964	$	25,011	$	55,242	$	105,217

Non-Performing Assets. The following table sets forth information regarding non‑accrual loans, foreclosed real estate owned and loans 90 days or more delinquent on which the Bank was accruing interest at the dates indicated.  At December 31, 2016, 2015, 2014, 2013 and 2012, the Company also had $1.5 million, $6.8 million, $8.8 million, $9.2 million and $5.6 million, respectively, in troubled debt restructurings.For the year ended December 31, 2016, interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of such loans was $163,000 of which $41,000 was collected. For those loans classified as troubled debt restructurings, interest income that would have been recorded under the original terms of the loans for fiscal year 2016 was $139,000 of which $56,000 was collected.  Of those loans classified as troubled debt restructurings at December 31, 2016, three loans with a balance of $477,000 are included in non-accrual loans, while one loan relationship with a balance of $1.0 million is carried in full accrual status.

	As of December 31,
	2016			2015			2014			2013			2012
	(dollars in thousands)
Non-accrual loans:   Real Estate loans
Residential	$	1,136		$	440		$	1,675		$	1,704		$	2,846
Commercial		762			6,649			3,921			7,843			10,026
Construction		28			—			—			—			---
Commercial		—			43			—			—			328
Consumer loans		—			—-			4			—			—
Total non-accrual loans*		1,926			7,132			5,600			9,547			13,200
Accruing loans which are contractually past-due 90 days or more		1			—			—			—			—
Total non-performing loans		1,927			7,132			5,600			9,547			13,200
Foreclosed real estate		5,302			2,847			3,726			1,009			852
Total non-performing assets	$	7,229		$	9,979		$	9,326		$	10,556		$	14,052
Total non-performing loans to total loans		0.25	%		1.27	%		1.12	%		1.90	%		2.77	%
Total non-performing loans to total assets		0.17	%		0.95	%		0.79	%		1.34	%		1.96	%
Total non-performing assets to total assets		0.64	%		1.33	%		1.31	%		1.48	%		2.09	%

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*Includes non-accrual TDRs of $477,000, $5.7 million, $2.2 million, $6.2 million and $5.6 million as of December 31, 2016, 2015, 2014, 2013 and 2012, respectively.  The Company also had $1.0 million, $1.1 million, $6.6 million, $3.0 million and $0 in accruing TDRs, respectively, on those dates.

The recorded investment in impaired loans, not requiring an allowance for loan losses was  $2,624,000 (net of a charge-off against the allowance for loan losses of $831,000) and $2,855,000 (net of a charge-off against the allowance for loan losses of $1,971,000) at December 31, 2016 and 2015, respectively. There were no loans requiring an allowance on December 31, 2016.  The recorded investment in impaired loans requiring an allowance for loan losses was $6,373,000 (net of charge-off against the allowance for loan losses of $73,000) at December 31, 2015. The specific reserve related to impaired loans was $0 for 2016 and $1,613,000 for 2015.  For the years ended December 31, 2016 and 2015, the average recorded investment in these impaired loans was $2.696,000 and $9,015,000, and the interest income recognized on these impaired loans was $91,000 and $532,000, respectively.  In connection with the Delaware Bancshares acquisition, the Company acquired loans with deteriorated credit quality with an unpaid balance of $1.4 million, which are being carried at their fair value of $938,000.  In connection with the North Penn acquisition, the Company acquired loans with deteriorated credit quality with an unpaid balance of $1.9 million, which are being carried at their fair value of $447,000.

As of December 31, 2016, there were no loans not previously disclosed in the above table, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms.

Troubled Debt Restructured Loans.  Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.  During 2016, there were no new loan relationships identified as troubled debt restructures.

Classified Assets.  Management has instituted an internal loan review program, whereby weaker credits are classified as special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to establish a valuation reserve for loan losses in an amount that is deemed prudent. When management classifies a loan as a loss asset, a reserve equal to 100% of the loan balance is required to be established or the loan is to be charged-off. The allowance for loan losses is composed of an allowance for both inherent risk associated with lending activities and particular problem assets.

An asset is considered substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a loss reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess credit deficiencies or potential weaknesses are required to be designated special mention by management.

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Management's evaluation of the classification of assets and the adequacy of the allowance for loan losses is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process.

The following table sets forth at the dates indicated the Bank's classified assets in accordance with its asset classification system:

	As of December 31,
	2016		2015		2014		2013		2012
	(In thousands)
Special mention	$	6,317	$	1,837	$	1,983	$	3,651	$	11,563
Substandard		4,346		9,437		13,344		18,927		12,123
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Total	$	10,663	$	11,274	$	15,327	$	22,578	$	23,686

Analysis of the Allowance for Loan Losses. The following table sets forth information with respect to the Bank's allowance for loan losses for the years indicated:

	As of December 31,
	2016			2015			2014			2013			2012
	(dollars in thousands)
Total loans receivable net of deferred fees	$	713,889		$	559,925		$	501,135		$	503,097		$	476,710
Average loans receivable		626,907			529,989			500,960			483,041			478,317
Allowance balance at beginning of period	$	7,298		$	5,875		$	5,708		$	5,502		$	5,458
Charge-offs:
Commercial		(15)			—			—			(4	)		(24	)
Real Estate – residential, commercial and construction		(2,834)			(3,107	)		(1,466	)		(2,131	)		(2,354	)
Consumer		(102)			(91	)		(80	)		(90	)		(59	)
Total		(2,951)			(3,198	)		(1,546	)		(2,225	)		(2,437	)
Recoveries:
Commercial		—			—			—			—			—
Real Estate – residential, commercial and construction		21			20			2			9			7
Consumer		45			21			31			22			24
Total		66			41			33			31			31
Net Charge-offs		(2,885)			(3,157	)		(1,513	)		(2,194	)		(2,406	)
Provision Expense		2,050			4,580			1,680			2,400			2,450
Allowance balance at end of period	$	6,463		$	7,298		$	5,875		$	5,708		$	5,502
Allowance for loan losses as a percent of total loans outstanding		0.91	%		1.30	%		1.17	%		1.13	%		1.15	%
Net loans charged off as a percent of average loans outstanding		0.46	%		0.60	%		0.30	%		0.45	%		0.50	%

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Allocation of the Allowance For Loan Losses. The following table sets forth the allocation of the Bank's allowance for loan losses by loan category and the percent of loans in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan.

	As of December 31,
	2016				2015				2014				2013				2012
			% of				% of				% of				% of				% of
			Loans				Loans				Loans				Loans				Loans
			to Total				to Total				to Total				to Total				to Total
	Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans
	(dollars in thousands)
Commercial	$	307	12.0	%	$	397	12.7	%	$	256	8.5	%	$	184	7.1	%	$	223	5.3	%
Real estate – construction		78	2.8			90	3.4			222	3.9			897	4.1			119	2.8
Real estate – residential		1,092	33.2			1,069	28.9			1,323	31.5			1,441	31.6			1,797	31.4
Real estate – commercial		4,623	44.8			5,506	49.8			3,890	52.2			3,026	54.2			3,183	57.5
Consumer		363	7.2			236	5.2			184	3.9			160	3.0			180	3.0
Unallocated		—	—			—	—			—	—			—	—			—	—
Total	$	6,463	100.0	%	$	7,298	100.0	%	$	5,875	100.0	%	$	5,708	100.0	%	$	5,502	100.0	%

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Investment Activities

General. The Company maintains a portfolio of investment securities consisting of obligations of the U.S. Government and its agencies, including mortgage-backed securities, and obligations of states, counties and municipalities including school districts. To a lesser extent, the Company also has corporate debt obligations in the portfolio as well as a portfolio of equity instruments of other financial services companies.  All such securities are classified as available-for-sale and carried at their fair value.  The securities portfolio includes $208.5 million in securities acquired in connection with the acquisition of Delaware Bancshares, Inc. The Company considers its investment portfolio a source of earnings and liquidity. Investment securities may also be pledged to secure public deposits and customer repurchase agreements.

Securities Portfolio. Carrying values of securities at the dates indicated are as follows:

	As of December 31,
	2016		2015		2014
	(in thousands)
U.S. Treasury securities	$	1,997	$	—	$	—
U.S. Government agencies		—		9,169		28,975
State and political subdivisions		125,101		60,755		54,332
Corporate obligations		10,112		4,974		6,486
Mortgage-backed securities –    government sponsored entities		164,930		63,569		66,204
Equity securities-financial services		424		384		398
Total Securities	$	302,564	$	138,851	$	156,395
Fair Value of Securities	$	302,564	$	138,851	$	156,395

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Maturity Distribution of Securities. The following table sets forth certain information regarding carrying values, weighted average yields, and maturities of the Company's securities portfolio as of December 31, 2016. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 34%.  Actual maturities may differ from contractual maturities as certain instruments have call features which allow prepayment of obligations. Maturity on the mortgage-backed securities is based upon contractual terms, the average life may differ as a result of changes in cash flow. Equity securities with no stated maturity are classified as "after ten years."  The average yield on equity securities reflects actual income received during the period.

					After One				After Five								Total Investment
	One Year or Less				Through Five Years				Through Ten Years				After Ten Years				Securities
	Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average
	Value		Yield		Value		Yield		Value		Yield		Value		Yield		Value		Yield
	(dollars in thousands)
U.S. Treasury securities	$	—	—	%	$	1,997	0.67	%	$	—-	—-	%	$	—	—	%	$	1,997	0.67	%
State and political subdivision		2,243	3.12			13,420	2.40			42,044	2.72			37,394	4.04			125,101	3.40
Corporate obligations		—	—			8,580	2.50			1,532	2.67			—	—			10,112	2.53
Mortgage-backed securities-government sponsored entities		—	—			—	—			—	—			164,930	1.87			164,930	1.87
Equity securities-financial services		—	—			—	—			—	—			424	4.63			424	4.63
Total Investment Securities	$	2,243	3.12	%	$	23,997	2.29	%	$	43,576	2.72	%	$	232,748	2.50	%	$	302,564	2.52	%

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Deposit Activities

General. The Bank provides a full range of deposit products to its retail and business customers. These include interest-bearing and noninterest bearing transaction accounts, statement savings and money market accounts. Certificate of deposit terms range up to five years for retail instruments. The Bank has no brokered deposits nor does it participate in the Certificate of Deposit Account Registry Service ("CDARS").  The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis. Other services the Bank offers its customers on a limited basis include cash management, direct deposit, Remote Deposit Capture and Automated Clearing House (ACH) activity. The Bank operates twenty-eight automated teller machines and is affiliated with the MoneyPass ATM network. Internet banking including bill-pay is offered through the website at www.waynebank.com.  Other services, such as eStatements and mobile banking are available online.

The following table sets forth information regarding deposit categories of the Company.

	Years Ended December 31,
	2016					2015						2014
	Average					Average						Average
	Balance		Rate Paid			Balance		Rate Paid				Balance			Rate Paid
	(dollars in thousands)
Non-interest bearing demand	$	146,578	—	%	$		106,601		—	%	$		96,870	—		%
Interest-bearing demand		71,107	0.05				52,825		0.05				50,284	0.05
Money Market		137,266	0.22				124,279		0.22				124,274	0.22
Savings		125,904	0.05				74,753		0.05				71,612	0.05
Time		234,026	0.94				209,930		0.99				206,231	1.03
Total	$	714,881			$		568,388				$		549,271

Maturities of Time Deposits. The following table indicates the amount of the Bank's time deposits of $100,000 or more by time remaining until maturity as of December 31, 2016.

	Amount
Maturity Period	(in thousands)
Within three months	$	24,815
Over three through six months		38,073
Over six through twelve months		30,136
Over twelve months		44,969
	$	137,993

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Short-Term Borrowings

The following table sets forth information concerning the Bank's short-term borrowings (those maturing within one year) which consist principally of securities sold under agreements to repurchase, short-term fixed-rate FHLB advances and federal funds purchased during the periods indicated.  Securities sold under repurchase agreements consist of commercial and municipal customers' funds invested in overnight securities for cash management purposes.

	Years Ended December 31,
	2016			2015			2014
	(dollars in thousands)
Short-term borrowings:
Average balance during the year	$	41,593		$	34,057		$	36,514
Maximum month-end balance during the year	$	52,672		$	55,183		$	49,634
Average interest rate during the year		0.31	%		0.25	%		0.21	%
Total short-term borrowings at end of the year	$	32,811		$	53,235		$	25,695
Weighted average interest rate at the end of the year		0.32	%		0.36	%		0.20	%

Trust Activities

The Bank operates a Wealth Management/Trust Department which provides estate planning, investment management and financial planning to customers for which it is generally compensated based on a percentage of assets under management. As of December 31, 2016, the Bank had $138.2 million of assets under management compared to $131.7 million as of December 31, 2015. The increase is partially due to stock market performance which can affect the value of a customer's investment portfolio.

Subsidiary Activities

The Bank, a Pennsylvania chartered bank, is the only wholly owned subsidiary of the Company. Norwood Investment Corp. ("NIC"), a Pennsylvania corporation incorporated in 1996 and a Pennsylvania licensed insurance agency, is a wholly-owned subsidiary of the Bank. NIC's business is annuity and mutual fund sales and discount brokerage activities primarily to customers of the Bank. The annuities, mutual funds and other investment products are not insured by the FDIC or any other government agency. They are not deposits, obligations of or guaranteed by any bank. The securities are offered through Invest Financial a registered broker/dealer. NIC generated gross revenues for the Company of $143,000 in 2016 and 2015 which is included in Other Income.

WCB Realty Corp., a Pennsylvania corporation, is a wholly-owned real estate subsidiary of the Bank whose principal asset is the administrative offices of the Company, which also includes the Main Office of the Bank.

WTRO Properties Inc., a Pennsylvania corporation, is a wholly-owned real estate subsidiary of the Bank established to hold title to certain real estate upon which the Bank has foreclosed.  As of December 31, 2016 and 2015, the outstanding balance of foreclosed properties on which WTRO held title totaled $4,780,000 and $2,250,000, respectively.

Norwood Settlement Services, LLC, a Pennsylvania limited liability company, was established in 2004 to provide title and settlement service to Bank customers and non-customers.  Gross revenues, included in other income, for 2016 totaled $1,000 and $16,000 in 2015.

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Regulation

Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulation of the Company

General. The Company, as a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("BHCA"), is subject to regulation and supervision by the Federal Reserve.  The Company is required to file periodic reports of its operations with, and is subject to examination by, the Federal Reserve. This regulation and oversight is generally intended to ensure that the Company limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of its subsidiary banks.

Under the BHCA, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares.

Federal statutes impose restrictions on the ability of a bank holding company and its nonbank subsidiaries to obtain extensions of credit from its subsidiary bank, on the subsidiary bank's investments in the stock or securities of the holding company, and on the subsidiary bank's taking of the holding company's stock or securities as collateral for loans to any borrower. A bank holding company and its subsidiaries are also prevented from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services by the subsidiary bank.

Source of Strength Doctrine.  A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital‑raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.

Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHCA. Under the BHCA and the Federal Reserve's bank holding company regulations, the Company may only engage in, or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other subsidiaries authorized under the BHCA and (2) any BHCA activity the Federal Reserve has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of banking as to be a proper incident thereto.

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Financial Modernization. The Gramm-Leach-Bliley Act, permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services company known as a "financial holding company."  A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for bank holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The Act also permits the Federal Reserve and the Treasury Department to authorize additional activities for financial holding companies if they are "financial in nature" or "incidental" to financial activities. A bank holding company may become a financial holding company if it and each of its subsidiary banks is well capitalized and well managed, and each of its subsidiary banks has at least a "satisfactory" CRA rating. A financial holding company must provide notice to the Federal Reserve within 30 days after commencing activities previously determined by statute or by the Federal Reserve and Department of the Treasury to be permissible. The Company has not submitted notice to the Federal Reserve of its intent to be deemed a financial holding company.

Regulatory Capital Requirements. The Federal Reserve has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve's capital adequacy guidelines are similar to those imposed on the Bank by the FDIC. See "Regulation of the Bank-Regulatory Capital Requirements."

Regulation of the Bank

General. As a Pennsylvania chartered, FDIC-insured commercial bank which is not a member of the Federal Reserve System, the Bank is subject to extensive regulation and examination by the Department and by the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting stockholders. This regulatory structure also gives the federal and state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Department, the FDIC or the United States Congress, could have a material impact on the Company, the Bank and their operations.

Pennsylvania Banking Law. The Pennsylvania Banking Code ("Banking Code") contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and administrative discretion to the Department so that the supervision and regulation of state chartered banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

The Federal Deposit Insurance Act ("FDIA"), however, prohibits state chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments which are not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is significantly restricted by the FDIA.

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Interstate Banking.  As a result of the acquisition of Delaware Bancshares, Inc., Wayne Bank now operates branches in Pennsylvania and New York.  Under the federal Riegle-Neal Interstate Banking and Branching Efficiency Act (the "Riegle-Neal Act"), an insured state bank that establishes a branch in another state may conduct any activity at such branch that is permissible under the laws of its home state to the extent that such activity is permissible either for a bank chartered by the host state or for a branch of an out-of-state national bank in the host state.  The laws of the host state, including laws regarding community reinvestment, consumer protection, fair lending and branching within the host state, apply to any branch of an out-of-state bank to the same extent as such laws apply to a branch of an out-of-state national bank.  The Riegle-Neal Act prohibits out-of-state banks from using their interstate branches primarily for purposes of deposit production.  If a federal banking regulator reasonably determines from available information that an out-of-state bank's level of lending in a host state is less than half the loan to deposit ratio for all banks in the host state, the regulator may order the closure of the out-of-state branches or prohibit the opening of new branches in the host state unless the out-of-state bank has an acceptable plan or can give reasonable assurances that it will reasonably help meet the credit needs of the communities served in the host state.

Federal Deposit Insurance. The Bank's deposits are insured to applicable limits by the FDIC.  Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000 to $250,000.

The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution's risk rating.  The assessment base is the institution's average consolidated assets less average tangible equity.  Insured banks with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages.  In the case of a merger, the average assets of the surviving bank for the quarter must include the average assets of the merged institution for the period in the quarter prior to the merger. Average assets are reduced by goodwill and other intangibles.  Average tangible equity equals Tier 1 capital. For institutions with more than $1.0 billion in assets, average tangible equity is calculated on a weekly basis while smaller institutions may use the quarter-end balance.

Prior to July 1, 2016, insured institutions were assigned to one of four risk categories based on their examination ratings and capital ratios.  The base assessment rate for insured institutions in Risk Category I ranged between 5 to 9 basis points and for institutions in Risk Categories II, III, and IV, the assessment rate was 14, 23 and 35 basis points, respectively.  An institution's assessment rate could be reduced based on the amount of its outstanding unsecured long-term debt and for institutions in Risk Categories II, III and IV could be increased based on their brokered deposits. Risk Categories were eliminated for institutions with more than $10 billion in assets which were assessed at a rate between 5 and 35 basis points.

Effective July 1, 2016, the FDIC amended its assessment regulations for banks with less than $10 billion in assets to replace the previous risk categories with updated financial ratios that are designed to better predict the risk of failure of insured institutions.  The amended rules became effective during the first quarter after the reserve ratio of the Deposit Insurance Fund reached 1.15% and will remain in effect until the reserve ratio reaches 2.0%.  The amended regulations set a maximum rate that banks rated CAMELS 1 or 2 may be charged and a minimum rate that CAMELS 3, 4 and 5 banks may be charged.  Under the amended rules, the FDIC uses a bank's weighted average CAMELS component ratings and the following financial measures to determine assessments: Tier 1 leverage ratio; ratio of net income before taxes to total assets; ratio of non-performing loans to gross assets; and ratio of other real estate owned to gross assets.  In addition, assessments take into consideration core deposits to total assets, one-year asset growth and a loan mix index.  The loan mix measures the extent to which a bank's total assets include higher risk loans.  To calculate the loan mix index, each category of loan in the bank's portfolio (other than credit card loans) would be divided by the bank's total assets to determine the percentage of assets

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represented by that loan category.  Each percentage is then multiplied by that loan category's historical weighted average industry-wide charge-off rate.  The sum of these numbers determines the loan mix index value for that bank.  The amended regulations are intended to be revenue neutral to the FDIC but to shift premium payments to higher risk institutions.  Most institutions are expected to see lower premiums.  A companion regulation assesses banks over $10 billion in assets at higher rates for two years in accordance with the requirements of the Dodd-Frank Act.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation.  The FICO assessment rates, which are determined quarterly, averaged .01% of insured deposits on an annualized basis in fiscal year 2016. These assessments will continue until the FICO bonds mature in 2017.

Regulatory Capital Requirements. The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System.  Effective January 1, 2015, the capital adequacy requirements were substantially revised to conform to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as "Basel III".  The final rule applies to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Board's Small Bank Holding Company Policy Statement.

Under the FDIC's revised capital adequacy regulations, the Bank is required to meet four minimum capital standards: (1) a "Tier 1" or "core" capital leverage ratio equal to at least 4% of total adjusted assets, (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets, (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets, and (4) a total capital ratio equal to 8% of total risk-weighted assets.  Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest  and, unless the bank has made an "opt-out" election, accumulated other comprehensive income, net of goodwill and certain other intangible assets.  Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments.  Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments.  An institution's risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight.  Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.

In addition to higher capital requirements, the new capital rules will require banks and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements.  Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.  The capital buffer requirement will be phased in over four years beginning January 1, 2016.  The fully phased-in capital buffer requirement will effectively raise the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in basis.

In assessing an institution's capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.

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The Bank is also subject to minimum capital requirements imposed by the Department on Pennsylvania-chartered depository institutions. Under the Department's capital requirements, a Pennsylvania bank or savings bank must maintain a minimum leverage ratio of Tier 1 capital (as defined under the FDIC's capital regulations) to total assets of 4%. In addition, the Department has the supervisory discretion to require  higher leverage ratio for any institutions based on the institution's substandard performance in any of a number of areas. The Bank was in compliance with both the FDIC and Pennsylvania capital requirements in effect as of December 31, 2016.

Prompt Corrective Regulatory Action.  Under applicable federal statutes, the federal bank regulatory agencies are required to take "prompt corrective action" with respect to institutions that do not meet specified minimum capital requirements.  For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.  Under the FDIC's prompt corrective action regulations, an institution is deemed to be "well capitalized" if it has a Total Risk-Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 8.0% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% or better and a leverage ratio of 5.0% or greater. An institution is "adequately capitalized" if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is "undercapitalized" if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be "significantly undercapitalized" if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%

The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements.  In particular, the FDIC may require any non-member bank that is not "adequately capitalized" to take certain action to increase its capital ratios. If the non-member bank's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank's activities may be restricted.

At December 31, 2016, the Bank qualified as "well capitalized" under the prompt corrective action rules.

Affiliate Transaction Restrictions. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates, including their bank holding companies. In particular loans by a subsidiary bank and its parent company or the nonbank subsidiaries of the bank holding company are limited to 10% of a bank subsidiary's capital and surplus and, with respect to such parent company and all such nonbank subsidiaries, to an aggregate of 20% of the bank subsidiary's capital and surplus. Further, loans and other extensions of credit generally are required to be secured by eligible collateral in specified amounts.  Transactions with non-affiliates may be treated as transactions with an affiliate to the extent that proceeds from the transaction are used to benefit the affiliate. Federal law also requires that all transactions between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.

Loans to One Borrower. Under Pennsylvania law, commercial banks have, subject to certain exemptions, lending limits to one borrower in an amount equal to 15% of the institution's capital accounts. An institution's capital account includes the aggregate of all capital, surplus, undivided profits, capital securities and general reserves for loan losses. Pursuant to the national bank parity provisions of the Pennsylvania Banking Code, the Bank may also lend up to the maximum amounts permissible for

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national banks, which are allowed to make loans to one borrower of up to 25% of capital and surplus in certain circumstances. As of December 31, 2016, loans-to-one-borrower limitation was $15.3  million and the Bank was in compliance with such limitation.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Trustees of the FHLB.

As a member, the Bank is required to purchase and maintain restricted stock in the FHLB of Pittsburgh in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Bank's outstanding advances from the FHLB. At December 31, 2016, the Bank was in compliance with this requirement.  The FHLB incurred losses in both 2009 and 2010 and suspended the payment of dividends.  However, the FHLB has shown positive results since 2011 which includes stock redemptions and resumed dividend payments. The losses were primarily attributable to impairment of investment securities associated with the extreme economic conditions in place during the previous several years.  Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions that the world is facing.  Management also considered that the FHLB's regulatory capital ratios have increased from the prior year, liquidity appears adequate, and new shares of FHLB stock continue to change hands at the $100 par value.

Federal Reserve System. The Federal Reserve requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking and NOW accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy the liquidity requirements that are imposed by the Department. At December 31, 2016, the Bank met its reserve requirements.

Restrictions on Dividends. The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital. The Bank has not declared or paid any dividends which cause the Bank's retained earnings to be reduced below the amount required. Finally, dividends may not be declared or paid if the Bank is in default in payment of any assessment due the FDIC.

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the holding company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In a recent Supervisory Letter, the Federal Reserve staff has stated that, as a general matter, bank holding companies should eliminate cash dividends if net income available to shareholders for the past four quarters, net of dividends previously paid, is not sufficient to fully fund the dividend. Furthermore, under the federal prompt corrective action regulations, the Federal Reserve may prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized."

Volcker Rule.  Effective July 21, 2015, banking entities, which include insured depository institutions, their holding companies and affiliates of either, became subject to regulations implementing

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the so-called Volcker Rule of the Dodd-Frank Act, which prohibits proprietary trading for the entity's own account in certain financial instruments, including securities, derivatives, futures and options but excluding loans, physical commodities and foreign exchange and currency.  Under the rules adopted by the federal financial regulatory agencies, the purchase or sale of a financial instrument that has been held for less than 60 days is presumed to be proprietary trading for the purpose of short-term resale or benefiting from short-term price movements or for another prohibited purpose unless the banking organization can demonstrate a contrary purpose.  Purchases and sales of financial instruments pursuant to repurchase and reverse repurchase agreements or securities lending agreements, however, are excluded from the definition of proprietary trading. Also excluded from the definition of proprietary trading are purchases and sales of financial instruments where the bank is acting solely as agent for a customer, as trustee for a pension or deferred compensation plan or in connection with the collection of debts previously contracted.  Purchases and sales of highly liquid securities that are not reasonably expected to result in short-term trading gains and in an amount consistent with near-term funding needs are excluded from proprietary trading if conducted pursuant to a documented liquidity management plan.  Certain proprietary trading activities are permitted if conducted in connection with underwriting or market-making activities or risk-mitigating hedging activities.  Proprietary trading is also permitted in U.S. government, agency and government sponsored-enterprise securities and obligations of states and political subdivisions and the FDIC but not in derivatives of the foregoing.

The Volcker Rule also prohibits banking entities from sponsoring or directly or indirectly acquiring as principal any ownership interest in a "covered fund" unless permitted by the rule.  For purposes of this prohibition, a covered fund is any investment fund such as a hedge or private equity fund that would be required to register as an investment company under SEC rules but for the statutory exemptions for funds held by not more than 100 persons or owned solely by high net worth investors, any exempt or substantively similar non-exempt commodity pool and certain foreign investment funds.  Excluded from the definition of covered fund are wholly owned subsidiaries of a banking entity or its affiliates, certain permissible joint ventures, insurance company separate accounts for which the banking entity is a beneficiary provided the banking entity does not control investment decisions on the underlying assets or participate in the profits for the separate account except in accordance with supervisory guidance regarding bank owned life insurance, certain vehicles for loan and other permissible securitizations, small business investment companies, public welfare companies permitted under the National Bank Act, business development companies, registered investment companies and investment funds exempt from SEC registration under other statutory  provisions.  Investments in pooled trust preferred securities are permitted if acquired before December 10, 2013 and the banking entity reasonably believes that the trust preferred securities in the pool were issued prior to May 19, 2010 by depository institution holding companies with less than $15 billion in assets or by mutual holding companies.

The Volcker Rule prohibits a banking entity from engaging in certain covered transactions, including loans and securities and asset purchases, with any covered fund for which it serves as investment manager, advisor or sponsor or that it organizes and offers.  Any transactions with a covered fund must be on terms as favorable to the banking entity as transactions with non-affiliates.  Finally, the Volcker Rule prohibits any otherwise permitted proprietary trading or covered fund activity that would involve a material conflict of interest between the banking entity and its customers, result in a material exposure of the banking entity to high risk assets or trading strategies or would pose a threat to the safety and soundness of the banking entity or the financial stability of the United States.

Item 1A. Risk Factors

In determining whether to invest in our securities, investors should consider, among other factors, the following:

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Risks Related to Our Business

We may not realize the anticipated benefits from our acquisition of Delaware Bancshares, Inc.

On July 31, 2016, we completed the acquisition of Delaware Bancshares, Inc. ("Delaware Bancshares") and its wholly owned subsidiary, The National Bank of Delaware County ("NBDC Bank"), pursuant to which Delaware Bancshares was merged with and into the Company and immediately thereafter, NBDC Bank was merged with and into the Bank.  The acquisition of Delaware Bancshares extended our market reach into the neighboring New York counties of Delaware and Sullivan.  The success of this transaction, however, will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of the Bank and NBDC Bank in a manner that permits growth opportunities and does not materially disrupt the existing customer relationships of NBDC Bank nor result in decreased revenues resulting from any loss of customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

We hold certain intangible assets that could be classified as impaired in the future. If these assets are considered to be either partially or fully impaired in the future, our earnings would decrease.

At December 31, 2016, we had approximately $11.9 million in goodwill and identifiable intangible assets on our balance sheet. We are required to test our goodwill and identifiable intangible assets for impairment on a periodic basis. The impairment testing process considers a variety of factors, including the current market price of our common stock, the estimated net present value of our assets and liabilities, and information concerning the terminal valuation of similarly situated insured depository institutions. If an impairment determination is made in a future reporting period, our earnings and the book value of these intangible assets will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock or our regulatory capital levels, but such an impairment loss could significantly restrict the Bank's ability to make dividend payments to us.

Our success will depend upon our ability to effectively manage our future growth.

We believe that we have in place the management and systems, including data processing systems, internal controls and a strong credit culture, to support continued growth. However, our continued growth and profitability depend on the ability of our officers and key employees to manage such growth effectively, to attract and retain skilled employees and to maintain adequate internal controls and a strong credit culture. Accordingly, there can be no assurance that we will be successful in managing our expansion, and the failure to do so would adversely affect our financial condition and results of operations.

If we experience loan losses in excess of our allowance, our earnings will be adversely affected.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered

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questionable. If management's assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, or if the bank regulatory authorities require us to increase the allowance for loan losses as a part of their examination process, our earnings and capital could be significantly and adversely affected.

As of December 31, 2016, our allowance for loan losses was $6,463,000 which represented 0.91% of outstanding loans. At such date, we had twenty-nine nonperforming loans totaling $1.9 million and seven impaired loans totaling $2.6 million. We actively manage our nonperforming loans in an effort to minimize credit losses. Although management believes that its allowance for loan losses is adequate, there can be no assurance that the allowance will prove sufficient to cover future loan losses. Further, although management uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Material additions to our allowance for loan losses would result in a decrease in our net income and capital, and could have a material adverse effect on our financial condition and results of operations.

Most of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

Commercial loans are often larger and may involve greater risks than other types of lending. Because payments onsuch loans are often dependent on the successful operation of the property or business involved, repayment of such loans may be more sensitive than other types of loans due to adverse conditions in the real estate market or the economy. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the general economic environment. If the cash flow from business operations is reduced, the borrower's ability to repay the loan may be impaired.

Most of our loans are secured, in whole or in part, with real estate collateral which may be subject to declines in value.

In addition to the financial strength and cash flow characteristics of the borrower in each case, we often secure our loans with real estate collateral. As of December 31, 2016, approximately 81% of our loans had real estate as a primary, secondary or tertiary component of collateral. In addition, approximately 55% of our securities portfolio consisted of mortgage-backed securities issued by Fannie Mae, Freddie Mac or the Government National Mortgage Association (GNMA). Real estate values and real estate markets are generally affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, and acts of nature. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. If real estate prices in our markets decline, the value of the real estate collateral securing our loans could be reduced. If we are required to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.

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We may be required to record other-than-temporary impairment charges in respect of our investment securities portfolio and restricted stock.

As of December 31, 2016, we had approximately $261.8 million in investments, including mortgage-backed securities, on which we had unrealized losses of $7.8 million.  In addition, we had $2.1 million of regulatory stock in the FHLB of Pittsburgh. We may be required to record impairment charges on our investments and FHLB stock if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in the business climate, or adverse actions by regulators could have a negative effect on the value of our investments and mortgage backed securities. If an impairment charge is significant enough to result in a loss for the period, it could affect the ability of our bank subsidiary to upstream dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to stockholders and could also negatively impact our regulatory capital ratios and result in us not being classified as "well capitalized" for regulatory purposes.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.  There is no assurance that any such losses would not materially and adversely affect our results of operations.

Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect our financial performance.

Changes in the interest rate environment may reduce our profits. We realize income primarily from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and the interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs. Our net interest spread depends on many factors that are partly or completely out of our control, including competition, federal economic monetary and fiscal policies, and general economic conditions.

In order to mitigate the risks from increases in interest rates, we emphasize the origination of loans with variable rates of interest so that loan yields increase with the general level of interest rates.  Since many of the variable-rate loans in our portfolio specify minimum or floor rates of interest that borrowers must pay, however, the effective rates on these loans will not increase until the index rate exceeds the floor rate, which may initially reduce the sensitivity of these loans to increases in general interest rates.  An increase in the general level of interest rates may adversely affect the ability of certain borrowers with variable-rate loans to pay the interest on and principal of their obligations. In addition, an increase in market interest rates on loans is generally associated with a lower volume of loan originations, which may reduce earnings. Following an increase in the general level of interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace loan maturities with new originations, minimize increases on our deposit rates, and maintain an acceptable level and mix of funding. We cannot provide assurances that we will be able to increase our loan offering rates and continue to originate loans due to the competitive landscape in which we operate. Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while maintaining an acceptable level of deposits. Finally, we cannot provide any assurances that we can maintain our current levels of non-interest-bearing deposits as customers may seek higher yielding products when rates increase.

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Following a decline in the general level of interest rates, our ability to maintain a positive net interest spread is dependent on our ability to reduce the interest paid on deposits, borrowings, and other interest-bearing liabilities. We cannot provide assurance that we would be able to lower the rates paid on deposit accounts to support our liquidity requirements as lower rates may result in deposit outflows.

Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, liquidity, and overall profitability. We cannot assure you that we can minimize our interest rate risk.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and investments and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital in response to a deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors. Should we be required by regulatory authorities to raise additional capital, we may seek to do so through the issuance of, among other things, our common stock or preferred stock.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

Our business is geographically concentrated and is subject to regional economic factors that could have an adverse impact on our business.

Substantially all of our business is with customers in our market area of Northeastern Pennsylvania and the Southern Tier of New York. Most of our customers are consumers and small and medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in our markets could adversely affect our borrowers, their ability to repay their loans and to borrow additional funds, and consequently our financial condition and performance.

Additionally, we often secure our loans with real estate collateral, most of which is located in Northeastern Pennsylvania or the Southern Tier of New York. A decline in local economic conditions

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could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

The loss of senior executive officers and certain other key personnel could hurt our business.

Our success depends, to a great extent, upon the services of Lewis J. Critelli, our President and Chief Executive Officer.  Although we have an employment agreement with non-compete provisions with Mr. Critelli, the existence of such agreement does not assure that we will retain his services. The unexpected loss of Mr. Critelli could have a material adverse effect on our operations. From time to time, we also need to recruit personnel to fill vacant positions for experienced lending officers and branch managers. Competition for qualified personnel in the banking industry is intense, and there can be no assurance that we will continue to be successful in attracting, recruiting and retaining the necessary skilled managerial, marketing and technical personnel for the successful operation of our existing lending, operations, accounting and administrative functions or to support the expansion of the functions necessary for our future growth. Our inability to hire or retain key personnel could have a material adverse effect on our results of operations.

Our legal lending limits are relatively low and restrict our ability to compete for larger customers.

At December 31, 2016, our lending limit per borrower was approximately $15.3 million, or 15% of our capital plus allowance for loan losses. Accordingly, the size of loans that we can offer to potential borrowers is less than the size of loans that many of our competitors with larger capitalization are able to offer. We may engage in loan participations with other banks for loans in excess of our legal lending limits. However, there can be no assurance that such participations will be available at all or on terms which are favorable to us and our customers.

The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital rules is uncertain.

The federal banking agencies have recently adopted proposals that would substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The amendments implement the "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The amended rules include new minimum risk-based capital and leverage ratios, which became effective in January 2015 with certain requirements to be phased in beginning in 2016, and will refine the definition of what constitutes "capital" for purposes of calculating those ratios.

The new minimum capital level requirements applicable to the Company and the Bank include: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The new rules also establish a "capital conservation buffer" of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Company and the Bank.

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The application of more stringent capital requirements to the Company and the Bank could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.  Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit our ability to make distributions, including paying out dividends or buying back shares.

Risks Related to Our Common Stock

There is a limited trading market for our common stock, which may adversely impact your ability to sell your shares and the price you receive for your shares.

Although our common stock is quoted on the Nasdaq Global Market, there has been limited trading activity in our stock and an active trading market is not expected to develop. This means that there may be limited liquidity for our common stock, which may make it difficult to buy or sell our common stock, may negatively affect the price of our common stock and may cause volatility in the price of our common stock.

There are restrictions on our ability to pay cash dividends.

Although we have paid cash dividends on a quarterly basis since 1996, and the Bank paid dividends for many previous years, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board may deem relevant and will be subject to applicable federal and state laws that impose restrictions on our ability to pay dividends.

Our common stock is not insured and you could lose the value of your entire investment.

An investment in shares of our common stock is not a deposit and is not insured against loss by the government.

Our management and significant shareholders control a substantial percentage of our stock and therefore have the ability to exercise substantial control over our affairs.

As of December 31, 2016, our directors and executive officers beneficially owned approximately 280,598 shares, or approximately 6.4% of our common stock, including options to purchase 76,079 shares, in the aggregate, of our common stock at exercise prices ranging from $24.44 to $33.56 per share. Because of the large percentage of stock held by our directors and executive officers and other significant shareholders, these persons could influence the outcome of any matter submitted to a vote of our shareholders.

We may issue additional shares of common or preferred stock, which may dilute the ownership and voting power of our shareholders and the book value of our common stock.

We are currently authorized to issue up to 10,000,000 shares of common stock of which 4,160,254 shares are currently outstanding and up to 5,000,000 shares of preferred stock of which no shares are outstanding. Our Board of Directors has authority, without action or vote of the shareholders,

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to issue all or part of the authorized but unissued shares and to establish the terms of any series of preferred stock. These authorized but unissued shares could be issued on terms or in circumstances that could dilute the interests of other stockholders. In addition, a total of 525,000 shares of common stock have been reserved for issuance under the Norwood Financial Corp 2006 Stock Option Plan and the 2014 Equity Incentive Plan, of which 318,420 were issued as of December 31, 2016. As of December 31, 2016, options to purchase a total of 144,429 shares were exercisable and had exercise prices ranging from $24.44 to $33.56.  Any such issuance will dilute the percentage ownership interest of shareholders and may further dilute the book value of our common stock.

Provisions of our Articles of Incorporation and the Pennsylvania Business Corporation Law could deter takeovers which are opposed by the Board of Directors.

Our articles of incorporation require the approval of 80% of our outstanding shares for any merger or consolidation unless the transaction meets certain fair price criteria or the business combination has been approved or authorized by the Board of Directors. In addition, our articles of incorporation may require the disgorgement of profits realized by any person who attempts to acquire control of the Company. As a Pennsylvania corporation with a class of securities registered with the Securities and Exchange Commission, the Company is governed by certain provisions of the Pennsylvania Business Corporation Law that, inter alia, permit the disparate treatment of certain shareholders; prohibit calls of special meetings by shareholders; require unanimous written consent for shareholder action in lieu of a meeting; require shareholder approval for certain transactions in which a shareholder has an interest; and impose additional requirements on business combinations with persons who are the beneficial owners of more than 20% of the Company's stock.

Risks Related to Our Industry

We operate in a competitive market which could constrain our future growth and profitability.

We operate in a competitive environment, competing for deposits and loans with commercial banks, savings associations and other financial entities. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market and mutual funds and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings associations, mortgage banking firms, credit unions and other financial intermediaries. Many of the financial intermediaries operating in our market area offer certain services, such as international banking services, which we do not offer. Moreover, banks with a larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the needs of larger customers.

We are required to comply with extensive and complex governmental regulation which can adversely affect our business.

Our operations are and will be affected by current and future legislation and by the policies established from time to time by various federal and state regulatory authorities. We are subject to supervision and periodic examination by the Federal Reserve, FDIC and the Department.  Banking regulations, designed primarily for the safety of depositors, may limit a financial institution's growth and the return to its investors by restricting such activities as the payment of dividends, mergers with or acquisitions by other institutions, investments, loans and interest rates, interest rates paid on deposits, expansion of branch offices, and the offering of securities or trust services. We are also subject to capitalization guidelines established by federal law and could be subject to enforcement actions to the extent that we are found by regulatory examiners to be undercapitalized. It is not possible to predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that any

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such changes may have on our future business and earnings prospects. Further, the cost of compliance with regulatory requirements may adversely affect our ability to operate profitability.

In addition, the monetary policies of the Federal Reserve have had a significant effect on the operating results of banks in the past and are expected to continue to do so in the future. Among the instruments of monetary policy used by the Federal Reserve to implement its objectives are changes in the discount rate charged on bank borrowings and changes in the reserve requirements on bank deposits. It is not possible to predict what changes, if any, will be made to the monetary policies of the Federal Reserve or to existing federal and state legislation or the effect that such change may have on our future business and earnings prospects.

During the past several years, significant legislative attention has been focused on the regulation and deregulation of the financial services industry. Non-bank financial institutions, such as securities brokerage firms, insurance companies and money market funds, have been permitted to engage in activities which compete directly with traditional bank business.

We may bear costs associated with the proliferation of computer theft and cybercrime.

As part of our banking business, we collect, use and hold sensitive data concerning individuals and businesses with whom we have a banking relationship. Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with customer expectations and statutory and regulatory requirements. The increasing sophistication of cyber-criminals and terrorists makes it extremely difficult to keep up with new threats and could result in a breach of our data security. Patching and other measures to protect existing systems and servers could be inadequate, especially on systems that are being retired. Controls employed by our information technology department and third-party vendors could prove inadequate. We could also experience a breach by intentional or negligent conduct on the part of our employees or other internal sources or by merchants using our customers' debit and credit cards, software bugs or other technical malfunctions, or other causes. As a result of any of these threats, our customer accounts may become vulnerable to account takeover schemes or cyber-fraud. Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.

A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, customer notification requirements, significant increases in compliance costs, and reputational damage, any of which could individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition and prospects.

The Company maintains insurance coverage for losses caused by cybersecurity data breaches.  Coverage includes, but is not limited to, losses related to electronic funds, cyber liability, social networking and public relations expenses.  The total policy limit for each policy year is $1,000,000.

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Item 1B. Unresolved Staff Comments

None.

Item  2. Properties

The Bank operates from its main office located at 717 Main Street, Honesdale, Pennsylvania and twenty-six additional branch offices in Northeastern Pennsylvania and the Southern Tier of New York. The Bank's total investment in office property and equipment is $26.9 million with a net book value of $13.5 million as of December 31, 2016. The Bank currently operates automated teller machines at all of its facilities. The Bank leases sixof its locations with minimum lease commitments of $3.5 million through 2034.  Two of the locations have various renewal options.

Item 3. Legal Proceedings

On June 13, 2016, a complaint was filed against Delaware Bancshares, Inc. ("Delaware") in the Supreme Court of New York, County of Albany, by Northeast Capital & Advisory, Inc. ("Northeast") alleging that Delaware breached a prior agreement allegedly giving Northeast a right of first refusal on future investment banking services required by Delaware and seeking money damages in excess of $500,000. In its response filed July 27, 2016, Delaware denied the claims of Northeast, and filed a counterclaim for money damages in excess of $1.0 million.  The matter is now in the discovery stage.  The Registrant believes that the claims of Northeast are meritless and intends to continue to defend against them and pursue Delaware's counterclaims.

Neither the Company nor its subsidiaries are involved in any other pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.

Item 4.  Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Market Information.  Information relating to the market for Registrant's common equity and related stockholder matters appears under "Capital and Dividends" in the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 2016 (the "Annual Report") and is incorporated herein by reference.

(b) Use of Proceeds.  Not applicable.

(c) Issuer Purchsae of Equity Securities.  Not applicable.

- 32 -

Item 6. Selected Financial Data

The above-captioned information appears under "Summary of Selected Financial Data" in the Annual Report, and is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations

The above-captioned information appears under "Management's Discussion and Analysis" in the Annual Report and is incorporated herein by reference from the Annual Report.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

The above-captioned information appears under "Management's Discussion and Analysis -- Market Risk" in the Annual Report and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The Company's consolidated financial statements listed in Item 15 and the Summary of Quarterly Results (unaudited) are incorporated herein by reference from the Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

(a)  Disclosure 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 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.

(b)  Internal Control over Financial Reporting. Management's Report on Internal Control over Financial Reporting and the Report of the Company's Independent Registered Public Accounting Firm are incorporated herein by reference from the Annual Report. 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.

Item 9B. Other Information

None.

- 33 -

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained under the sections captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and "Proposal I -- Election of Directors" and "Corporate Governance" in the Proxy Statement for the 2017 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer or controller. The Code of Ethics is posted on the stockholder services page of Wayne Bank's website at www.waynebank.com/stockholder-services. The Company intends to report any waiver or amendment to its Code of Ethics on its website at www.waynebank.com/stockholder-services.

Item 11. Executive Compensation

The information contained under the section captioned "Director and Executive Compensation" in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a) Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the Section captioned "Principal Holders of Our Common Stock" of the Proxy Statement.

(b) Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned  "Proposal I -- Election of Directors" of the Proxy Statement.

(c) Changes in Control

Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

- 34 -

(d)Equity Compensation Plan Information

EQUITY COMPENSATION PLAN INFORMATION

	(a)		(b)			(c)
	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans, (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
2006 Stock Option Plan		137,352		$	26.59		4,057
2014 Equity Incentive Plan		23,077			32.02		202,523
Equity compensation plans not approved by security holders		—			—		—
TOTAL		160,429		$	27.37		206,580

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to the sections in the Proxy Statement captioned "Related Party Transactions" and "Corporate Governance".

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the section in the Proxy Statement captioned "Proposal II -- Ratification of Appointment of Independent Registered Public Accounting Firm."

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Listed below are all financial statements, schedules and exhibits filed as part of this report, and are incorporated by reference.

1. The consolidated balance sheets of Norwood Financial Corp. and subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2016, together with the related notes and the independent registered public accounting firm reports of S.R. Snodgrass, P.C., independent registered public accounting firm.

2. Schedules omitted as they are not applicable.

- 35 -

3.Exhibits

P
No.	Description
3(i)	Articles of Incorporation of Norwood Financial Corp.(1)
3(ii)	Bylaws of Norwood Financial Corp. (2)
4.0	Specimen Stock Certificate of Norwood Financial Corp. (1)
10.1†	Employment Agreement with Lewis J. Critelli (3)
10.2†	Change in Control Severance Agreement with William S. Lance (3)
10.3†	Norwood Financial Corp. Stock Option Plan (4)
10.4†	Change in Control Severance Agreement with Robert J. Mancuso (5)
10.5†	Salary Continuation Agreement between the Bank and William W. Davis, Jr. (6)
10.6†	Salary Continuation Agreement between the Bank and Lewis J. Critelli (6)
10.7†	1999 Directors Stock Compensation Plan (6)
10.8†	Salary Continuation Agreement between the Bank and John H. Sanders (7)
10.9†	2006 Stock Option Plan (8)
10.10†	First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (9)
10.11†	First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli (9)
10.12†	First and Second Amendments to Salary Continuation Agreement with John H. Sanders (9)
10.13†	Change in Control Severance Agreement with James F. Burke (10)
10.14†	2014 Equity Incentive Plan (11)
10.15†	Addendum to Change in Control Severance Agreement with William S. Lance (12)
13	Annual Report to Stockholders for the fiscal year ended December 31, 2016
21	Subsidiaries of Norwood Financial Corp. (see Item 1. Business, General and Subsidiary Activity)
23	Consent of S.R. Snodgrass, P.C.
31.1	Rule 13a-14(a)/15d-14(a) Certification of CEO
31.2	Rule 13a-14(a)/15d-14(a) Certification of CFO
32	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Labels Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

†	Management contract or compensatory plan or arrangement.
(1)	Incorporated herein by reference into this document from the Exhibits to Form 10, Registration Statement initially filed with the Commission on April 29, 1996, Registration No. 0-28364.
(2)	Incorporated by reference into this document from the identically numbered exhibit to the Registrant's Form 10-Q filed with the Commission on August 8, 2014.
(3)	Incorporated herein by reference from the identically numbered exhibits to the Registrant's Form 10-K filed with the Commission on March 15, 2010.
(4)	Incorporated herein by reference from the Exhibits to Form S-8 filed with the Commission on August 14, 1998, File No. 333-61487.
(5)	Incorporated by reference into this document from the identically numbered exhibits to the Registrant's Form 10-K filed with the Commission on March 14, 2013.  File No 0-28364.
(6)	Incorporated herein by reference into this document from the Exhibits to the Registrant's Form 10-K filed with the Commission on March 23, 2000, File No. 0-28364.
(7)	Incorporated by reference into this document from the identically numbered exhibits to the Registrant's Form

- 36 -

10-K filed with the Commission on March 22, 2004, File No. 0-28364.

(8)	Incorporated herein by reference from Exhibit 4.1 to Registrant's Registration Statement on Form S-8 (File No. 333-134831) filed with the Commission on June 8, 2006.
(9)	Incorporated herein by reference from the Exhibits to the Registrant's Current Report on Form 8-K filed April 4, 2006.
(10)	Incorporated herein by reference from the identically numbered exhibit to the Registrant's Form 10-Q filed with the Commission on November 7, 2013.
(11)	Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8 (File No. 333-195643) filed with the Commission on May 2, 2014.
(12)	Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed February 18, 2015.

Item 16.  Form 10-K Summary

None.

- 37 -

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 15, 2017	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli President and Chief Executive Officer (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on March 15, 2017 on behalf of the Registrant and in the capacities indicated.
/s/ Lewis J. Critelli	/s/ William W. Davis, Jr.
Lewis J. Critelli President, Chief Executive Officer and Director (Principal Executive Officer )	William W. Davis, Jr. Director
/s/ Dr. Andrew A. Forte	/s/ Susan Campfield
Dr. Andrew A. Forte Director	Susan Campfield Director
/s/ Joseph W. Adams	/s/ Kevin M. Lamont
Joseph W. Adams Director	Kevin M. Lamont Director
/s/ Ralph A. Matergia	/s/ Dr. Kenneth A. Phillips
Ralph A. Matergia Director	Dr. Kenneth A. Phillips Director
/s/ William S. Lance
William S. Lance Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

- 38 -

EX-13

2016 CONSOLIDATED FINANCIAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS	8
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	27
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	28
CONSOLIDATED BALANCE SHEETS	30
CONSOLIDATED STATEMENTS OF INCOME	31
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY	33
CONSOLIDATED STATEMENTS OF CASH FLOWS	34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	36
INVESTOR INFORMATION	81

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

MANAGEMENT'S DISCUSSION AND ANALYSIS

Introduction

This Management's Discussion and Analysis and related financial data are presented to assist in the understanding and evaluation of the financial condition and results of operations for Norwood Financial Corp (the Company), and its subsidiary Wayne Bank (the Bank), as of December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015, and 2014. This section should be read in conjunction with the consolidated financial statements and related footnotes.

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 Federal and State laws, changes in interest rates, risks associated with the acquisition of Delaware Bancshares, Inc., the ability to control costs and expenses, demand for real estate, government fiscal policies, cybersecurity and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

Note 2 to the Company's consolidated financial statements (incorporated by reference in Item 8 of the Form 10-K) lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments. Please refer to the discussion of the allowance for loan losses calculation under "Allowance for Loan Losses and Non-performing Assets" in the "Financial Condition" section.

The deferred income taxes reflect temporary differences in the recognition of the revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes. Although realization is not assured, the Company believes it is more likely than not that all deferred tax assets will be realized.

In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of time and extent to which the fair value has been less than cost and 2) the financial condition of the issuer. The Company does not have the intent to sell these securities and it is more likely than not that it will not sell the securities before recovery of their cost basis. The Company believes that any unrealized losses at December 31, 2016 and 2015 represent temporary impairment of the securities.

The fair value of financial instruments is based upon quoted market prices, when available.  For those instances where a quoted price is not available, fair values are based upon observable market based parameters as well as unobservable parameters.  Any such valuation is applied consistently over time.

8

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

In connection with the acquisition of North Penn Bancorp, Inc. in 2011, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition.  In connection with the acquisition of Delaware Bancshares, Inc. in 2016, we recorded goodwill in the amount of $1.6 million, representing the excess of amounts paid over the fair value of the net assets of the institution acquired at the date of acquisition.  Goodwill is tested annually and deemed impaired when the carrying value of goodwill exceeds its implied fair value.

Results of Operations – Summary

Net income for the Company for the year ended December 31, 2016 was $6,711,000 which was $803,000 higher than the $5,908,000 earned in 2015.  Basic and diluted earnings per share were $1.74 and $1.73, respectively, in 2016 compared to $1.60 per share for basic and diluted in 2015.  The return on average assets (ROA) for the year ended December 31, 2016 was 0.74% and the return on average equity (ROE) was 6.17% compared to an ROA of 0.80% and an ROE of 5.83% in the prior year.  The improvement in earnings over the prior year was the result of the benefits realized from the acquisition of Delaware Bancshares, Inc. ("Delaware") on July 31, 2016.  Net interest income increased $4,069,000 and the provision for loan losses decreased $2,530,000 in 2016 which offset increased expenses related to the acquisition, including $1,806,000 of one-time merger costs.

Net interest income (fully taxable equivalent, or fte) totaled $30,339,000 which was an increase of $4,457,000 from the 2015 total.  Average loans outstanding increased $96.9 million in 2016 which resulted in an increase in fte interest income of $4,476,000, while an 11 basis point decrease in the yield earned impacted earnings negatively by $672,000.  The reduced yield was due to loan production at current market rates.  Average loan balances and loan yields were also impacted by the $112.1 million of loans acquired from Delaware.  Total average securities increased $55.6 million in 2016 due primarily to the Delaware acquisition which contributed to a $1,023,000 increase in fte interest income.  Average interest-bearing deposits with banks were $8.2 million in 2016 and interest income in this area increased $26,000.  Average interest-bearing deposits increased $106.5 million due to the acquisition and resulted in a $182,000 increase in interest expense.  The cost of borrowed funds increased $214,000 compared to the prior year due primarily to a $7.8 million increase in average long-term borrowings.  The resulting fte net interest margin decreased 15 basis points to 3.60% in 2016 as a 20 basis point reduction in the yield earned was only partially offset by a 5 basis point decrease in the cost of funds.

Loans receivable increased $154.0 million from the prior year-end due primarily to the $112.1 million of loans acquired from Delaware.  Organic growth included a $22.8 million increase in commercial loans due primarily to an $18.6 million increase in commercial real estate loans.  Residential mortgage loans and construction loans increased $5.4 million internally after the sale of $1.7 million in  fixed-rate residential mortgage loans for the purpose of interest rate risk management.  Consumer loans increased $13.7 million internally in 2016 due to a $16.5 million increase in indirect auto and marine financing.  Total non-performing loans decreased from $7.1 million and 1.27% of total loans at the end of 2015 to $1.8 million, or 0.25% of total loans on December 31, 2016.  The significant decrease includes the transfer of one loan relationship with a balance of $5,015,000 on December 31, 2015 to foreclosed real estate owned in 2016.  Net charge-offs totaled $2,885,000 in 2016 which was a decrease from the $3,157,000 recorded in 2015.  Based on management's analysis, the Company determined that it would be appropriate to allocate $2,050,000 to the allowance for loan losses in 2016 which resulted in a decrease in the ratio of the allowance for loan losses to total loans outstanding to 0.91% compared to 1.30% on December 31, 2015.  The decrease in the ratio of the allowance for loan losses to total loans outstanding reflects the impact of the loans acquired from Delaware with no allowance.  Based on the improvement in credit quality, the allowance for loan losses represented 336% of total non-performing loans on December 31, 2016 compared to 102% as of December 31, 2015.

9

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

Other income for the year ended December 31, 2016 totaled $5,179,000 compared to $4,699,000 in the prior year, an increase of $480,000.  Gains on the sale of loans and investment securities decreased $392,000 in the aggregate, while all other items of other income increased $872,000, net. Service charges and fees collected from the expanded customer base contributed to this increase.

Other expenses were $23,124,000 in 2016 compared to $17,100,000 for the similar period in 2015, an increase of $6,024,000.  Salaries and benefits costs increased $2,393,000 in 2016 while occupancy and furniture and equipment costs increased $543,000 and all other operating expenses increased $3,088,000, net, due to costs related to the acquisition and the operation of twelve new community offices.  Included in the increased expenses are $1.8 million of one-time merger related expenses.  Income tax expense for the year totaled $1,884,000 which was an increase of $252,000 from the prior year.  The effective tax rate in 2016 was 21.9% compared to 21.6% in 2015.

The following table sets forth changes in net income (in thousands):

Net income 2015	$	5,908
Net interest income		4,069
Provision for loan losses		2,530
Net gains on sales of loans and securities		(392	)
Other income		872
Salaries and employee benefits		(2,393	)
Occupancy, furniture and equipment		(543	)
Foreclosed real estate owned		231
Merger related		(1,806	)
Other expenses		(1,513	)
Income tax expense		(252	)
Net income for 2016	$	6,711

Net income for the year ended December 31, 2015 was $5,908,000 which was $1,749,000 lower than the $7,657,000 earned in 2014.  Basic and diluted earnings per share were $1.60 in 2015 compared to $2.10 per share in 2014.  The return on average assets (ROA) for the year ended December 31, 2015 was 0.80% and the return on average equity (ROE) was 5.83% compared to an ROA of 1.08% and an ROE of 7.92% in the prior year.  The reduction in earnings from the prior year was the result of increased provision for loan losses and a decrease in net gains recognized on the sale of loans and securities which was partially offset by a decrease in expenses related to foreclosed properties.

Net interest income (fte) totaled $25,882,000 which was an increase of $64,000 from the 2014 total.  Average loans outstanding increased $29.0 million in 2015 but a 21 basis point decrease in the yield earned limited the increase in fte interest income to $288,000.  The reduced yield was due to loan production at current market rates.  Total average securities decreased $4.9 million in 2015 which contributed to a $178,000 decrease in fte interest income.  Average interest-bearing deposits with banks were $3.5 million higher in 2015 and interest income in this area increased $9,000.  Growth of the funding base led to a $50,000 increase in interest expense.  A 2 basis point reduction in the cost of interest-bearing deposits lead to reduced interest expense on deposits of $42,000 despite a $19.1 million increase in average total deposits.  The cost of borrowed funds increased $92,000 compared to the prior year due primarily to a $5.8 million increase in average long-term borrowings.  The resulting fte net interest margin decreased 15 basis points to 3.75% in 2015 as a 16 basis point reduction in the yield earned was only partially offset by a 1 basis point decrease in the cost of funds.

10

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

Loans receivable increased $58.8 million from the prior year-end due primarily to a $28.6 million increase in commercial loans which includes a $21.3 million increase in municipal financing.  Commercial real estate loans also increased $17.2 million in 2015.  Residential mortgage loans and construction loans increased $3.4 million, net, after the sale of $4.3 million of fixed-rate residential mortgage loans for the purpose of interest rate risk management.  Consumer loans increased $9.5 million in 2015 due primarily to a $9.2 million increase in indirect auto and marine financing.  Total non-performing loans increased from $5.6 million and 1.12% of total loans at the end of 2014 to $7.1 million, or 1.27% of total loans on December 31, 2015.  Net charge-offs totaled $3,157,000 in 2015 which was an increase  from the $1,513,000 recorded in 2014.  Based on the level of charge-offs and non-performing loans, the Company determined that it would be appropriate to allocate $4,580,000 to the allowance for loan losses to reserve for potential future losses which resulted in an increase in the ratio of the allowance for loan losses to total loans outstanding to 1.30% compared to 1.17% on December 31, 2014.

Other income for the year ended December 31, 2015 totaled $4,699,000 compared to $5,110,000 in the prior year, a decrease of $411,000.  Gains on the sale of loans and investment securities decreased $572,000 in the aggregate, while all other items of other income increased $161,000, net.

Other expenses were $17,100,000 in 2015 compared to $17,727,000 for the similar period in 2014, a decrease of $627,000.  Salaries and benefits costs decreased $81,000 in 2015 due primarily to reduced incentive compensation.  Occupancy and furniture and equipment costs decreased $35,000. Foreclosed real estate costs decreased $644,000 from the prior period.  All other operating expenses increased $133,000, net.  Income tax expense for the year totaled $1,632,000 which was a decrease of $974,000 from the prior year.  The effective tax rate in 2015 was 21.6% compared to 25.4% in 2014 due primarily to a higher proportion of tax-exempt income.

The following table sets forth changes in net income (in thousands):

Net income 2014	$	7,657
Net interest income		(39	)
Provision for loan losses		(2,900	)
Net gains on sales of loans and securities		(572	)
Other income		161
Salaries and employee benefits		81
Occupancy, furniture and equipment		35
Foreclosed real estate owned		644
Other expenses		(133	)
Income tax expense		974
Net income for 2015	$	5,908

11

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

FINANCIAL CONDITION

Total Assets

Total assets as of December 31, 2016, were $1.1 billion compared to $750.5 million as of year-end 2015, an increase of $360.6 million.  Growth related to the acquisition of Delaware Bancshares was $368.6 million.

Loans Receivable

As of December 31, 2016, loans receivable totaled $713.9 million compared to $559.9 million as of year-end 2015, an increase of $154.0 million.  Growth related to the acquisition totaled $112.1 million.  Commercial loans grew $55.5 million, while retail loans increased $98.5 million during the year.

Residential real estate loans, which include home equity lending, totaled $237.2 million as of December 31, 2016, compared to $161.8 million as of year-end 2015, an increase of $75.4 million.  The Company does not originate any non-traditional mortgage products such as interest-only loans or option adjustable rate mortgages and has no sub-prime mortgage exposure.  The Company evaluates sales of its long-term, fixed-rate residential loan production for interest rate risk management, with $1.7 million of long-term, fixed-rate loans sold into the secondary market during 2016.  In the current interest rate environment, the Company expects to continue selling mortgage loans in 2017. The Company's home equity loan portfolio, which is included in residential real estate loans,  increased $9.1 million in 2016.

Commercial loans consist principally of loans made to small businesses within the Company's market and are usually secured by real estate or other assets of the borrower. Commercial real estate loans totaled $320.2 million as of December 31, 2016, increasing from $279.1 million as of December 31, 2015.  The terms for commercial real estate loans are typically 15 to 20 years, with adjustable rates based on a spread to the prime rate or fixed for the initial three to five year period then adjusting to a spread to the prime rate. The majority of the Company's commercial real estate portfolio is owner occupied and includes the personal guarantees of the principals. Commercial loans consisting principally of lines of credit and term loans secured by equipment or other assets increased $14.4 million to $85.5 million as of December 31, 2016.

The Company's indirect lending portfolio (included in consumer loans to individuals) increased $17.9 million to $41.5 million as of December 31, 2016.

Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses totaled $6,463,000 as of December 31, 2016 and represented 0.91% of total loans receivable compared to $7,298,000 and 1.30% of total loans as of year-end 2015. The decrease in the ratio of the allowance for loan losses to total loans outstanding reflects the impact of the loans acquired from Delaware with no allowance.  Net charge-offs for 2016 totaled $2,885,000 and represented 0.46% of average loans compared to $3,157,000 and 0.60% of average loans in 2015.

Non-performing assets consist of non-performing loans and real estate owned as a result of foreclosure, which is held for sale. Loans are placed on non-accrual status when management believes that a borrower's financial condition is such that collection of interest is doubtful. Commercial and real estate related loans are generally placed on non-accrual when interest is 90 days delinquent. When loans are placed on non-accrual, accrued interest is reversed from current earnings.

12

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

As of December 31, 2016, non-performing loans totaled $1,927,000 and represented 0.25% of total loans compared to $7,132,000 or 1.27% as of December 31, 2015.  The significant decrease in the level of non-performing loans is due to the transfer of one loan relationship with a balance of $5.0 million on December 31, 2015 to foreclosed real estate owned in 2016.  Based on management's analysis, the Company added $2,050,000 to the allowance for loan losses for the year ended December 31, 2016 compared to $4,580,000 in 2015.

Foreclosed real estate owned totaled $5,302,000 as of December 31, 2016 and $2,847,000 as of December 31, 2015. The increase is due primarily  to the transfer of one loan relationship with a carrying value of $5.0 million as of December 31, 2015 which was partially offset by a subsequent write down of $2.4 million.  During 2016, eight properties with a carrying value of $595,000 were disposed of through sales.  The Company recorded a net gain of $61,000 from the sale of the properties.

Management assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes a review of the risks inherent in the loan portfolio. It includes an analysis of impaired loans and a historical review of losses. Other factors considered in the analysis include: concentrations of credit in specific industries in the commercial portfolio, the local and regional economic condition, trends in delinquencies, internal risk rating classifications, and growth in the portfolio.  For loans acquired, including those that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.

The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio. The Company has $8.3 million of junior lien home equity loans. For 2016, net charge-offs for this portfolio totaled $43,000.

As of December 31, 2016, the Company considered its concentration of credit risk profile to be acceptable. The highest concentrations are in commercial rentals and the hospitality lodging industry.

During 2016, the Company recognized a decrease in its adversely classified loans. The Company assesses a loss factor against the classified loans, which is based on prior experience. Classified loans which are considered impaired are measured on a loan by loan basis. The Company values such loans by either the present value of expected cash flows, the loan's obtainable market price or the fair value of collateral if the loan is collateral dependent.

At December 31, 2016, the recorded investment in impaired loans, not requiring an allowance for loan losses was $2,624,000 (net of charge-offs against the allowance for loan losses of $831,000).  There were no loans requiring an allowance. The recorded investment in impaired loans not requiring an allowance for loan losses was $2,855,000 (net of charge-offs of $1,971,000) and $6,373,000 for impaired loans requiring an allowance for loan losses as of December 31, 2015.

As a result of its analysis, after applying these factors, management considers the allowance as of December 31, 2016, adequate. However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, that might be incurred in the future.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

The following table sets forth information with respect to the Company's allowance for loan losses at the dates indicated:

	Year ended December 31,
	(dollars in thousands)
		2016			2015			2014			2013			2012
Allowance balance at beginning of period	$	7,298		$	5,875		$	5,708		$	5,502		$	5,458
Charge-offs:
Real Estate loans
Residential		(123)			(224)			(270)			(603)			(541)
Commercial		(2,711)			(2,883)			(1,196)			(1,488)			(1,632)
Construction		-			-			-			(40)			(181)
Commercial loans		(15)			-			-			(4)			(24)
Consumer loans		(102)			(91)			(80)			(90)			(59)
Total		(2,951)			(3,198)			(1,546)			(2,225)			(2,437)
Recoveries:
Real Estate loans
Residential		6			20			-			9			7
Commercial		15			-			2			-			-
Construction		-			-			-			-			-
Commercial loans		-			-			-			-			-
Consumer loans		45			21			31			22			24
Total		66			41			33			31			31
Provision expense		2,050			4,580			1,680			2,400			2,450
Allowance balance at end of period	$	6,463		$	7,298		$	5,875		$	5,708		$	5,502
Allowance for loan losses as a percent
of total loans outstanding		0.91	%		1.30	%		1.17	%		1.13	%		1.15	%
Net loans charged off as a percent of
average loans outstanding		0.46	%		0.60	%		0.30	%		0.45	%		0.50	%
Allowance coverage of non-performing loans		3.4	x		1.0	x		1.1	x		0.6	x		0.4	x

The following table sets forth information regarding non-performing assets.

	December 31,
	(dollars in thousands)
		2016			2015			2014			2013			2012
Non-accrual loans:
Real Estate loans
Residential	$	1,136		$	440		$	1,675		$	1,704		$	2,846
Commercial		762			6,649			3,921			7,843			10,026
Construction		28			—			—			—			—
Commercial loans		—			43			—			—			328
Consumer loans		—			—			4			—			—
Total		1,926			7,132			5,600			9,547			13,200
Accruing loans which are contractually
past due 90 days or more		1			—			—			—			—
Total non-performing loans		1,927			7,132			5,600			9,547			13,200
Foreclosed real estate		5,302			2,847			3,726			1,009			852
Total non-performing assets	$	7,229		$	9,979		$	9,326		$	10,556		$	14,052
Non-performing loans to total loans		0.25	%		1.27	%		1.12	%		1.90	%		2.77	%
Non-performing loans to total assets		0.17	%		0.95	%		0.79	%		1.34	%		1.96	%
Non-performing assets to total assets		0.64	%		1.33	%		1.31	%		1.48	%		2.09	%

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

Securities

The securities portfolio consists of issues of United States Treasury securities, United States Government agencies, including mortgage-backed securities, municipal obligations, and corporate debt. The Company classifies its investments into two categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity. As of December 31, 2016, there were no securities carried in the HTM portfolio. Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management. These securities are adjusted to and carried at their fair value with any unrealized gains or losses recorded net of deferred income taxes, as an adjustment to capital and reported in the equity section of the Consolidated Balance Sheet as other comprehensive income. As of December 31, 2016, $302.6 million of securities were so classified and carried at their fair value, with unrealized losses, net of tax, of $4,438,000 included in accumulated other comprehensive income as a component of stockholders' equity.

As of December 31, 2016, the average life of the portfolio was 5.5 years. The Company has maintained a relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain liquidity levels.  During 2016, the portfolio increased $163.7 million as a result of the acquisition of Delaware.  Purchases for the year totaled $101.0 million, while maturities and cash flow totaled $26.2 million and proceeds from sales were $110.7 million. The purchases were funded principally by cash flow generated from the portfolio and excess overnight liquidity.  The sales include securities that were acquired from Delaware which were sold immediately for a variety of factors, including non-conformance with Company policies.

The carrying value of the securities portfolio at December 31 is as follows:

	2016						2015
	(dollars in thousands)
	Carrying			% of			Carrying			% of
	Value			portfolio			Value			portfolio
U.S. Treasury securities		$	1,997		0.7	%		$	—		—	%
U.S. Government agencies			—		—	%			9,169		6.6	%
States and political subdivisions			125,101		41.4	%			60,755		43.8	%
Corporate obligations			10,112		3.3	%			4,974		3.5	%
Mortgage-backed securities – government sponsored entities			164,930		54.5	%			63,569		45.8	%
Equity securities – financial services			424		0.1	%			384		0.3	%
Total		$	302,564		100.0	%		$	138,851		100.0	%

The portfolio had no adjustable-rate instruments as of December 31, 2016 and 2015. The portfolio contained no private label mortgage backed securities, collateralized debt obligations (CDOs), or  trust preferred securities, and no off-balance sheet derivatives were in use.   As of December 31, 2016, the portfolio did not contain any step-up bonds.  The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO's) with Fannie Mae, Freddie Mac and the  Government National Mortgage Association (GNMA).

The Company evaluates the securities in its portfolio for other-than-temporary-impairment (OTTI) as fair value declines below cost. In estimating OTTI management considers (1) the length of time and the extent of the decline in fair value and (2) the financial condition and near-term prospects of the issuer. As of December 31, 2016, the Company held 247 investment securities in a loss position which had a combined unrealized loss of $7.8 million. Management believes that these losses are principally due to changes in interest rates and represent temporary impairment as the Company does not have the intent to sell these securities and it is more likely than

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

not that it will not have to sell the securities before recovery of their cost basis. The Company also holds a small portfolio of equity securities of other financial institutions.  As of December 31, 2016, none of these equity securities were in an unrealized loss position.  No impairment charges have been recognized in 2016, 2015 and 2014.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures (see Note 14 of Notes to the Consolidated Financial Statements).

Approximately $302.6 million, which represents 27.2% of total assets at December 31, 2016,  consisted of financial instruments recorded at fair value on a recurring basis. This amount consists entirely of the Company's available for sale securities portfolio. The Company uses valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no transfers into or out of Level 3 for any instruments for the years ending December 31, 2016 and 2015.

The Company utilizes a third party provider to perform valuations of the investments. Methods used to perform the valuations include: pricing models that vary based on asset class, available trade and bid information, actual transacted prices, and proprietary models for valuations of state and municipal obligations. In addition, the Company has a sample of fixed-income securities valued by another independent source. The Company does not adjust values received from its providers, unless it is evident that fair value measurement is not consistent with the Company's policies.

The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.  The fair value of mortgage servicing rights as of December 31, 2016 and 2015 was $250,000 and $291,000, respectively.

DEPOSITS

The Company, through the community offices of the Bank, provides a full range of deposit products to its retail and business customers. These products include interest-bearing and non-interest bearing transaction accounts, statement savings and money market accounts. Time deposits consist of certificates of deposit (CDs) with terms of up to five years and include Individual Retirement Accounts. The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts, which are typically awarded on a competitive bid basis. The Company has no brokered deposits nor does it participate in the Certificate of Deposit Account Registry Service (CDARS).

Total deposits as of December 31, 2016, totaled $925.4 million, increasing $374.5 million from year-end 2015. The increase included $327.3 million of deposits which were acquired from Delaware. Organic growth included a $17.0 million increase in non-interest bearing demand balances and a $27.5 million increase in certificates of deposit.  The large increase in certificates of deposit includes deposits of local municipalities and school districts which were held in more liquid accounts at year-end 2015.

Time deposits of $250,000 or more, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers with maturities generally less than one year, totaled $59.0 million as of December 31, 2016, compared to $22.0 million at year-end 2015.  These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

As of December 31, 2016, non-interest bearing demand deposits totaled $191.5 million compared to $107.8 million at year-end 2015. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $32.8 million at year end 2016 compared to $33.6 million as of December 31, 2015. These balances represent commercial and municipal customers' funds invested in overnight securities. The Company considers these accounts as a source of core funding.

MARKET RISK

Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset and Liability Management Committee (ALCO). The principal objective of the ALCO is to maximize net interest income within acceptable levels of risk, which are established by policy. Interest rate risk is monitored and managed by using financial modeling techniques to measure the impact of changes in interest rates.

Net interest income, which is the primary source of the Company's earnings, is impacted by changes in interest rates and the relationship of different interest rates. To manage the impact of the rate changes, the balance sheet should be structured so that repricing opportunities exist for both assets and liabilities at approximately the same time intervals.  The Company uses net interest simulation to assist in interest rate risk management. The process includes simulating various interest rate environments and their impact on net interest income. As of December 31, 2016, the level of net interest income at risk in a ± 200 basis points increase was within the Company's policy limit of a decline less than 8% of net interest income.

Imbalances in repricing opportunities at a given point in time reflect interest-sensitivity gaps measured as the difference between rate-sensitive assets and rate-sensitive liabilities. These are static gap measurements that do not take into account any future activity, and as such are principally used as early indicators of potential interest rate exposures over specific intervals.

At December 31, 2016, the Bank had a positive 90-day interest sensitivity gap of $34.7 million or 3.1% of total assets.  A positive gap indicates that the balance sheet has a higher level of rate-sensitive assets (RSA) than rate-sensitive liabilities (RSL) at the specific time interval. This would indicate that in an increasing rate environment, the yield on interest-earning assets would increase faster than the cost of interest-bearing liabilities in the 90 day time frame. The level of RSA and RSL for an interval is managed by ALCO strategies, including adjusting the average life of the investment portfolio through purchases and sales, pricing of deposit liabilities to attract long or short term time deposits, utilizing borrowings to fund loan growth, loan pricing to encourage variable rate products and evaluation of loan sales of long term fixed rate mortgages.

The Company analyzes and measures the time periods in which RSA and RSL will mature or reprice in accordance with their contractual terms and assumptions. Management believes that the assumptions used are reasonable. The interest rate sensitivity of assets and liabilities could vary substantially if differing assumptions were used or if actual experience differs from the assumptions used in the analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Interest rates may change at different rates changing the shape of the yield curve. The level of rates on the investment securities may also be affected by the spread relationship between different investments.  Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed. Finally, the ability of borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase. It should be noted that the operating results of the Company are not subject to foreign currency exchange or commodity price risk.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

The following table displays interest-sensitivity as of December 31, 2016 (in thousands):

	3 Months			3-12						Over
	Or Less			Months			1-3 Years			3 Years			Total
Federal funds sold and
interest-bearing deposits	$	2,174		$	—		$	100		$	—		$	2,274
Securities		7,476			21,583			59,163			214,342			302,564
Loans Receivable		158,060			165,189			199,137			191,503			713,889
Total Rate Sensitive Assets (RSA)	$	167,710		$	186,772		$	258,400		$	405,845		$	1,018,727
Non-maturity interest-bearing deposits	$	65,059		$	64,050		$	170,069		$	139,206		$	438,384
Time Deposits		48,730			126,075			88,233			32,518			295,556
Borrowings		19,252			18,092			23,391			4,077			64,812
Total Rate Sensitive Liabilities (RSL)	$	133,041		$	208,217		$	281,693		$	175,801		$	798,752
Interest sensitivity gap	$	34,669		$	(21,445)		$	(23,293)		$	230,044		$	219,975
Cumulative gap		34,669			13,224			(10,069)			219,975
RSA/RSL-cumulative		126.1	%		103.9	%		98.4	%		127.5	%
As of December 31, 2015
Interest sensitivity gap	$	38,817		$	11,614		$	(57,114)		$	168,269		$	161,586
Cumulative gap		38,817			50,431			(6,683)			161,586
RSA/RSL-cumulative		140.9	%		122.8	%		98.5	%		130.1	%

Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table above.  The balances allocated to the respective time periods represent an estimate of the total outstanding balance that has the potential to migrate either through withdrawal or transfer to time deposits, thereby impacting the interest-sensitivity position of the Company.  The estimates were derived from a non-maturity deposit study which was prepared by an independent third party provider in 2016.  The purpose of the study was to estimate the average lives of various deposit types and their pricing sensitivity to movements in market interest rates.

LIQUIDITY

Liquidity is the ability to fund customers' borrowing needs and their deposit withdrawal requests while supporting asset growth. The Company's primary sources of liquidity include deposit generation, asset maturities, cash flow from payments on loans and securities and access to borrowing from the Federal Home Loan Bank and other correspondent banks.

As of December 31, 2016, the Company had cash and cash equivalents of $17.2 million in the form of cash, due from banks, balances with the Federal Reserve Bank, and short-term deposits with other institutions. In addition, the Company had total securities available for sale of $302.6 million, which could be used for liquidity needs. This totals $319.8 million and represents 28.8% of total assets compared to $148.9 million and 19.8% of total assets as of December 31, 2015. The Company also monitors other liquidity measures, all of which were within the Company's policy guidelines as of December 31, 2016. Based upon these measures, the Company believes its liquidity position is adequate.

The Company maintains established lines of credit with the Federal Home Loan Bank of Pittsburgh (FHLB), the Atlantic Community Bankers Bank (ACBB) and other correspondent banks, which support liquidity needs. The total available under all the lines was $356.8 million, with $0 outstanding at December 31, 2016 and $19.7

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

million outstanding at December 31, 2015. The maximum borrowing capacity from FHLB was $316.8 million. As of December 31, 2016, the Company had $32.0 million in term borrowings from the FHLB, compared to $41.1 million at December 31, 2015.

OFF-BALANCE SHEET ARRANGEMENTS

The Company's financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. Unused commitments, as of December 31, 2016 totaled $82.6 million. They consisted of  $22.2 million of commitments for residential and commercial real estate, construction and land developments loans, $24.7 million in unused home equity lines of credit, $5.6 million in performance and standby letters of credit and $30.1 million in other unused commitments, principally commercial lines of credit. Because these instruments have fixed maturity dates and many of them will expire without being drawn upon, they do not represent any significant liquidity risk.

Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.

The following table represents the aggregate of on and off-balance sheet contractual obligations to make future payments (in thousands):

CONTRACTUAL OBLIGATIONS

	December 31, 2016
	Total		Less than 1 year		1-3 years		4-5 years		Over 5 years
Time deposits	$	295,557	$	174,814	$	88,233	$	32,331	$	179
Long-term debt		32,001		14,025		2,296		11,112		4,568
Operating leases		3,470		381		767		705		1,617
	$	331,028	$	189,220	$	91,296	$	44,148	$	6,364

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the most significant source of revenue for the Company and represented 84.7% of total revenue for the year ended December 31, 2016.  Net interest income (fte) totaled $30,339,000 for the year ended December 31, 2016 compared to $25,882,000 for 2015, an increase of $4,457,000.  The resulting fte net interest spread and net interest margin were 3.46% and 3.60%, respectively, in 2016 compared to 3.61% and 3.75%, respectively, in 2015.

Interest income (fte) for the year ended December 31, 2016 totaled $33,993,000 compared to $29,140,000 in 2015.  The fte yield on average earning assets was 4.03%, decreasing 20 basis points from the 4.23% reported last year.  The low interest rate environment impacted the yield earned as new loan production was added at historically low rates.  This impacted loan yields which earned 4.50% in 2016 compared to 4.61% in the prior year.  The reduced yield was offset by a $96.9 million increase in average loans outstanding due primarily to loans acquired from Delaware, and interest income (fte) from loans increased $3.8 million.  The yield on securities decreased 33 basis points in 2016 due primarily to the lower yielding portfolio acquired from Delaware.  A $55.6 million increase in average securities outstanding offset the lower yield, and interest income (fte) from the portfolio improved $1.0 million.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

Interest expense was $3,654,000 in 2016 which resulted in an average cost of interest-bearing liabilities of 0.57% compared to total interest expense of $3,258,000 in 2015 with an average cost of 0.62%.  The continued low rate environment also impacted rates paid on deposits as the Company reduced rates paid on time deposits to market levels.  Total interest-bearing deposits cost 0.46% in 2016 which was 6 basis points lower than the 0.52% cost in the prior year.  Time certificates of deposit repriced to current market rates upon maturity and new growth was added at the reduced levels.  Time deposits acquired from Delaware also impacted the cost of deposits.  Long-term borrowings also repriced downward in 2016 reflecting a the impact from low-cost borrowings originated in recent years.

Net interest income represented 83.9% of total revenue for the year ended December 31, 2015.  Net interest income (fte) totaled $25,882,000 for the year ended December 31, 2015 compared to $25,818,000 for 2014, an increase of $64,000.  The resulting fte net interest spread and net interest margin were 3.61% and 3.75%, respectively, in 2015 compared to 3.76% and 3.90%, respectively, in 2014.

Interest income (fte) for the year ended December 31, 2015 totaled $29,140,000 compared to $29,026,000 in 2014.  The fte yield on average earning assets was 4.23%, decreasing 16 basis points from the 4.39% reported last year.  The continued low interest rate environment impacted the yield earned as new loan production was added at historically low rates.  This impacted loan yields which earned 4.61% in 2015 compared to 4.82% in the prior year.  The reduced yield was partially offset by a $29.0 million increase in average loans outstanding, resulting in a $288,000 increase in loan income.  The yield on securities decreased 2 basis points in 2015, and combined with a $4.8 million decrease in the average balance, resulted in a $178,000 decrease in interest income.

Interest expense was $3,258,000 in 2015 which resulted in an average cost of interest-bearing liabilities of 0.62% compared to total interest expense of $3,208,000 in 2014 with an average cost of 0.63%.  The continued low rate environment also impacted rates paid on deposits as the Company reduced rates paid on time deposits to market levels.  Total interest-bearing deposits cost 0.52% in 2015 which was 2 basis points lower than the 0.54% cost in the prior year due primarily to a 14 basis point reduction in time deposits as certificates repriced to current market rates upon maturity and new growth was added at the reduced levels.  Long-term borrowings also repriced downward in 2015 reflecting the impact from low-cost borrowings originated in recent years.

OTHER INCOME

Other income totaled $5,179,000 for the year ended December 31, 2016 compared to $4,699,000 in 2015, an increase of $480,000.  Gains from the sales of loans and securities decreased $392,000 from the prior year, while all other items of other income increased $872,000, net.  The increase reflects the increased fees related to the Delaware acquisition.

 Other income totaled $4,699,000 for the year ended December 31, 2015 compared to $5,110,000 in 2014, a decrease of $411,000.  Gains from the sales of loans and securities decreased $572,000 from the prior year, while all other items of other income increased $161,000, net.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

Other Income (dollars in thousands)

For the year ended December 31

	2016		2015		2014
Service charges on deposit accounts	$	200	$	168	$	176
ATM Fees		258		220		206
NSF Fees		1,171		850		932
Safe deposit box rental		66		62		63
Loan related service fees		319		451		370
Debit card		874		660		620
Fiduciary activities		448		439		437
Commissions on mutual funds & annuities		143		143		94
Gain on sales of mortgage loans		54		104		132
Earnings on and proceeds from bank-owned life insurance		888		664		685
Other income		474		312		225
		4,895		4,073		3,940
Net realized gains on sales of securities		284		626		1,170
Total	$	5,179	$	4,699	$	5,110

OTHER EXPENSES

Other expenses totaled $23,124,000 for the year ended December 31, 2016 compared to $17,100,000 in the prior year.  The $6,024,000 increase in costs includes $1,806,000 of one-time merger expenses plus the costs of acquiring and operating twelve new community offices.  Salaries and benefits costs increased $2,393,000 in 2016 while occupancy and equipment costs increased $543,000.  All other operating expenses increased $3,088,000, net, which includes $1,806,000 of one-time merger expenses.  The Company's efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 65.1% in 2016 compared to 55.9% in 2015.  Merger costs contributed to the increased ratio.

Other expenses totaled $17,100,000 for the year ended December 31, 2015 compared to $17,727,000 in the prior year.  The $627,000 decrease in costs includes a $644,000 decrease in expenses related to foreclosed real estate owned.  Salaries and benefits costs decreased $81,000 in 2015 while occupancy and equipment costs decreased $35,000.  All other operating expenses increased $133,000, net.  The Company's efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 55.9% in 2015 compared to 57.3% in 2014.

Other Expenses (dollars in thousands)

For the year ended December 31

	2016		2015		2014
Salaries	$	7,054	$	5,752	$	5,744
Employee benefits		3,874		2,783		2,872
Occupancy		2,077		1,660		1,676
Furniture and equipment		548		422		441
Data processing and related operations		1,337		943		929
Federal Deposit Insurance Corporation insurance assessment		412		411		420
Advertising		283		240		224
Professional fees		836		730		671
Postage and telephone		566		436		414
Office supplies		379		255		278
Taxes, other than income		731		711		649
Foreclosed real estate		680		911		1,555
Amortization of intangible assets		122		105		121
Merger related		1,806		-		-
Other		2,419		1,741		1,733
Total	$	23,124	$	17,100	$	17,727

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

INCOME TAXES

Income tax expense for the year ended December 31, 2016 totaled $1,884,000 which resulted in an effective tax rate of 21.9% compared to $1,632,000 and 21.6% for 2015.

Income tax expense for the year ended December 31, 2015 totaled $1,632,000 which resulted in an effective tax rate of 21.6% compared to $2,606,000 and 25.4% for 2014.  The decrease in the effective rate reflects a higher proportion of tax-exempt income.

CAPITAL AND DIVIDENDS

Total stockholders' equity as of December 31, 2016, was $111.1 million, compared to $101.0 million as of year-end 2015.  The increase was due primarily to a $12.2 million increase resulting from additional common shares issued in connection with the Delaware acquisition.  As of  December 31, 2016 the Company had a leverage capital ratio of 9.16%, a Tier 1 risk-based capital ratio of 13.27%, a common equity Tier 1 risk-based capital ratio of 13.27% and a total risk-based capital ratio of 14.12% compared to 12.40%, 15.86%, 15.86% and 17.09%, respectively, at December 31, 2015.  The reduced ratios reflect the impact from the acquisition of Delaware.

The Company's common stock is traded on the Nasdaq Global Market under the symbol, NWFL. As of December 31, 2016, there were approximately 2,700 shareholders based on transfer agent mailings.

The following table sets forth the price range and cash dividends declared per share regarding common stock for the periods indicated:

	Closing Price Range				Cash dividends
	High		Low		Declared per share
Year 2016
First Quarter	$	30.90	$	26.25	$	0.31
Second Quarter		29.00		27.51		0.31
Third Quarter		29.75		27.60		0.31
Fourth Quarter		34.50		28.53		0.32
Year 2015
First Quarter	$	30.00	$	27.69	$	0.31
Second Quarter		30.90		27.88		0.31
Third Quarter		30.64		28.01		0.31
Fourth Quarter		29.30		27.69		0.31

The book value of the common stock was $26.15 per share as of December 31, 2016 compared to $27.39 as of December 31, 2015.  As of year-end 2016, the closing stock price was $33.14 per share, compared to $28.75 as of December 31, 2015.

NON-GAAP FINANCIAL MEASURES

This annual report contains or references tax-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Tax-equivalent net interest income is reconciled to GAAP net interest income on page 25. Although the Company believes that these non-GAAP financial measures enhance investors' understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.

22

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

STOCK PERFORMANCE GRAPH

Set forth below is a stock performance graph comparing the cumulative total shareholder return on the Common Stock with (a) the cumulative total stockholder return on stocks included in the Nasdaq Stock Market index and (b) the cumulative total stockholder return on stocks included in the Nasdaq Bank index, as prepared by Zack's Investment Research, Inc. using data from the Center for Research in Securities Prices (CRSP) at the University of Chicago. All three investment comparisons assume the investment of $100 at the market close on December 31, 2011 and the reinvestment of dividends paid. The graph provides comparison at December 31, 2011 and each fiscal year through December 31, 2016.

There can be no assurance that the Company's future stock performance will be the same or similar to the historical performance shown in the above graph. The Company neither makes nor endorses any predictions as to stock performance.

LEGEND

Symbol	CRSP Total Returns Index for:	12/31/11	12/31/12	12/31/13	12/31/14	12/31/15	12/31/16
♦	Norwood Financial Corp	$100.00	$112.93	$116.88	$131.58	$135.82	$163.54
■	CRSP Nasdaq U.S. Index	100.00	118.26	164.83	190.07	204.70	224.75
▲	Nasdaq Bank Index	100.00	119.64	171.23	179.93	195.98	265.31
Notes: A.  Data complete through last fiscal year. B.  Corporate Performance Graph with peer group only performance (excludes only company). C.  Peer group indices use beginning of period market capitalization weighting. D.  Prepared by Zacks Investment Research, Inc. Used with permission.  All rights reserved.  Copyright 1980-2017. E.  Index Data:  Calculated (or Derived) based from CRSP NASDAQ Stock Market (US Companies) and CRSP NASDAQ    Banks Index, Center for Research in  Security Prices (CRSP®), Graduate School of  Business, The University of  Chicago.  Copyright 2017.  Used with permission.  All rights reserved.

23

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NORWOOD FINANCIAL CORP

SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

(Dollars in thousands, except per share amounts)

2016	December 31		September 30		June 30		March 31
Interest income	$	9,456	$	8,528	$	7,234	$	7,026
Interest expense		1,005		958		840		851
Net interest income		8,451		7,570		6,394		6,175
Provision for loan losses		450		450		700		450
Other income		1,475		1,399		1,018		1,003
Net realized gains on sales of securities		15		-		205		64
Other expense		6,568		7,679		4,528		4,349
Income before income taxes		2,923		840		2,389		2,443
Income tax expense		577		228		511		567
NET INCOME	$	2,346	$	612	$	1,878	$	1,876
Basic earnings per share	$	0.57	$	0.15	$	0.51	$	0.51
Diluted earnings per share	$	0.56	$	0.15	$	0.51	$	0.51
2015
	December 31		September 30		June 30		March 31
Interest income	$	6,936	$	6,872	$	6,882	$	7,088
Interest expense		824		819		833		781
Net interest income		6,112		6,053		6,049		6,307
Provision for loan losses		2,820		720		420		620
Other income		1,098		1,008		999		968
Net realized gains on sales of securities		118		63		134		311
Other expense		4,674		4,070		4,168		4,187
Income (loss) before income taxes		(166)		2,334		2,594		2,779
Income tax expense (benefit)		(294)		557		631		738
NET INCOME	$	128	$	1,777	$	1,963	$	2,041
Basic earnings per share	$	0.04	$	0.48	$	0.53	$	0.55
Diluted earnings per share	$	0.04	$	0.48	$	0.53	$	0.55

24

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NORWOOD FINANCIAL CORP CONSOLIDATED AVERAGE BALANCE SHEETS WITH

RESULTANT INTEREST AND RATES

(Tax-Equivalent Basis, dollars in thousands)

Year Ended December 31	2016						2015									2014
		Average			Average			Average			Average			Average			Average
		Balance		Interest	Rate			Balance		Interest	Rate			Balance		Interest	Rate
		(2)		(1)				(2)		(1)				(2)		(1)
ASSETS
Interest-earning assets:
Interest bearing deposits with banks	$	8,182	$	42	0.51	%	$	6,392	$	16	0.25	%	$	2,910	$	7	0.24	%
Securities held-to-maturity		—		—	—			—		—	—			57		5	8.77
Securities available for sale:
Taxable		123,364		2,375	1.93			93,294		1,918	2.06			100,393		2,032	2.02
Tax-exempt		85,170		3,358	3.94			59,659		2,792	4.68			57,362		2,856	4.98
Total securities available for sale		208,534		5,733	2.75			152,953		4,710	3.08			157,755		4,888	3.10
Loans receivable (3)(4)		626,907		28,218	4.50			529,989		24,414	4.61			500,960		24,126	4.82
Total interest earning assets		843,623		33,993	4.03			689,334		29,140	4.23			661,682		29,026	4.39
Non-interest earning assets:
Cash and due from banks		11,275						8,638						8,606
Allowance for loan losses		(6,719)						(5,945)						(5,832)
Other assets		62,069						44,794						45,278
Total non-interest earning assets		66,625						47,487						48,052
TOTAL ASSETS	$	910,248					$	736,821					$	709,734
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand and money market	$	208,373		336	0.16		$	177,104		301	0.17		$	174,558		304	0.17
Savings		125,904		66	0.05			74,753		37	0.05			71,612		35	0.05
Time		234,026		2,201	0.94			209,930		2,083	0.99			206,231		2,124	1.03
Total interest bearing deposits		568,303		2,603	0.46			461,787		2,421	0.52			452,401		2,463	0.54
Short-term borrowings		41,593		174	0.42			34,022		85	0.25			36,514		77	0.21
Other borrowings		36,509		877	2.40			28,742		752	2.62			22,987		668	2.91
Total interest bearing liabilities		646,405		3,654	0.57			524,551		3,258	0.62			511,902		3,208	0.63
Non-interest bearing liabilities:
Non-interest bearing demand deposits		146,578						106,601						96,870
Other liabilities		8,482						4,305						4,262
Total non-interest bearing liabilities		155,060						110,906						101,132
Stockholders' equity		108,783						101,364						96,700
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	910,248					$	736,821					$	709,734
Net Interest Income
(tax equivalent basis)				30,339	3.46	%				25,882	3.61	%				25,818	3.76	%
Tax-equivalent basis adjustment				(1,749)						(1,361)						(1,258)
Net Interest Income			$	28,590					$	24,521					$	24,560
Net interest margin
(tax equivalent basis)					3.60	%					3.75	%					3.90	%

(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) Loan balances include non-accrual loans and are net of unearned income.

(4) Loan yields include the effect of amortization of purchased credit marks and deferred fees net of costs.

25

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

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)
(dollars in thousands)	2016 compared to 2015						2015 compared to 2014
	Variance due to						Variance due to
	Volume		Rate		Net		Volume		Rate		Net
INTEREST EARNING ASSETS:
Interest bearing deposits	$	8	$	18	$	26	$	8	$	1	$	9
Securities available for sale:
Taxable		609		(152)		457		(150)		36		(114)
Tax-exempt securities		1,122		(556)		566		109		(178)		(69)
Total securities available for sale		1,731		(708)		1,023		(41)		(142)		(183)
Loans receivable		4,476		(672)		3,804		1,372		(1,084)		288
Total interest earning assets		6,215		(1,362)		4,853		1,339		(1,225)		114
INTEREST BEARING LIABILITIES
Interest-bearing demand and money market		54		(19)		35		(3)		-		(3)
Savings		29		-		29		2		-		2
Time		232		(114)		118		39		(80)		(41)
Total interest-bearing deposits		315		(133)		182		38		(80)		(42)
Short-term borrowings		28		61		89		(6)		14		8
Other borrowings		199		(74)		125		162		(78)		84
Total interest bearing liabilities		542		(146)		396		194		(144)		50
Net interest income (tax-equivalent basis)	$	5,673	$	(1,216)	$	4,457	$	1,145	$	(1,081)	$	64

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.

26

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

REPORT ON MANAGEMENT'S ASSESSMENT OF  INTERNAL

CONTROL OVER FINANCIAL REPORTING

TO THE STOCKHOLDERS OF NORWOOD FINANCIAL CORP

Management of Norwood Financial Corp and its subsidiary (Norwood) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Norwood's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Norwood's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Norwood; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Norwood's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Norwood's assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Norwood's internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria established in Internal Control – Integrated Framework as set forth by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.  Based upon its assessment, management has concluded that, as of December 31, 2016, the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with all federal and state laws and regulations, is effective based on the criteria established in the Internal Control – Integrated Framework.

Norwood's independent registered certified public accounting firm has audited the effectiveness of Norwood's internal control over financial reporting. Their report appears on page 29.

Lewis J. Critelli	William S. Lance
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

27

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Norwood Financial Corp.

Honesdale, Pennsylvania

We have audited the accompanying consolidated balance sheet of Norwood Financial Corp. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016.  These consolidated financial statements are the responsibility of Norwood Financial Corp.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Norwood Financial Corp. and subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Norwood Financial Corp. and subsidiaries' internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2017, expressed an unqualified opinion on the effectiveness of Norwood Financial Corp.'s internal control over financial reporting.

Cranberry Township, Pennsylvania

March 14, 2017

28

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Norwood Financial Corp.

Honesdale, Pennsylvania

We have audited Norwood Financial Corp. and subsidiaries' internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2013. Norwood Financial Corp.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on Management's Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on Norwood Financial Corp.'s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded, as necessary, to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Norwood Financial Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by COSO in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Norwood Financial Corp. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016, and our report dated March 14, 2017, expressed an unqualified opinion.

Cranberry Township, Pennsylvania

March 14, 2017

 

29

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED BALANCE SHEETS

		December 31,
		2016		2015
	(In Thousands Except Share and Per Share Data)
ASSETS
Cash and due from banks	$	14,900	$	9,744
Interest bearing deposits with banks		2,274		266
Cash and cash equivalents		17,174		10,010
Securities available for sale		302,564		138,851
Loans receivable (net of allowance for loan losses 2016: $6,463; 2015: $7,298)		707,426		552,627
Regulatory stock, at cost		2,119		3,412
Premises and equipment, net		13,531		6,472
Bank owned life insurance		36,133		18,820
Accrued interest receivable		3,643		2,363
Foreclosed real estate owned		5,302		2,847
Goodwill		11,331		9,715
Other intangibles		612		285
Deferred tax asset		8,989		3,669
Other assets		2,359		1,434
Total Assets	$	1,111,183	$	750,505
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand	$	191,445	$	107,814
Interest-bearing demand		93,485		52,040
Money market deposit accounts		153,020		119,028
Savings		191,878		75,280
Time		295,557		196,747
Total Deposits		925,385		550,909
Short-term borrowings		32,811		53,235
Other borrowings		32,001		41,126
Accrued interest payable		1,069		957
Other liabilities		8,838		3,280
Total Liabilities		1,000,104		649,507
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares,
issued: 2016: 4,164,723 shares, 2015: 3,724,668 shares		416		373
Surplus		47,682		35,351
Retained earnings		67,225		65,412
Treasury stock at cost: 2016: 4,509 shares, 2015: 23,311 shares		(125)		(626)
Accumulated other comprehensive income (loss)		(4,119)		488
Total Stockholders' Equity		111,079		100,998
Total Liabilities and Stockholders' Equity	$	1,111,183	$	750,505

See notes to consolidated financial statements

30

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2016		2015		2014
	(In Thousands, Except per Share Data)
INTEREST INCOME
Loans receivable, including fees	$	27,611	$	24,002	$	23,841
Securities
Taxable		2,375		1,918		2,032
Tax exempt		2,216		1,843		1,888
Other		42		16		7
Total Interest Income		32,244		27,779		27,768
INTEREST EXPENSE
Deposits		2,603		2,421		2,463
Short-term borrowings		130		85		77
Other borrowings		921		752		668
Total Interest Expense		3,654		3,258		3,208
Net Interest Income		28,590		24,521		24,560
PROVISION FOR LOAN LOSSES		2,050		4,580		1,680
Net Interest Income After
Provision for Loan Losses		26,540		19,941		22,880
OTHER INCOME
Service charges and fees		2,951		2,440		2,350
Income from fiduciary activities		449		439		437
Net realized gains on sales of securities		284		626		1,170
Net gain on sale of loans		54		104		132
Earnings and proceeds on life insurance policies		888		665		685
Other		553		425		336
Total Other Income		5,179		4,699		5,110
OTHER EXPENSES
Salaries and employee benefits		10,928		8,535		8,616
Occupancy		2,077		1,660		1,676
Furniture and equipment		548		422		441
Data processing and related operations		1,337		943		929
Federal Deposit Insurance Corporation insurance assessment		412		411		420
Advertising		283		240		224
Professional fees		836		730		671
Postage and telephone		566		436		414
Taxes, other than income		731		711		649
Foreclosed real estate		680		911		1,555
Amortization of intangible asssets		122		105		121
Merger related		1,806		-		-
Other		2,798		1,996		2,011
Total Other Expenses		23,124		17,100		17,727
Income before Income Taxes		8,595		7,540		10,263
INCOME TAX EXPENSE		1,884		1,632		2,606
Net income	$	6,711	$	5,908	$	7,657
EARNINGS PER SHARE
BASIC	$	1.74	$	1.60	$	2.10
DILUTED	$	1.73	$	1.60	$	2.10

See notes to consolidated financial statements

31

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Years Ended December 31,
	2016			2015			2014
NET INCOME	$	6,711		$	5,908		$	7,657
Other comprehensive income (loss):
Unrealized gain on pension liability		490			-			-
Tax Effect		(172	)		-			-
Investment securities available for sale:
Unrealized holding gains (losses)		(7,180	)		656			5,820
Tax Effect		2,440			(217	)		(1,984	)
Reclassification of gains from sale of securities		(284	)		(626	)		(1,170	)
Tax Effect		99			213			398
Net of tax amount		(4,607	)		26			3,064
COMPREHENSIVE INCOME	$	2,104		$	5,934		$	10,721

See notes to consolidated financial statements

32

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Years Ended December 31, 2016, 2015 and 2014
													Accumulated
													Other
		Common Stock						Retained	Treasury Stock				Comprehensive
		Shares		Amount		Surplus		Earnings	Shares		Amount		Income (Loss)		Total
	(Dollars in Thousands, Except Per Share Data)
BALANCE - DECEMBER 31, 2013		3,708,718	$	371	$	35,010	$	60,798	64,628	$	(1,713)	$	(2,602)	$	91,864
Net Income		-		-		-		7,657	-		-		-		7,657
Other comprehensive income		-		-		-		-	-		-		3,064		3,064
Cash dividends declared ($1.20 per share)		-		-		-		(4,377)	-		-		-		(4,377)
Acquisition of treasury  stock		-		-		-		-	6,669		(179)		-		(179)
Stock options exercised		-		-		13		-	(25,577)		678		-		691
Tax benefit on stock options exercised		-		-		17		-	-		-		-		17
Sale of treasury stock for ESOP		-		-		13		-	(5,144)		137		-		150
Compensation expense related to
stock options		-		-		154		-	-		-		-		154
Restricted stock awards		9,300		1		(1)		-	-		-		-		-
BALANCE - DECEMBER 31, 2014		3,718,018		372		35,206		64,078	40,576		(1,077)		462		99,041
Net Income		-		-		-		5,908	-		-		-		5,908
Other comprehensive income		-		-		-		-	-		-		26		26
Cash dividends declared ($1.24 per share)		-		-		-		(4,574)	-		-		-		(4,574)
Acquisition of treasury  stock		-		-		-		-	4,374		(127)		-		(127)
Stock options exercised		-		-		(9)		-	(16,859)		450		-		441
Tax benefit on stock options exercised		-		-		16		-	-		-		-		16
Sale of treasury stock for ESOP		-		-		10		-	(5,060)		136		-		146
Compensation expense related to
stock options		-		-		66		-	-		-		-		66
Restricted stock awards		6,650		1		62		-	280		(8)		-		55
BALANCE - DECEMBER 31, 2015		3,724,668		373		35,351		65,412	23,311		(626)		488		100,998
Net Income		-		-		-		6,711	-		-		-		6,711
Other comprehensive loss		-		-		-		-	-		-		(4,607)		(4,607)
Cash dividends declared ($1.25 per share)		-		-		-		(4,898)	-		-		-		(4,898)
Acquisition of treasury  stock		-		-		-		-	15,538		(447)		-		(447)
Stock options exercised		-		-		(8)		-	(30,823)		851		-		843
Tax benefit on stock options exercised		-		-		38		-	-		-		-		38
Sale of treasury stock for ESOP		-		-		21		-	(3,967)		110		-		131
Compensation expense related to
stock options		-		-		71		-	-		-		-		71
Restricted stock awards		8,450		-		102		-	450		(13)		-		89
Delaware Bancshares acquisition		431,605		43		12,107		-	-		-		-		12,150
BALANCE - DECEMBER 31, 2016		4,164,723	$	416	$	47,682	$	67,225	4,509	$	(125)	$	(4,119)	$	111,079

33

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS
	Years Ended December 31,
		2016		2015		2014
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,711	$	5,908	$	7,657
Adjustments to reconcile net income to net cash provided by operating  activities:
Provision for loan losses		2,050		4,580		1,680
Depreciation		726		551		572
Amortization of intangible assets		122		105		121
Deferred income taxes		746		(387)		(51)
Net amortization of securities premiums and discounts		1,648		936		860
Net realized gains on sales of securities		(284)		(626)		(1,170)
Earnings and proceeds on life insurance policies		(888)		(665)		(685)
Loss on sales of fixed assets and foreclosed real estate owned		11		427		920
Net gain on sale of mortgage loans		(54)		(113)		(150)
Mortgage loans originated for sale		(1,685)		(4,297)		(4,269)
Proceeds from sale of mortgage loans originated for sale		1,739		4,410		4,419
Compensation expense related to stock options		71		66		154
Compensation expense related to restricted stock		89		55		-
Decrease (increase) in accrued interest receivable		346		(24)		83
Increase (decrease) in accrued interest payable		17		(9)		(57)
Other, net		(27)		(419)		447
Net Cash Provided by Operating Activities		11,338		10,498		10,531
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales		110,748		44,976		66,263
Proceeds from maturities and principal reductions on mortgage-backed securities		26,182		22,853		14,859
Purchases		(100,982)		(50,565)		(74,426)
Proceeds from maturities on securities held-to-maturity		-		-		175
Purchase of regulatory stock		(2,883)		(4,095)		(1,963)
Redemption of  regulatory stock		4,455		2,397		3,126
Net increase in loans		(43,468)		(65,830)		(4,270)
Proceeds from bank-owned life insurance		205		-		75
Purchase of bank-owned life insurance		(2,000)		-		-
Purchase of premises and equipment		(511)		(290)		(193)
Proceeds from sales of foreclosed real estate owned and fixed assets		685		4,310		1,045
Acquisition, net of cash and cash equivalents acquired		11,112		-		-
Net Cash Provided by (Used in) Investing Activities		3,543		(46,244)		4,691
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		47,213		(9,035)		18,762
Net  (decrease)  increase in short-term borrowings		(21,800)		27,540		(24,219)
Repayments of other borrowings		(28,981)		(10,074)		(1,561)
Proceeds from other borrowings		-		29,000		-
Stock options exercised		843		441		691
Tax benefit of stock options exercised		38		16		17
ESOP purchase of shares from treasury stock		131		146		150
Purchase of treasury stock		(447)		(127)		(179)
Cash dividends paid		(4,714)		(4,527)		(4,370)
Net Cash (Used in) Provided by Financing Activities		(7,717)		33,380		(10,709)
Net  Increase (Decrease) in Cash and Cash Equivalents		7,164		(2,366)		4,513
CASH AND CASH EQUIVALENTS - BEGINNING		10,010		12,376		7,863
CASH AND CASH EQUIVALENTS - ENDING	$	17,174	$	10,010	$	12,376

34

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Years Ended December 31,
		2016		2015		2014
	(In Thousands)
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid	$	3,542	$	3,267	$	3,264
Income taxes paid, net of refunds	$	1,535	$	2,315	$	2,645
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate owned and repossession of other assets	$	3,246	$	3,880	$	4,704
Dividends payable	$	1,331	$	1,147	$	1,100
Merger with Delaware Bancshares, Inc.
Noncash assets acquired:
Securities available-for-sale	$	208,488
Regulatory stock		279
Loans		116,674
Premises and equipment, net		7,292
Accrued interest receivable		1,626
Bank-owned life insurance		14,762
Core deposit intangible		449
Deferred tax assets		3,034
Other assets		3,281
Goodwill		1,616
	$	357,501
Liabilities assumed:
Time deposits	$	71,342
Deposits other than time deposits		255,921
Borrowings		21,232
Accrued interest payable		95
Other liabilities		7,873
		356,463
Net Noncash Assets Acquired		1,038
Cash Acquired	$	14,977

See notes to consolidated financial statements

35

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Norwood Financial Corp (Company) is a one bank holding company. Wayne Bank (Bank) is a wholly-owned subsidiary of the Company. The Bank is a state-chartered bank located in Honesdale, Pennsylvania. The Company derives substantially all of its income from bank-related services which include interest earnings on commercial mortgages, residential real estate mortgages, commercial and consumer loans, as well as interest earnings on investment securities and fees from deposit services to its customers. The Company is subject to regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Significant Group Concentrations of Credit Risk

Most of the Company's activities are with customers located within its markets in northeastern Pennsylvania and the Southern Tier of New York. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and Delaware and Sullivan Counties, New York.  Accordingly, the Bank has extended credit primarily to commercial entities and individuals in these areas whose ability to honor their contracts is influenced by the region's economy. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of related borrowers.

Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of

36

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

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

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

Regulatory Stock

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management's determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB's regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2016.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower's financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

Loans Acquired

Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the "accretable yield," is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the "non-accretable difference," are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company's loan servicing assets at December 31, 2016 and 2015, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2016 and 2015, were $232,000 and $261,000, respectively.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements		10 - 40
Furniture and equipment		3 - 10

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

39

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance

The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill

In connection with two acquisitions the Company recorded goodwill in the amount of $11.3 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2016, 2015 and 2014.

Other Intangible Assets

At December 31, 2016, the Company had other intangible assets of $612,000 which is net of accumulated amortization of $732,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2015, the Company had other intangible assets of $285,000 which was net of accumulated amortization of $610,000.  Amortization expense related to other intangible assets was $122,000, $105,000 and $121,000 for the years ended December 31, 2016, 2015 and 2014.

As of December 31, 2016, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2017	$	150
2018		126
2019		101
2020		77
2021		52
Thereafter		106
	$	612

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the

40

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are "more-likely-than-not" to be realized can be recognized in an entity's financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2016 or 2015 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs

Advertising costs are expensed as incurred.

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 less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Employee Benefit Plans

The Companyhas a defined contributory profit-sharing plan which includes provisions of a 401 (k) plan.  The Company's contributions are expensed as the cost is incurred.

The Company has several supplemental executive retirement plans.  To fund the benefits under these plans, the Company is the owner of single premium life insurance policies on the particiapants.

The Company provides pension benefits to eligible employees.  The Company's funding policy is to contribute the minimum required contributions annually.

Stock Option Plans

The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Restricted Stock

The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company's common stock determines the fair value of restricted stock under the Company's 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

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.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

Trust Assets

Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and defined benefit pension obligations, 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting

The Company acts as an independent community financial services provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

42

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.  The Company is currently assessing practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant

43

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

impact to the financial statements.  Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities.  The Company also anticipates additional disclosures to be provided at adoption.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after    December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and

44

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) ("ASU 2016-18"), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The amendments in this Update should be applied using a retrospective transition method to each period presented.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which represents changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.  Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Company's financial statements.

45

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES

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

	December 31, 2016
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,005	$	-	$	(8)	$	1,997
States and political subdivisions		127,585		884		(3,368)		125,101
Corporate obligations		10,255		37		(180)		10,112
Mortgage-backed securities-
government sponsored entities		169,124		26		(4,220)		164,930
Total debt securities		308,969		947		(7,776)		302,140
Equity securities-financial services		320		104		-		424
	$	309,289	$	1,051	$	(7,776)	$	302,564

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

46

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES (CONTINUED)

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

	December 31, 2016
	Less than 12 Months							12 Months or More							Total
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses
U.S. Treasury securities		$	1,997		$	(8	)		$	-		$	-			$	1,997		$	(8	)
States and political subdivisions			90,109			(3,362	)			205			(6	)			90,314			(3,368	)
Corporate obligations			6,895			(180	)			-			-				6,895			(180	)
Mortgage-backed securities-government sponsored entities			152,614			(3,912	)			9,967			(308	)			162,581			(4,220	)
		$	251,615		$	(7,462	)		$	10,172		$	(314	)		$	261,787		$	(7,776	)

	December 31, 2015
	Less than 12 Months							12 Months or More							Total
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses
U.S. Government agencies		$	6,058		$	(71	)		$	2,109		$	(37	)		$	8,167		$	(108	)
States and political subdivisions			9,086			(99	)			1,417			(13	)			10,503			(112	)
Corporate obligations			2,221			(4	)			-			-				2,221			(4	)
Mortgage-backed securities-government sponsored entities			40,300			(432	)			16,595			(513	)			56,895			(945	)
		$	57,665		$	(606	)		$	20,121		$	(563	)		$	77,786		$	(1,169	)

The Company has 235 debt securities in the less than twelve month category and 12 debt securities in the twelve months or more category as of December 31, 2016.  In management's opinion, the unrealized losses on securities reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2016.  Management believes that all other unrealized losses represent temporary impairment of the securities, and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The amortized cost and fair value of debt securities as of December 31, 2016 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	2,240	$	2,243
Due after one year through five years		24,272		23,996
Due after five years through ten years		45,285		43,577
Due after ten years		68,048		67,394
		139,845		137,210
Mortgage-backed securities - government sponsored entities		169,124		164,930
	$	308,969	$	302,140

47

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES (CONTINUTED)

Gross realized gains and gross realized losses on sales of securities available for sale were $284,000 and $0, respectively, in 2016, compared to $626,000 and $0, respectively, in 2015, and $1,199,000 and $29,000, respectively, in 2014. The proceeds from the sales of securities totaled $110,748,000, $44,976,000 and$66,263,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Securities with a carrying value of $230,263,000 and $97,671,000 at December 31, 2016 and 2015, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.  The increase reflects pledging requirements resulting from the acquisition of Delaware.

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Set forth below is selected data relating to the composition of the loan portfolio at December 31:

		Types of Loans
		(dollars in thousands)
	December 31, 2016				December 31, 2015
Real Estate:
Residential	$	237,177	33.2	%	$	161,820	28.9	%
Commercial		320,187	44.8			279,123	49.8
Construction		19,709	2.8			18,987	3.4
Commercial, financial and agricultural		85,508	12.0			71,090	12.7
Consumer loans to individuals		51,524	7.2			29,231	5.2
Total loans		714,105	100.0	%		560,251	100.0	%
Deferred fees, net		(216)				(326)
Total loans receivable		713,889				559,925
Allowance for loan losses		(6,463)				(7,298)
Net loans receivable	$	707,426			$	552,627

The following table presents the components of the purchase accounting adjustments related to the purchased credit-impaired loans acquired:

(In Thousands)		July 31, 2016
Contractually required principal and interest	$	2,621
Non-accretable discount		(1,014)
Expected cash flows		1,607
Accretable discount		(239)
Estimated fair value	$	1,368

48

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended December 31:

(In thousands)	2016		2015		2014
Balance at beginning of period	$	-	$	8	$	20
Additions		239		-		-
Accretion		(30)		(1)		(12)
Reclassification and other		(1)		(7)	-	-
Balance at end of period	$	208	$	-	$	8

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

	December 31, 2016		December 31, 2015
Outstanding Balance	$	1,821	$	498
Carrying Amount	$	1,386	$	498

There were no material increases or decreases in the expected cash flows of these loans  since the acquisition date. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality.  As of December 31, 2016, for loans that were acquired prior to 2016 with or without specific evidence of deterioration in credit quality, adjustments to the allowance for loan losses have been accounted for through the allowance for loan loss adequacy calculation. For loans that were acquired in 2016 with or without specific evidence of deterioration in credit quality, there were no adjustments to the allowance for loan losses calculation.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  The system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans identified as impaired are evaluated independently.  The Company does not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

49

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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

	Real Estate Loans									Commercial			Consumer
	Residential			Commercial			Construction			Loans			Loans			Total
	(In thousands)
December 31, 2016
Individually evaluated for  impairment		$	23		$	2,601		$	-		$	-		$	-		$	2,624
Loans acquired with deteriorated credit quality			821			565			-			-			-			1,386
Collectively evaluated for impairment			236,333			317,021			19,709			85,508			51,524			710,095
Total Loans		$	237,177		$	320,187		$	19,709		$	85,508		$	51,524		$	714,105

	Real Estate Loans									Commercial			Consumer
	Residential			Commercial			Construction			Loans			Loans			Total
	(In thousands)
December 31, 2015
Individually evaluated for  impairment		$	28		$	8,659		$	-		$	43		$	-		$	8,730
Loans acquired with deteriorated credit quality			140			358			-			-			-			498
Collectively evaluated for impairment			161,652			270,106			18,987			71,047			29,231			551,023
Total Loans		$	161,820		$	279,123		$	18,987		$	71,090		$	29,231		$	560,251

50

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2016	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		2,601		3,427		-
Subtotal		2,624		3,455		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		2,601		3,427		-
Total Impaired Loans	$	2,624	$	3,455	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

The following information for impaired loans is presented for the years ended December 31, 2016, 2015 and 2014:

	Average Recorded								Interest Income
	Investment								Recognized
	2016			2015			2014		2016			2015			2014
	(In thousands)
Total:
Real Estate Loans
Residential		$	25		$	159	$	233		$	-		$	4	$	5
Commercial			2,671			8,847		7,492			91			526		503
Commercial Loans			-			9		-			-			2		-
Total Loans		$	2,696		$	9,015	$	7,725		$	91		$	532	$	508

51

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.  As of December 31, 2016, troubled debt restructured loans totaled $1.5 million and resulted in specific reserves of $0.  During 2016, there were no new loan relationships identified as troubled debt restructurings, while one loan with a balance of $5.0 million as of December 31, 2015 was transferred to Foreclosed Real Estate Owned during 2016 as a result of foreclosure on the property and one loan relationship with a balance of $82,000 as of December 31, 2015 was charged-off in 2016. During 2016, the Company recognized charge-offs totaling $2.6 million on loans classified as troubled debt restructurings.

As of December 31, 2015, troubled debt restructured loans totaled $6.8 million and resulted in specific reserves of $1,613,000.  During 2015, there were two new loan relationships identified as troubled debt restructurings totaling $176,000 based on executed modification agreements, while one loan with a balance of $1.7 million as of December 31, 2014 was transferred to Foreclosed Real Estate Owned during 2015 as a result of foreclosure on the property. During 2015, the Company recognized charge-offs totaling $1.3 million on loans classified as troubled debt restructurings.  Additionally, the Company recognized expenses of $322,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets.  As of December 31, 2016 and 2015, foreclosed real estate owned totaled $5,302,000 and $2,847,000, respectively.  As of December 31, 2016, included within foreclosed real estate owned is $297,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end.  As of December 31, 2016, the Company has initiated formal foreclosure proceedings on $421,000 of consumer residential mortgage loans.

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as "Pass" rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as nonperformance, repossession, or death occurs to raise awareness of a possible credit event.  The Company's Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis.  Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration.  Loan Review also annually reviews relationships of $1,000,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

52

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of  December 31, 2016 and December 31, 2015 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2016
Commercial real estate loans	$	310,432	$	5,432	$	4,323	$	-	$	-	$	320,187
Commercial		84,600		885		23		-		-		85,508
Total	$	395,032	$	6,317	$	4,346	$	-	$	-	$	405,695

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Commercial real estate loans	$	267,892	$	1,837	$	9,394	$	-	$	-	$	279,123
Commercial		71,047		-		43		-		-		71,090
Total	$	338,939	$	1,837	$	9,437	$	-	$	-	$	350,213

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2016 and December 31, 2015 (in thousands):

	Performing		Nonperforming		Total
December 31, 2016
Residential real estate loans	$	235,829	$	1,137	$	237,177
Construction		19,681		28		19,709
Consumer loans to individuals		51,524		-		51,524
Total	$	307,034	$	1,165	$	308,410

	Performing		Nonperforming		Total
December 31, 2015
Residential real estate loans	$	161,380	$	440	$	161,820
Construction		18,987		-		18,987
Consumer loans to individuals		29,231		-		29,231
Total	$	209,598	$	440	$	210,038

53

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2016 and December 31, 2015 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2016
Real Estate loans
Residential	$	234,790	$	986	$	264	$	1	$	1,136	$	2,387	$	237,177
Commercial		318,979		445		1		-		762		1,208		320,187
Construction		19,681		-		-		-		28		28		19,709
Commercial  loans		85,355		143		10		-		-		153		85,508
Consumer  loans		51,456		39		29		-		-		68		51,524
Total	$	710,261	$	1,613	$	304	$	1	$	1,926	$	3,844	$	714,105

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

54

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Charge Offs		(123)		(2,711)		-		(15)		(102)		(2,951)
Recoveries		6		15		-		-		45		66
Provision for loan losses		140		1,813		(12)		(75)		184		2,050
Ending balance, December 31, 2016	$	1,092	$	4,623	$	78	$	307	$	363	$	6,463
Ending balance individually evaluatedfor impairment	$	-	$	3	$	-	$	-	$	-	$	3
Ending balance collectively evaluatedfor impairment	$	1,092	$	4,620	$	78	$	307	$	363	$	6,460

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Charge Offs		(224)		(2,883)		-		-		(91)		(3,198)
Recoveries		20		-		-		-		21		41
Provision for loan losses		(50)		4,499		(132)		141		122		4,580
Ending balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Ending balance individually evaluatedfor impairment	$	-	$	1,613	$	-	$	-	$	-	$	1,613
Ending balance collectively evaluatedfor impairment	$	1,069	$	3,893	$	90	$	397	$	236	$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluatedfor impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

55

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,624,000 (net of charge-offs against the allowance for loan losses of $831,000) and $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) at December 31, 2016 and 2015, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $0 and $6,373,000 (net of a charge-off against the allowance for loan losses of $73,000) at December 31, 2016 and 2015, respectively. The specific reserve related to impaired loans was $0 for 2016 and $1,613,000 for 2015. For the years ended December 31, 2016 and 2015, the average recorded investment in these impaired loans was $2,696,000, and $9,015,000, respectively, and the interest income recognized on these impaired loans was $91,000 and $532,000, respectively.

During the period ended December 31, 2016, the allowance for commercial real estate loans decreased from $5,506,000 to $4,623,000.  This $883,000 decrease in the required allowance was due to a $1,610,000 decrease in the specific reserve component resulting from the transfer of an impaired loan with a specific reserve allowance of $1,596,000 at December 31, 2015 to foreclosed real estate during 2016.  This reduction was partially offset by a $419,000 increase in the allowance for commercial real estate loans due to an increase in the historical loss factor from 0.70% at December 31, 2015 to 0.80% on December 31, 2016.

During the period ended December 31, 2015, the allowance for residential real estate loans decreased from $1,323,000 to $1,069,000.  This $254,000 decrease in the required allowance was due primarily to a decrease in the historical loss factor from 0.30% at December 31, 2014 to 0.23% on December 31, 2015.  During the same period, the required allowance for commercial real estate loans increased from $3,890,000 at December 31, 2014 to $5,506,000 on December 31, 2015.  This increase can be attributed to a $1,320,000 increase in the specific reserve component.

  Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $163,000, $515,000 and $451,000 for 2016, 2015 and 2014, respectively.

As of December 31, 2016 and 2015, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2016, the highest concentrations are in commercial rentals and the hospitality lodging industry, with loans outstanding of $71.8 million, or 70.7% of bank capital, to commercial rentals, and $50.9 million, or 50.1% of bank capital to the hospitality and lodging industry.  Charge-offs on loans within these concentrations were $31,000, $643,000 and $422,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $54,000 and $0, respectively, in 2016 compared to $113,000 and $0, respectively, in 2015 and $150,000 and $0, respectively, in 2014.  The proceeds from the sales of residential mortgage loans totaled $1.7 million, $4.4 million and $4.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.  As of December 31, 2016 and 2015, the outstanding value of loans serviced for others totaled $35.5 million and $32.9 million, respectively.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at December 31 are as follows:

	2016		2015
	(In Thousands)
Land and improvements	$	2,925	$	2,316
Buildings and improvements		17,662		9,857
Furniture and equipment		6,351		4,415
		26,938		16,588
Accumulated depreciation		(13,407)		(10,116)
	$	13,531	$	6,472

Depreciation expense totaled $726,000, $551,000 and $572,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Certain facilities are leased under various operating leases. Rental expense for these leases was $367,000, $341,000 and $338,000, respectively, for the years ended December 31, 2016, 2015 and 2014. Future minimum rental commitments under noncancellable leases as of December 31, 2016 were as follows (in thousands):

2017	$	381
2018		381
2019		386
2020		394
2021		311
Thereafter		1,617
	$	3,470

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $250,000 or more were $63,982,000 and $22,041,000 at December 31, 2016 and 2015, respectively. Included in deposit accounts are deposits of three customer relationships totaling $84,095,000 at December 31, 2016.

At December 31, 2016, the scheduled maturities of time deposits are as follows (in thousands):

2017	$	174,814
2018		53,523
2019		34,710
2020		15,464
2021		16,867
Thereafter		179
	$	295,557

NOTE 7 – BORROWINGS

Short-term borrowings at December 31 consist of the following:

	2016		2015
	(In Thousands)
Securities sold under agreements to repurchase	$	32,811	$	33,563
Federal Home Loan Bank short-term borrowings		-		19,672
	$	32,811	$	53,235

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2016			2015
	(Dollars In Thousands)
Average balance during the year	$	41,593		$	34,057
Average interest rate during the year		0.31	%		0.25	%
Maximum month-end balance during the year	$	52,672		$	55,183
Weighted average interest rate at the end of the year		0.32	%		0.36	%

Securities sold under agreements to repurchase generally mature within one day to one year from the transaction date. Securities with an amortized cost and fair value of $35,770,000 and $35,147,000 at December 31, 2016 and $36,797,000 and $36,316,000 at December 31, 2015, respectively, were pledged as collateral for these agreements. The securities underlying the agreements were under the Company's control.

The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized as follows (in thousands):

	As of December 31, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$34,917	$0	$0	$230	$35,147
Total liability recognized for repurchase agreements					$32,811

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $146,517,000 which expires in May, 2017.  There were no borrowings under this line of credit at December 31, 2016.  At December 31, 2015, there were  $19,672,000 of borrowings outstanding on this line.  The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires on June 30, 2017.  There were no borrowings under this line of credit at December 31, 2016 and 2015. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2016. There were no borrowings under this line of credit at December 31, 2016 and December 31, 2015.  The Company also has a line of credit commitment from Zions Bank for $17,000,000.  There were no borrowings under this line of credit at December 31, 2016 and December 31, 2015.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 7 – BORROWINGS (CONTINUED)

Other borrowings consisted of the following at December 31, 2016 and 2015:

	2016		2015
	(In Thousands)
Notes with the FHLB:
Convertible note due January 2017 at 4.71%	$	10,000	$	10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		4,025		8,000
Amortizing fixed rate borrowing due January 2018 at 0.91%		662		1,267
Amortizing fixed rate borrowing due December 2018 at 1.42%		1,634		2,434
Amortizing fixed rate borrowing due June 2020 at 1.49%		7,078		9,033
Amortizing fixed rate borrowing due December 2020 at 1.71%		4,034		5,000
Amortizing fixed rate borrowing due March 2022 at 1.75%		4,568		5,392
	$	32,001	$	41,126

The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the Bank to put the funds back to the FHLB at no charge.

Contractual maturities and scheduled cash flows of other borrowings at December 31, 2016 are as follows (in thousands):

2017	$	19,253
2018		4,741
2019		3,930
2020		2,951
2021		899
2022		227
	$	32,001

The Bank's maximum borrowing capacity with the FHLB was $316,832,000 of which $32,001,000 was outstanding at December 31, 2016. Advances from the FHLB are secured by qualifying assets of the Bank.

NOTE 8 – EMPLOYEE BENEFIT PLANS

The Company has a defined contributory profit-sharing plan which includes provisions of a 401(k) plan. The plan permits employees to make pre-tax contributions up to 15% of the employee's compensation, not to exceed the limits set by the Internal Revenue Service. The amount of contributions to the plan, including matching contributions, is at the discretion of the Board of Directors. All employees over the age of 21 are eligible to participate in the plan and receive Company contributions after one year of employment. Eligible employees are able to contribute to the Plan at the beginning of the first quarterly period after their date of employment.  Employee contributions vest immediately, and any Company contributions are fully vested after five years. The Company's contributions are expensed as the cost is incurred, funded currently, and amounted to $538,000, $445,000 and $445,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

     The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive officers. At December 31, 2016 and 2015, other liabilities include $1,410,000 and $1,427,000 accrued under the Plan. Compensation expense includes approximately $121,000, $122,000 and $124,000 relating to the supplemental executive retirement plan for 2016, 2015 and 2014, respectively.  To fund the benefits under this plan, the Company is the owner of single premium life insurance policies on participants in the non-qualified retirement plan. At December 31, 2016 and 2015, the cash value of these policies was $36,133,000 and $18,820,000, respectively.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)
 

      As a result of its acquisition of Delaware, the Company has several Supplemental Executive Retirement Plans ("SERPs") intended as a long-term incentive to designated officers and key employees.  These SERPs provide for annual payments to these individuals after retirement.  The Company's expense pertaining to these plans amounted to $38,000 in 2016.  At December 31, 2016, other liabilities included $1,563,000 related to these plans.

The Company provides postretirement benefits in the form of split-dollar life arrangements to employees who meet the eligibility requirements. The net periodic postretirement benefit expense included in salaries and employee benefits was $26,000, $89,000 and $87,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Through its acquisition of Delaware, the Company also has a plan that provides certain retiring executives, at normal retirement age of 65 or early retirement at age 60, if certain criteria are met, a yearly supplemental benefit at a fixed dollar amount.  The Company expensed $15,000 under this plan in 2016.  At December 31, 2016, the liability under this plan was $602,000.

Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans.  These plans allow directors to defer current director fees and provide a benefit payment for a period of five to fifteen years.  The Company expensed $1,000 under these plans in 2016.  At December 31, 2016, the liability under these plans was $413,000.

Certain key executives have change in control agreements with the Company.  These agreements provide certain potential benefits in the event of termination of employment following a change in control.

The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and Plan # 333) as a result of its acquisition of North Penn.  As of December 31, 2016 and 2015, the Company's Plan was 80.0% and 79.9% funded, respectively, and total contributions made are not more than 5% of the total contributions to the Plan.  The Company's expense related to the Plan was $54,000 in 2016, $48,000 in 2015 and $17,000 in 2014.  During the plan years ending December 31, 2016, 2015 and 2014, the Company made contributions of $54,000, $48,000 and $17,000, respectively.

As a result of its acquisition of Delaware, the Company is a member of the New York State Bankers Retirement System.  Substantially all full-time employees who were former employees of Delaware are covered under this defined benefit pension plan (the "Delaware Plan").  The Company's funding policy is to contribute the minimum required contribution annually.  Pension cost is computed using the projected unit credit actuarial cost method.  Effective December 31, 2012, the Plan was closed to new participants and accrued benefits were frozen.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

The following table sets forth the projected benefit obligation and change in plan assets for the defined benefit pension plan at December 31:

(in Thousands of Dollars)		2016
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	-
Projected benefit obligation acquired		(8,843)
Service cost		(28)
Interest cost		(113)
Actuarial loss		662
Benefits paid		238
Benefit obligation at end of year	$	(8,084)
Change in plan assets:
Fair value of plan assets at beginning of year	$	-
Fair value acquired		6,932
Actual return on plan assets		12
Benefits paid		(242)
Fair value of assets at end of year		6,702
Funded status at end of year	$	(1,382)

    The Plan paid $238,000 in benefit payments in 2016.  Estimated benefit payments under the Plan are expected to be approximately $482,000, $490,000, $480,000, $481,000 and $471,000 for the next five years.  Payments are expected to be approximately $2,263,000 in total for the five-year period ending December 31, 2026.  No contributions were made in 2016.  The Company is not required to make any contributions to the Plan in 2017. The decrease in the projected discount rate contributed approximately $117,000 to the overall increase in the projected benefit obligation for the year ended December 31, 2016.

The accumulated benefit obligation for the defined benefit pension plan was $8,084,000 at December 31, 2016.

The following table sets forth the amounts recognized in accumulated other comprehensive income (in thousands):

Transition asset	$	-
Prior service credit		-
Gain		490
Total	$	490

Net pension cost included the following components:

(in Thousands of Dollars)		2016
Service cost benefits earned during the period	$	28
Interest cost on projected benefit obligaion		113
Actual return on assets		(180)
Net amortization and deferral		-
NET PERIODIC PENSION COST	$	(39)

          The weighted average assumptions used to determine the benefit obligation at December 31 are as follows:

	2016
Discount rate	3.90	%

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

The weighted average assumptions used to determine the net periodic pension cost at December 31 are as follows:

	2016
Discount rate	3.18	%
Expected long-term return on plan assets	6.50	%
Rate of compensation increase	0.00	%

The expected long-term return on plan assets was determined based upon expected returns on individual asset types included in the asset portfolio.

The Plan's weighted-average asset allocations at December 31, by asset category, are as follows:

	2016
Cash equivalents	6.1	%
Equity securities	47.9	%
Fixed income securities	42.6	%
Other	3.4	%
	100.00	%

The Plan's overall investment strategy is to achieve a mix of approximately 97 percent of investments for long-term growth and 3 percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers.  The target allocation for pension assets is 0 to 20 percent cash equivalents, 40 to 60 percent equity securities, 40 to 60 percent fixed income securities, and 0 to 5 percent other.  Cash equivalents consist primarily of government issues and short-term investment funds.  Equity securities primarily include investments in common stock, depository receipts, preferred stock, and real estate investment trusts.  Fixed income securities include corporate bonds, government issues, mortgaged backed securities, municipals, and other asset backed securities.

The fair value of the Plan's assets, by asset category, is as follows:

		December 31, 2016
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in Thousands of Dollars)
Cash equivalents:
Foreign currencies		$	11	$	11	$	-	$	-
Short-term investment funds			33		-		33		-
Equity securities:
Common stock			1,430		1,430		-		-
Depository receipts			42		42		-		-
Commingled Pension Trust Fund			1,680		-		1,680		-
Fixed income securities:
Corporate bonds			307		-		307		-
Government issue			1,112		-		1,112		-
Mortgage-backed securities			4		-		4		-
Collateralized mortgage obligations			68		-		68		-
Commingled Pension Trust Fund			1,732		-		1,732		-
Other			283		-		-		283
Total		$	6,702	$	1,483	$	4,936	$	283

62

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31, 2016 (in thousands of dollars).

	2016
Balance, December 31, 2015	$	-
Purchase		-
Unrealized gain		283
Balance, December 31, 2016	$	283

FASB authoritative guidance on accounting for deferred compensation and postretirement benefit aspects of endorsement split-dollar life insurance arrangements requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance that provides a benefit to an employee that extends to postretirement periods.  The life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity's obligation to the employee.  Accordingly, the entity must recognize a liability and related compensation expense during the employee's active service period based on the future cost of insurance to be incurred during the employee's retirement.  This expense is included in the SERP plan expense for 2016 discussed above.  If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the FASB authoritative guidance on employer's accounting for postretirement benefits other than pensions.  The accumulated postretirement benefit obligation was $405,000 at December 31, 2016.

NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Current	$	1,138	$	2,019	$	2,657
Deferred		746		(387)		(51)
	$	1,884	$	1,632	$	2,606

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2016		2015		2014
Tax at statutory rates	35.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(13.1)		(11.3)		(7.7)
Nondeductible merger expenses	2.7		-		-
Incentive stock options	0.3		0.3		0.4
Earnings and proceeds on life insurance	(2.8)		(1.8)		(1.5)
Other	(0.2)		0.4		0.2
	21.9	%	21.6	%	25.4	%

63

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 9 - INCOME TAXES (CONTINUED)

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:

	2016		2015
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,197	$	2,481
Deferred compensation		1,430		485
Purchase price adjustment		-		884
Core deposit intangible		485		-
Prepaid expenses		267		-
Pension liability		655		-
Foreclosed real estate valuation allowance		19		305
AMT tax credit carryforward		260		-
Net operating loss carryforward		2,147		-
Net unrealized loss on securities		2,286		-
Other		310		182
Total Deferred Tax Assets		10,056		4,337
Deferred tax liabilities:
Premises and equipment		347		245
Deferred loan fees		192		172
Net unrealized gains on securities		-		251
Net unrealized gain on pension liability		171		-
Purchase price adjustment		357		-
Total Deferred Tax Liabilities		1,067		668
Net Deferred Tax Asset	$	8,989	$	3,669

The Company's federal and state income tax returns for taxable years through 2013 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS' EQUITY

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2016 and 2015, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS' EQUITY (CONTINUED)

As of December 31, 2016, the most recent notification from the regulators has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category.

The Company's actual capital amounts and ratios are presented in the table:

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provision
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2016:
Total capital (to risk-weighted assets)	$	107,765	14.12	%	≥$61,057	≥8.00	%	≥$76,321	≥10.00	%
Tier 1 capital (to risk-weighted assets)		101,302	13.27		≥45,793	≥6.00		≥61,057	≥8.00
Common Equity Tier 1 capital (to risk-weighted assets)		101,302	13.27		≥34,344	≥4.50		≥49,609	≥6.50
Tier 1 capital (to average assets)		101,302	9.16		≥44,251	≥4.00		≥55,314	≥5.00
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	97,750	17.09	%	≥$45,751	≥8.00	%	≥$57,189	≥10.00	%
Tier 1 capital (to risk-weighted assets)		90,681	15.86		≥34,313	≥6.00		≥45,751	≥8.00
Common Equity Tier 1 capital (to risk-weighted assets)		90,681	15.86		≥25,735	≥4.50		≥37,173	≥6.50
Tier 1 capital (to average assets)		90,681	12.40		≥29,252	≥4.00		≥36,565	≥5.00

The Bank's ratios do not differ significantly from the Company's ratios presented above.

Effective January 1, 2015, the Company and the Bank became subject to new regulatory capital rules which, among other things, impose a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk-weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The new rules also require unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is exercised, which the Company and the Bank have done.  The final rule limits a banking organization's dividends, stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers, if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements.  The capital conservation buffer requirements will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer will be effective.  The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of December 31, 2016.

The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank. The amount of these restricted cash reserve balances at December 31, 2016 and 2015 was approximately $1,099,000 and $437,000, respectively.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS' EQUITY (CONTINUED)

Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2016, $63,246,000 of retained earnings were available for dividends without prior regulatory approval, subject to the regulatory capital requirements discussed above. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including the Company, unless such loans are collateralized by specific obligations.

NOTE 11 - STOCK BASED COMPENSATION

The Company's shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the Annual Meeting on April 26, 2006. An aggregate of 275,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 44,000 shares for awards to outside directors. Under this plan, the Company granted 7,423 options to employees in 2015, 12,500 options to employees in 2014, and 28,600 options, which included 4,000 options granted to outside directors in 2013.  No options were granted under this plan in 2016.  As of December 31, 2016, there were 4,058 shares available for stock option awards to outside directors.

At the Annual Meeting held on April 22, 2014, the Company's shareholders approved the Norwood Financial Corp 2014 Equity Incentive Plan. An aggregate of 250,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 40,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 42,000 shares of restricted stock awards for officers and 8,000 shares of restricted stock awards for outside directors. Under this plan, the Company granted 24,450 shares in 2016 which included 16,000 options to employees, 6,000 shares of restricted stock to officers and 2,450 shares of restricted stock to directors.  In 2015, the Company granted 13,727 shares which included 7,077 options to employees, 4,250 shares of restricted stock to officers and 2,400 shares of restricted stock to directors.  In 2014, the Company granted 9,300 shares, which included 2,800 shares of restricted stock to outside directors.  All shares granted in 2014 were for restricted stock.  The restricted shares vest over a five-year period.  The product of the number of shares granted and the grant date market price of the Company's common stock determine the fair value of restricted stock under the company's restricted stock plan.  Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.  As of December 31, 2016, there were 202,523 shares available for future awards under this plan, which includes 170,173 shares available for officer awards and 32,350 shares available for awards to outside directors.  Included in these totals are 25,250 shares available for restricted stock awards to officers and 350 shares available for restricted stock awards to outside directors.

Total unrecognized compensation cost related to stock options was $93,000 as of December 31, 2016, $71,000 as of December 31, 2015 and $66,000 as of December 31, 2014.  Salaries and employee benefits expense includes $71,000, $66,000 and $154,000 of compensation costs related to options for the years ended December 31, 2016, 2015 and 2014, respectively.   Compensation costs related to restricted stock amounted to $89,000, $55,000 and $0 for the years ended December 31, 2016, 2015 and 2014, respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2016 and 2015 was $579,000 and $398,000 respectively.  Net income was reduced by $130,000, $92,000 and $146,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)

A summary of the Company's stock option activity and related information for the years ended December 31 follows:

	2016					2015					2014
		Weighted					Weighted					Weighted
		Average					Average					Average
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding,
beginning of year	194,521	$	26.91			206,463	$	26.74			219,540	$	26.64
Granted	16,000		33.56			14,500		28.55			12,500		29.08
Exercised	(30,823)		27.34			(16,859)		26.19			(25,577)		27.05
Forfeited	(19,269)		27.86			(9,583)		27.02			-		-
Outstanding,
end of year	160,429	$	27.37	$	931,963	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640
Exercisable,
end of year	144,429	$	26.39	$	931,963	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640

Exercise prices for options outstanding as of December 31, 2016 ranged from $24.44 to $33.56 per share. The weighted average remaining contractual life is 5.6 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Years Ended December 31,
	2016		2015		2014
Dividend yield		3.93%		3.77%		3.57%
Expected life		10 years		10 years		10 years
Expected volatility		24.84%		24.35%		24.97%
Risk-free interest rate		2.44%		2.28%		2.17%
Weighted average fair value of options granted	$	5.79	$	4.89	$	5.30

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company's history and expectation of dividend payouts.

Proceeds from stock option exercises totaled $843,000 in 2016. Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. During 2016, all the shares issued in connection with stock option exercises, 30,823 shares in total, were issued from available treasury shares.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)

As of December 31, 2016, outstanding stock options consist of the following:

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	12,650	$	28.41	1.0	12,650	$	28.41
	13,200		25.00	2.0	13,200		25.00
	12,650		25.99	3.0	12,650		25.99
	1,100		24.44	3.2	1,100		24.44
	15,229		25.25	4.0	15,229		25.25
	19,800		24.97	5.0	19,800		24.97
	21,450		27.05	6.0	21,450		27.05
	1,100		27.55	6.0	1,100		27.55
	2,000		28.95	6.7	2,000		28.95
	21,250		26.90	7.0	21,250		26.90
	10,000		29.08	8.0	10,000		29.08
	14,000		28.55	9.0	14,000		28.55
	16,000		33.56	10.0	-		-
Total	160,429				144,429

A summary of the Company's restricted stock activity and related information for the years ended December 31 is as follows:

	2016		2015
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	13,810	$28.82	9,300	$29.08
Granted	8,450	33.56	6,650	28.55
Vested	(3,120)	28.85	(1,860)	29.08
Forfeited	(450)	28.80	(280)	29.08
Non-vested at December 31	18,690	$30.96	13,810	$28.82

NOTE 12 - EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

	Years Ended December 31,
	2016		2015		2014
	(In Thousands, Except Per Share Data)
Numerator, net income	$	6,711	$	5,908	$	7,657
Denominator:
Weighted average shares outstanding		3,877		3,682		3,645
Less:  Weighted average unvested restricted shares		(14)		(9)		-
Denominator:  Basic earnings per share		3,863		3,673		3,645
Weighted average shares outstanding		3,863		3,682		3,645
Add:  Dilutive effect of stock options		22		9		12
Denominator:  Diluted earnings per share		3,885		3,691		3,657
Basic earnings per common share	$	1.74	$	1.60	$	2.10
Diluted earnings per common share	$	1.73	$	1.60	$	2.10

68

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 12 - EARNINGS PER SHARE (CONTINUED)

Stock options which had no intrinsic value because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 16,000, 14,000, and 12,500 for the years ended December 31, 2016, 2015 and 2014, respectively, based on the closing price of the Company's common stock which was $33.14, $28.75 and $29.05 at December 31, 2016, 2015 and 2014, respectively.

NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

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:

	December 31,
	2016		2015
	(In Thousands)
Commitments to grant loans	$	22,210	$	19,704
Unfunded commitments under lines of credit		54,789		48,641
Standby letters of credit		5,642		5,286
	$	82,641	$	73,631

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.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e. supported with little or no market activity).

An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2016 and 2015 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Available for Sale:
U.S. Treasury securities	$	1,997	$	-	$	1,997	$	-
States and political subdivisions		125,101		-		125,101		-
Corporate obligations		10,112		-		10,112		-
Mortgage-backed securities-government
sponsored entities		164,930		-		164,930		-
Equity securities-financial services		424		424		-		-
Total available for sale	$	302,564	$	424	$	302,140	$	-
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-

70

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2016 and 2015 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Impaired Loans	$	2,624	$	-	$	-	$	2,624
Foreclosed real estate		5,302		-		-		5,302
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	1,473	Appraisal of collateral(1)	Appraisal adjustments(2)	10% (10%)
Impaired loans	$	1,151	Present value of future cash flows	Loan discount rate	4-5.25% (5.11%)
				Probability of default	0%
Foreclosed real estate owned	$	5,302	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10% (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7% (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable,

  less any associated allowance.

(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of

 liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Company's financial instruments at December 31, 2016 and 2015.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets' fair values.

Securities:

The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management's best estimate is used. Management's best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

As of December 31, 2016, the fair value investment in impaired loans totaled $2,624,000 which included seven loans which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2016, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $831,000 over the life of the loans.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

As of December 31, 2015, the fair value investment in impaired loans totaled $9,228,000 which included three loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and twenty loans for $2,855,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2015, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans.

Mortgage Servicing Rights (generally carried at cost):

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is determined by estimating potential revenues and expenses of the various loan pools to arrive at a net cash flow stream, and then utilize present value methodologies on the cash flow stream at a current market yield.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management's estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

Restricted investment in Federal Home Loan Bank stock (carried at cost):

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Bank owned life insurance (carried at cost):

The fair value is equal to the cash surrender value of the Bank owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost except certificates of deposit which are at fair value):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company's off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties' credit standing.

The estimated fair values of the Bank's financial instruments were as follows at December 31, 2016 and December 31, 2015 (In thousands):

	Fair Value Measurements at December 31, 2016
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	17,174	$	17,174	$	17,174	$	-	$	-
Securities		302,564		302,564		424		302,140		-
Loans receivable, net		707,426		716,661		-		-		716,661
Mortgage servicing rights		232		250		-		-		250
Regulatory stock		2,119		2,119		2,119		-		-
Bank owned life insurance		36,133		36,133		36,133		-		-
Accrued interest receivable		3,643		3,643		3,643		-		-
Financial liabilities:
Deposits		925,385		925,561		629,829		-		295,732
Short-term borrowings		32,811		32,811		32,811		-		-
Other borrowings		32,001		31,863		-		-		31,863
Accrued interest payable		1,069		1,069		1,069		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		559,416
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income (loss) (in thousands) by component, net of tax, for the years ended December 31, 2016 and 2015:

	Unrealized gains (losses)
	on available for sale		Unrealized gain on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2015	$	488	$	-	$	488
Other comprehensive loss before reclassification		(4,740)		318		(4,422)
Amount reclassified from accumulated other comprehensive income		(185)		-		(185)
Total other comprehensive loss		(4,925)		318		(4,607)
Balance as of December 31, 2016	$	(4,437)	$	318	$	(4,119)
	Unrealized gains (losses) on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the year ended December 31, 2016:

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2016		2015
Unrealized gains on available for sale securities	$	284	$	626	Net realized gains on sales of securities
		(99)		(213)	Income tax expense
	$	185	$	413	Net of tax

(a)  Amounts in parentheses indicate debits to net income.

75

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC.

  On July 31, 2016, Norwood Financial Corp. (the "Company") closed on its acquisition of Delaware Bancshares, Inc. ("Delaware")  pursuant to the terms of the Agreement and Plan of Merger, dated March 10, 2016, by and among the Company, Wayne Bank, Delaware and The National Bank of Delaware County (the "Merger Agreement").

Pursuant to the terms of the Merger Agreement, Delaware was merged with and into the Company, with the Company as the surviving corporation of the merger (the "Merger").  At the effective time of the Merger, each outstanding share of the common stock of Delaware was converted into, at the election of the holder but subject to the limitations and allocation and proration provisions set forth in the Merger Agreement, either $16.68 in cash or 0.6221 of a share of the common stock, par value $0.10 per share (the "Common Stock") of the Company.  In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of Norwood common stock.  Immediately following the Merger, The National Bank of Delaware County ("NBDC") was merged with and into Wayne Bank, a wholly-owned subsidiary of the Company, with Wayne Bank as the surviving entity.

In connection with the Merger, the Company assumed the obligations of Delaware under the Indenture, dated as of October 31, 2007, by and between Delaware, as issuer, and Wells Fargo Bank, National Association, as trustee (the "Indenture") and Delaware's Junior Subordinated Debt Securities, due January 1, 2038 (the "Debt Securities") issued thereunder.  The Debt Securities were issued by Delaware in connection with a private placement completed on October 31, 2007 of $8.0 million of trust preferred securities issued through the Delaware Bancshares Capital Trust I (the "Trust").  The proceeds from the initial sale of the trust preferred securities were used by the Trust to purchase the Debt Securities.  The Debt Securities bore interest at a variable rate which reset quarterly at LIBOR plus 2.4%, and were redeemable, in whole or in part, without penalty, at the option of the Company, beginning on January 1, 2013 and on any January 1, April 1, July 1 or October 1 thereafter.  The interest payments on the Debt Securities made by the Company were used to pay the quarterly distributions payable by the Trust to the holders of the trust preferred securities.  On October 3, 2016, the Company redeemed the Debt Securities and the trust preferred securities in full.

The acquired assets and assumed liabilities were measured at estimated fair values.  Management made significant estimates and exercised significant judgment in accounting for the acquisition.  Management measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, and historical loss factors of NBDC.  The Company also recorded an identifiable intangible asset representing the core deposit base of NBDC based on management's evaluation of the cost of such deposits relative to alternative funding sources.  Management used significant estimates including the average lives of depository accounts, future interest rate levels, and the cost of servicing various depository products.  Management used market quotations to determine the fair value of investment securities.

The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration.  NBDC loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality.  Such loans were fair valued and the difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a non-accretable difference.  At the acquisition date, the Company recorded $1,410,000 of purchased credit-impaired loans subject to a non-accretable difference of $260,000.  The method of measuring carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such, the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans at amortized cost.

76

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)

NBDC's loans without evidence of credit deterioration were fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value.  Additionally, consideration was given to management's best estimates of default rates and payment speeds.  At acquisition, NBDC's loan portfolio without evidence of deterioration totaled $111,307,000 and was recorded at a fair value of $109,693,000.

The following table summarizes the purchase of Delaware Bancshares, Inc. as of July 31, 2016:

(Dollars in Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Delaware Bancshares, Inc. common shares settled for stock		694,114
Exchange Ratio		0.6221
Norwood Financial Corp. shares issued		431,605
Value assigned to Norwood Financial Corp. common share	$	28.15
Purchase price assigned to Delaware Bancshares, Inc. common shares			$	12,150
exchanged for Norwood Financial Corp.
Purchase Price Consideration - Cash for Common Stock
Delaware Bancshares, Inc. shares exchanged for cash		231,385
Purchase price paid to each Delaware Bancshares, Inc. common share exchanged for cash	$	16.68
Purchase price assigned to Delaware Bancshares, Inc. common shares exchanged for cash			$	3,860
Purchase price consideration - Cash-in-lieu of Fractional Shares				6
Total Purchase Price			$	16,016
Net Assets Acquired:
Delaware Bancshares, Inc. shareholders' equity	$	19,357
Delaware Bancshares, Inc. goodwill and intangibles		(7,640)
Total tangible equity		11,717
Adjustments to reflect assets acquired at fair value:
Investments		219
Loans
Interest rate		1,486
General credit		(1,614)
Specific credit - non-amortizing		(260)
Specific credit - amortizing		(239)
Core deposit intangible		449
Deferred loan fees		(296)
Premises and equipment		3,053
Allowance for loan and lease losses		1,651
Deferred tax assets		(1,417)
Other		(97)
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(252)
				14,400
Goodwill resulting from merger			$	1,616

77

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)

The following condensed statement reflects the values assigned to Delaware Bancshares, Inc. net assets as of acquisition date:

(In Thousands)

Total purchase price			$	16,016
Net assets acquired:
Cash	$	14,977
Securities available for sale		208,488
Loans		116,674
Premises and equipment, net		7,292
Regulatory stock		279
Accrued interest receivable		1,626
Bank-owned life insurance		14,762
Core deposit intangible		449
Deferred tax assets		3,034
Other assets		3,282
Time deposits		(71,342)
Deposits other than time deposits		(255,921)
Borrowings		(21,232)
Accrued interest payable		(95)
Other liabilities		(7,873)
				14,400
Goodwill resulting from Delaware Bancshares, Inc. Merger			$	1,616

The Company recorded goodwill and other intangibles associated with the purchase of Delaware Bancshares, Inc. totaling $1,616,000.  Goodwill is not amortized, but is periodically evaluated for impairment.  The Company did not recognize any impairment during the twelve months ended December 31, 2016.  The carrying amount of the goodwill at December 31, 2016 related to the Delaware acquisition was $1,616,000.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. The core deposit intangible recorded with the purchase of Delaware is being amortized over ten years.  Such lives are also periodically reassessed to determine if any amortization period adjustments are required.  During the twelve months ended December 31, 2016, no such adjustments were recorded.  The identifiable intangible assets consist of a core deposit intangible which is being amortized on an accelerated basis over the useful life of such assets.  The gross carrying amount of the core deposit intangible at December 31, 2016 was $449,000 with $14,000 accumulated amortization as of that date.

As of December 31, 2016, the current year and estimated future amortization expense for the core deposit intangible is:

(In thousands)
2017	$	30
2018		30
2019		30
2020		30
2021		30
After five years		299
	$	449

78

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC. (CONTINUED)

Results of operations for Delaware Bancshares, Inc. prior to the acquisition date are not included in the Consolidated Statement of Income for the year ended December 31, 2016.  Due to the significant amount of fair value adjustments, historical results of Delaware Bancshares, Inc. are not relevant to the Company's results of operations.  Therefore, no pro forma information is presented.

The following table presents financial information regarding the former Delaware Bancshares, Inc. operations included in our Consolidated Statement of Income from the date of acquisition through December 31, 2016 under the column "Actual from acquisition date through December 31, 2016".  In addition, the following table presents unaudited pro forma information as if the acquisition of Delaware Bancshares, Inc. had occurred on January 1, 2016  and 2015 under the "Pro Forma" columns.  The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results.  Furthermore, the unaudited pro-forma information does not reflect management's estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.  Merger and acquisition integration costs and amortization of fair value adjustments are included in the numbers below.

	Actual From
	Acquisition Date
	Through			Pro Forma
	December 31,			Year Ended December 31,
(In Thousands, Except Per Share Data)	2016		2016		2015
Net interest income	$	3,900	$	37,199	$	33,787
Non-interest income		893		6,487		7,939
Net income		750		3,588		6,944
Pro forma earnings per share:
Basic	$	0.18	$	0.87	$	1.69
Diluted	$	0.18	$	0.87	$	1.68

Nonrecurring merger and acquisition integration costs included in the pro-forma table above are:

Professional Fees	$	-	1,602	$	80
Data Processing related		-	639
Other		-	810

79

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

NOTE 17 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2016		2015
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	3,005	$	2,151
Securities available for sale		397		384
Investment in bank subsidiary		105,138		95,895
Other assets		4,539		4,113
Total assets	$	113,079	$	102,543
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities	$	2,000	$	1,545
Stockholders' equity		111,079		100,998
Total liabilities and stockholders' equity	$	113,079	$	102,543

STATEMENTS OF INCOME

	Years Ended December 31,
	2016			2015			2014
Income:	(In Thousands)
Dividends from bank subsidiary	$	28,598		$	4,574		$	4,377
Other interest income		12			11			10
		28,610			4,585			4,387
Expenses		1,347			313			346
		27,263			4,272			4,041
Income tax benefit		(225	)		(103	)		(114	)
		27,488			4,375			4,155
Equity in undistributed earnings of subsidiary		(20,777	)		1,533			3,502
Net Income	$	6,711		$	5,908		$	7,657
Comprehensive Income	$	2,104		$	5,934		$	10,721

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2016			2015			2014
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,711		$	5,908		$	7,657
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		20,777			(1,533	)		(3,502	)
Other, net		(305	)		(19	)		177
Net Cash Provided by Operating Activities		27,183			4,356			4,332
CASH FLOWS FROM INVESTING ACTIVITIES
Outlays for business acquisitions		(2,324	)		-			-
Net Cash Used in Investing Activities		(2,324	)		-			-
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings		(19,856	)		-			-
Stock options exercised		843			441			691
Tax benefit of stock options exercised		38			16			17
ESOP purchase of shares from treasury stock		131			146			150
Purchase of treasury stock		(447	)		(127	)		(179	)
Cash dividends paid		(4,714	)		(4,527	)		(4,370	)
Net Cash Used in Financing Activities		(24,005	)		(4,051	)		(3,691	)
Net Increase in Cash and Cash Equivalents		854			305			641
CASH AND CASH EQUIVALENTS - BEGINNING		2,151			1,846			1,205
CASH AND CASH EQUIVALENTS - ENDING	$	3,005		$	2,151		$	1,846

80

NORWOOD FINANCIAL CORP - 2016 CONSOLIDATED FINANCIAL REPORT

INVESTOR INFORMATION

STOCK LISTING

Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. The following firms are known to make a market in the Company's stock:

Boenning & Scattergood, Inc.West Conshohocken, PA  19428 800-883-1212	RBC Capital Markets Philadelphia, PA  19103 888-848-4677
Janney Montgomery Scott, LLC Scranton, PA  18503 800-638-4417	Stifel Nicolaus St,. Louis, MO  63102 314-342-2000

TRANSFER AGENT

Computershare, P.O. Box 30170, College Station, TX  77842.   Stockholders who may have questions regarding their stock ownership should contact the Transfer Agent at 800-662-7232.

DIVIDEND CALENDAR

Dividends on Norwood Financial Corp common stock, if approved by the Board of Directors are customarily paid on or about February 1, May 1, August 1 and November 1.

AUTOMATIC DIVIDEND REINVESTMENT PLAN

The Plan, open to all shareholders, provides the opportunity to have dividends automatically reinvested into Norwood stock. Participants in the Plan may also elect to make cash contributions to purchase additional shares of common stock. Please contact the transfer agent for additional information.

SEC REPORTS AND ADDITIONAL INFORMATION

A copy of the Company's annual report on Form 10-K for its fiscal year ended December 31, 2016 including financial statements and schedules thereto, required to be filed with the Securities and Exchange Commission is available on the Company's website at www.waynebank.com under the Stockholder Services tab.  A copy of the report may be obtained upon written request of any stockholder, investor or analyst by contacting William S. Lance, Executive Vice President, Chief Financial Officer and Secretary, Norwood Financial Corp., 717 Main Street, PO Box 269, Honesdale, PA  18431, 570-253-1455.

81

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements File Nos. 333-61487, 333-134831, 333-195643 on Form S-8 of Norwood Financial Corp. of our reports dated March 14, 2017, relating to our audits of the consolidated financial statements and internal control over financial reporting, which appear in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K of Norwood Financial Corp. for the year ended December 31, 2016.

Cranberry Township, Pennsylvania

March 14, 2017

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Lewis J. Critelli, certify that:

1. I have reviewed this annual report on Form 10-K of Norwood Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(e) and 15d-14(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for  external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting  that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 15, 2017	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, William S. Lance, certify that:

1. I have reviewed this annual report on Form 10-K of Norwood Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(e) and 15d-14(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over

financial reporting to be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting  that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 15, 2017	By:	/s/ William S. Lance
		William S. Lance Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Norwood Financial Corp. (the Company) on Form 10-K for the year ending December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Lewis J. Critelli, President and Chief Executive Officer and William S. Lance, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lewis J. Critelli	/s/ William S. Lance
Lewis J. Critelli	William S. Lance
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

March 15, 2017

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Mar. 01, 2017	Jun. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Entity Registrant Name	NORWOOD FINANCIAL CORP
Entity Central Index Key	0001013272
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		4,162,414
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Entity Current Reporting Status	Yes
Entity Public Float			$ 97.2
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No

XML

Consolidated Balance Sheets - USD ($) $ in Thousands		Dec. 31, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks		$ 14,900	$ 9,744
Interest bearing deposits with banks		2,274	266
Cash and cash equivalents		17,174	10,010
Securities available for sale		302,564	138,851
Loans receivable (net of allowance for loan losses 2016: $6,463; 2015: $7,298)		707,426	552,627
Regulatory stock, at cost		2,119	3,412
Premises and equipment, net		13,531	6,472
Bank owned life insurance		36,133	18,820
Accrued interest receivable		3,643	2,363
Foreclosed real estate owned		5,302	2,847
Goodwill		11,331	9,715
Other intangibles		612	285
Deferred tax asset		8,989	3,669
Other assets		2,359	1,434
Total Assets		1,111,183	750,505
LIABILITIES
Deposits: Non-interest bearing demand		191,445	107,814
Deposits: Interest-bearing demand		93,485	52,040
Deposits: Money market deposit accounts		153,020	119,028
Deposits: Savings		191,878	75,280
Deposits: Time		295,557	196,747
Total deposits		925,385	550,909
Short-term borrowings		32,811	53,235
Other borrowings		32,001	41,126
Accrued interest payable		1,069	957
Other liabilities		8,838	3,280
Total Liabilities		1,000,104	649,507
STOCKHOLDERS' EQUITY
Common stock, $.10 par value per share, authorized 10,000,000 shares, issued 2016: 4,164,723 shares, 2015: 3,724,668 shares		416	373
Surplus		47,682	35,351
Retained earnings		67,225	65,412
Treasury stock at cost: 2016: 4,509 shares, 2015: 23,311 shares		(125)	(626)
Accumulated other comprehensive income (loss)	[1]	(4,119)	488
Total Stockholders' Equity		111,079	100,998
Total Liabilities and Stockholders' Equity		$ 1,111,183	$ 750,505

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Consolidated Balance Sheets [Abstract]
Loans and Leases Receivable, Allowance	$ 6,463	$ 7,298
Common Stock, Par or Stated Value Per Share	$ 0.10	$ 0.10
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	4,164,723	3,724,668
Treasury Stock, Shares	4,509	23,311

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
INTEREST INCOME
Loans receivable, including fees	$ 27,611	$ 24,002	$ 23,841
Securities: Taxable	2,375	1,918	2,032
Securities: Tax exempt	2,216	1,843	1,888
Other	42	16	7
Total Interest Income	32,244	27,779	27,768
INTEREST EXPENSE
Deposits	2,603	2,421	2,463
Short-term borrowings	130	85	77
Other borrowings	921	752	668
Total Interest Expense	3,654	3,258	3,208
Net Interest Income	28,590	24,521	24,560
Provision for Loan Losses	2,050	4,580	1,680
Net interest Income After Provision for Loan Losses	26,540	19,941	22,880
OTHER INCOME
Service charges and fees	2,951	2,440	2,350
Income from fiduciary activities	449	439	437
Net realized gains on sales of securities	284	626	1,170
Net gain on sale of loans	54	104	132
Earnings and proceeds on bank owned life insurance	888	665	685
Other	553	425	336
Total Other Income	5,179	4,699	5,110
OTHER EXPENSES
Salaries and employee benefits	10,928	8,535	8,616
Occupancy	2,077	1,660	1,676
Furniture and equipment	548	422	441
Data processing and related operations	1,337	943	929
Federal Deposit Insurance Corporation insurance assessment	412	411	420
Advertising	283	240	224
Professional fees	836	730	671
Postage and telephone	566	436	414
Taxes, other than income	731	711	649
Foreclosed real estate	680	911	1,555
Amortization of intangibles	122	105	121
Merger related	1,806
Other	2,798	1,996	2,011
Total Other Expenses	23,124	17,100	17,727
Income before Income Taxes	8,595	7,540	10,263
INCOME TAX EXPENSE	1,884	1,632	2,606
Net income	$ 6,711	$ 5,908	$ 7,657
EARNINGS PER SHARE
BASIC	$ 1.74	$ 1.60	$ 2.10
DILUTED	$ 1.73	$ 1.60	$ 2.10

XML

Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016		Dec. 31, 2015	Dec. 31, 2014
Consolidated Statement of Comprehensive Income [Abstract]
NET INCOME	$ 6,711		$ 5,908	$ 7,657
Other comprehensive income (loss):
Other comprehensive income (loss): Unrealized gain on pension liability	490
Other comprehensive income (loss): Tax Effect	(172)
Investment securities available for sale: Unrealized holding gain (loss)	(7,180)		656	5,820
Investment securities available for sale: Tax Effect	2,440		(217)	(1,984)
Reclassification of gains from sale of securities	(284)		(626)	(1,170)
Reclassification of gains from sale of securities: Tax Effect	99		213	398
Net of tax amount	(4,607)	[1]	26	3,064
COMPREHENSIVE INCOME	$ 2,104		$ 5,934	$ 10,721

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Beginning balance at Dec. 31, 2013	$ 371	$ 35,010	$ 60,798	$ (1,713)	$ (2,602)	$ 91,864
Common Stock, Beginning Balance at Dec. 31, 2013	3,708,718			64,628
Net Income	$ 0	0	7,657	$ 0	0	7,657
Other comprehensive income (loss)	0	0	0	0	3,064	3,064
Cash dividends declared	0	0	(4,377)	0	0	(4,377)
Acquisition of treasury stock	0	0	0	$ (179)	0	(179)
Acquisition of treasury stock, shares				6,669
Stock options exercised	0	13	0	$ 678	0	$ 691
Stock options exercised, shares				(25,577)		(25,577)
Tax benefit o stock options exercised	0	17	0	$ 0	0	$ 17
Sale of treasury stock for ESOP	0	13	0	$ 137	0	150
Sale of treasury stock for ESOP, shares				(5,144)
Compensation expense related to stock options	0	154	0	$ 0	0	154
Restricted stock awards	$ 1	(1)	0	$ 0	0	0
Restricted stock awards, shares	9,300			0
Common Stock, Ending Balance at Dec. 31, 2014	3,718,018			40,576
Ending balance at Dec. 31, 2014	$ 372	35,206	64,078	$ (1,077)	462	99,041
Net Income	0	0	5,908	0	0	5,908
Other comprehensive income (loss)	0	0	0	0	26	26
Cash dividends declared	0	0	(4,574)	0	0	(4,574)
Acquisition of treasury stock	0	0	0	$ (127)	0	(127)
Acquisition of treasury stock, shares				4,374
Stock options exercised	0	(9)	0	$ 450	0	$ 441
Stock options exercised, shares				(16,859)		(16,859)
Tax benefit o stock options exercised	0	16	0	$ 0	0	$ 16
Sale of treasury stock for ESOP	0	10	0	$ 136	0	146
Sale of treasury stock for ESOP, shares				(5,060)
Compensation expense related to stock options	0	66	0	$ 0	0	66
Restricted stock awards	$ 1	62	0	$ (8)	0	55
Restricted stock awards, shares	6,650			280
Common Stock, Ending Balance at Dec. 31, 2015	3,724,668			23,311
Ending balance at Dec. 31, 2015	$ 373	35,351	65,412	$ (626)	488	100,998
Net Income	0	0	6,711	0	0	6,711
Other comprehensive income (loss)	0	0	0	0	(4,607)	(4,607)	[1]
Cash dividends declared	0	0	(4,898)	0	0	(4,898)
Acquisition of treasury stock	0	0	0	$ (447)	0	(447)
Acquisition of treasury stock, shares				15,538
Stock options exercised	0	(8)	0	$ 851	0	$ 843
Stock options exercised, shares				(30,823)		(30,823)
Tax benefit o stock options exercised	0	38	0	$ 0	0	$ 38
Sale of treasury stock for ESOP	0	21	0	$ 110	0	131
Sale of treasury stock for ESOP, shares				(3,967)
Compensation expense related to stock options	0	71	0	$ 0	0	71
Restricted stock awards	$ 0	102	0	$ (13)	0	89
Restricted stock awards, shares	8,450			450
Delaware Bancshares acquisition	$ 43	12,107	0	$ 0	0	12,150
Delaware Bancshares acquisition, shares	431,605
Common Stock, Ending Balance at Dec. 31, 2016	4,164,723			4,509
Ending balance at Dec. 31, 2016	$ 416	47,682	67,225	$ (125)	(4,119)	111,079
Common Stock, Ending Balance at Dec. 31, 2016	4,164,723			4,509
Ending balance at Dec. 31, 2016	$ 416	$ 47,682	$ 67,225	$ (125)	$ (4,119)	$ 111,079

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Cash dividends declared	$ 1.25	$ 1.24	$ 1.20

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$ 6,711	$ 5,908	$ 7,657
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for Loan Losses	2,050	4,580	1,680
Depreciation	726	551	572
Amortization of intangible assets	122	105	121
Deferred income taxes	746	(387)	(51)
Net amortization of securities premiums and discounts	1,648	936	860
Net realized gain on sales of securities	(284)	(626)	(1,170)
Earnings and proceeds on life insurance policies	(888)	(665)	(685)
Loss on sales of fixed assets and foreclosed real estate owned	11	427	920
Net gain on sale of mortgage loans	(54)	(113)	(150)
Mortgage loans originated for sale	(1,685)	(4,297)	(4,269)
Proceeds from sale of mortgage loans originated for sale	1,739	4,410	4,419
Compensation expense related to stock options	71	66	154
Compensation expense related to restricted stock	89	55
Decrease (increase) in accrued interest receivable	346	(24)	83
Increase (decrease) in accrued interest payable	17	(9)	(57)
Other, net	(27)	(419)	447
Net Cash Provided by Operating Activities	11,338	10,498	10,531
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale: Proceeds from sales	110,748	44,976	66,263
Securities available for sale: Proceeds from maturities and principal reductions on mortgage-backed securities	26,182	22,853	14,859
Securities available for sale: Purchases	(100,982)	(50,565)	(74,426)
Proceeds from maturities on securities held-to-maturity			175
Purchase of regulatory stock	(2,883)	(4,095)	(1,963)
Redemption of regulatory stock	4,455	2,397	3,126
Net increase in loans	(43,468)	(65,830)	(4,270)
Proceeds from bank-owned life insurance	205		75
Purchase of bank-owned life insurance	(2,000)
Purchase of premises and equipment	(511)	(290)	(193)
Proceeds from sales of foreclosed real estate owned and fixed assets	685	4,310	1,045
Acquisition, net of cash and cash equivalents acquired	11,112
Net Cash Provided by (Used in) Investing Activities	3,543	(46,244)	4,691
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	47,213	(9,035)	18,762
Net (decrease) increase in short-term borrowings	(21,800)	27,540	(24,219)
Repayment of long-term debt	(28,981)	(10,074)	(1,561)
Proceeds from other borrowings		29,000
Stock options exercised	843	441	691
Tax benefit of stock options exercised	38	16	17
ESOP purchase of shares from treasury stock	131	146	150
Purchase of treasury stock	(447)	(127)	(179)
Cash dividends paid	(4,714)	(4,527)	(4,370)
Net Cash (Used in) Provided by Financing Activities	(7,717)	33,380	(10,709)
Net Increase (Decrease) in Cash and Cash Equivalents	7,164	(2,366)	4,513
CASH AND CASH EQUIVALENTS - BEGINNING	10,010	12,376	7,863
CASH AND CASH EQUIVALENTS - ENDING	17,174	10,010	12,376
Supplemental Disclosure of Cash Flow Information
Cash payments for: Interest paid	3,542	3,267	3,264
Cash payments for: Income taxes paid, net of refunds	1,535	2,315	2,645
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate and repossession of other assets	3,246	3,880	4,704
Dividends payable	1,331	$ 1,147	$ 1,100
Merger with Delaware Bancshares, Inc.
Noncash assets acquired: Securities available-for-sale	208,488
Noncash assets acquired: Regulatory stock	279
Noncash assets acquired: Loans	116,674
Noncash assets acquired: Premises and equipment, net	7,292
Noncash assets acquired: Accrued interest receivable	1,626
Noncash assets acquired: Bank-owned life insurance	14,762
Noncash assets acquired: Core deposit intangibles	449
Noncash assets acquired: Deferred tax assets	3,034
Noncash assets acquired: Other assets	3,281
Noncash assets acquired: Goodwill	1,616
Total Noncash assets acquired	357,501
Liabilities assumed:
Time deposits	71,342
Deposits other than time deposits	255,921
Borrowings	21,232
Accrued interest payable	95
Other liabilities	7,873
Total Liabilities assumed	356,463
Net Noncash Assets Acquired	1,038
Cash Acquired	$ 14,977

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Nature of Operations

12 Months Ended

Dec. 31, 2016

Basis of Presentation [Abstract]

NATURE OF OPERATIONS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Norwood Financial Corp (Company) is a one bank holding company. Wayne Bank (Bank) is a

wholly-owned subsidiary of the Company. The Bank is a state-chartered bank located in Honesdale, Pennsylvania. The Company derives substantially all of its income from bank-related services which include interest earnings on commercial mortgages, residential real estate mortgages, commercial and consumer loans, as well as interest earnings on investment securities and fees from deposit services to its customers. The Company is subject to regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located within its markets in northeastern Pennsylvania and the Southern Tier of New York. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and Delaware and Sullivan Counties, New York.  Accordingly, the Bank has extended credit primarily to commercial entities and individuals in these areas whose ability to honor their contracts is influenced by the region’s economy. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of related borrowers.

Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

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

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

Regulatory Stock

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2016.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. 

Loans Acquired

Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2016 and 2015, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2016 and 2015, were $232,000 and $261,000, respectively.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance

The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill

In connection with two acquisitions the Company recorded goodwill in the amount of $11.3 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2016, 2015 and 2014.

Other Intangible Assets

At December 31, 2016, the Company had other intangible assets of $612,000 which is net of accumulated amortization of $732,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2015, the Company had other intangible assets of $285,000 which was net of accumulated amortization of $610,000.  Amortization expense related to other intangible assets was $122,000,  $105,000 and $121,000 for the years ended December 31, 2016, 2015 and 2014. 

As of December 31, 2016, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2017	$	150
2018		126
2019		101
2020		77
2021		52
Thereafter		106
	$	612

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2016 or 2015 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs

Advertising costs are expensed as incurred.

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 less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Employee Benefit Plans

The Companyhas a defined contributory profit-sharing plan which includes provisions of a 401 (k) plan.  The Company’s contributions are expensed as the cost is incurred.

The Company has several supplemental executive retirement plans.  To fund the benefits under these plans, the Company is the owner of single premium life insurance policies on the particiapants.

The Company provides pension benefits to eligible employees.  The Company’s funding policy is to contribute the minimum required contributions annually.

Stock Option Plans

The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

Restricted Stock

The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

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.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

Trust Assets

Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and defined benefit pension obligations, 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting

The Company acts as an independent community financial services provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.  The Company is currently assessing practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements.  Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1% increase in assets and liabilities.  The Company also anticipates additional disclosures to be provided at adoption.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after    December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The amendments in this Update should be applied using a retrospective transition method to each period presented.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which represents changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.  Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

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Securities

12 Months Ended

Dec. 31, 2016

Securities [Abstract]

SECURITIES

NOTE 3 - SECURITIES

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

	December 31, 2016
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,005	$	-	$	(8)	$	1,997
States and political subdivisions		127,585		884		(3,368)		125,101
Corporate obligations		10,255		37		(180)		10,112
Mortgage-backed securities-
government sponsored entities		169,124		26		(4,220)		164,930
Total debt securities		308,969		947		(7,776)		302,140
Equity securities-financial services		320		104		-		424
	$	309,289	$	1,051	$	(7,776)	$	302,564

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

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

	December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities	$	1,997	$	(8)	$	-	$	-	$	1,997	$	(8)
States and political subdivisions		90,109		(3,362)		205		(6)		90,314		(3,368)
Corporate obligations		6,895		(180)		-		-		6,895		(180)
Mortgage-backed securities-government sponsored entities		152,614		(3,912)		9,967		(308)		162,581		(4,220)
	$	251,615	$	(7,462)	$	10,172	$	(314)	$	261,787	$	(7,776)

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	6,058	$	(71)	$	2,109	$	(37)	$	8,167	$	(108)
States and political subdivisions		9,086		(99)		1,417		(13)		10,503		(112)
Corporate obligations		2,221		(4)		-		-		2,221		(4)
Mortgage-backed securities-government sponsored entities		40,300		(432)		16,595		(513)		56,895		(945)
	$	57,665	$	(606)	$	20,121	$	(563)	$	77,786	$	(1,169)

The Company has 235 debt securities in the less than twelve month category and 12 debt securities in the twelve months or more category as of December 31, 2016.  In management’s opinion, the unrealized losses on securities reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2016.  Management believes that all other unrealized losses represent temporary impairment of the securities, and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The amortized cost and fair value of debt securities as of December 31, 2016 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	2,240	$	2,243
Due after one year through five years		24,272		23,996
Due after five years through ten years		45,285		43,577
Due after ten years		68,048		67,394
		139,845		137,210
Mortgage-backed securities - government sponsored entities		169,124		164,930
	$	308,969	$	302,140

Gross realized gains and gross realized losses on sales of securities available for sale were $284,000 and $0, respectively, in 2016, compared to $626,000 and $0, respectively, in 2015, and $1,199,000 and $29,000, respectively, in 2014. The proceeds from the sales of securities totaled $110,748,000,$44,976,000 and$66,263,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Securities with a carrying value of $230,263,000 and $97,671,000 at December 31, 2016 and 2015, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.  The increase reflects pledging requirements resulting from the acquisition of Delaware.

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Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2016

Loans Receivable and Allowance for Loan Losses [Abstract]

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Set forth below is selected data relating to the composition of the loan portfolio at December 31 (in thousands):

	December 31, 2016				December 31, 2015
Real Estate:
Residential	$	237,177	33.2	%	$	161,820	28.9	%
Commercial		320,187	44.8			279,123	49.8
Construction		19,709	2.8			18,987	3.4
Commercial, financial and agricultural		85,508	12.0			71,090	12.7
Consumer loans to individuals		51,524	7.2			29,231	5.2
Total loans		714,105	100.0	%		560,251	100.0	%
Deferred fees, net		(216)				(326)
Total loans receivable		713,889				559,925
Allowance for loan losses		(6,463)				(7,298)
Net loans receivable	$	707,426			$	552,627

The following table presents the components of the purchase accounting adjustments related to the purchased credit-impaired loans acquired:

(In Thousands)		July 31, 2016
Contractually required principal and interest	$	2,621
Non-accretable discount		(1,014)
Expected cash flows		1,607
Accretable discount		(239)
Estimated fair value	$	1,368

Changes in the accretable yield for purchased credit-impaired loans were as follows for the twelve months ended December 31:

(In thousands)

	2016		2015		2014
Balance at beginning of period	$	-	$	8	$	20
Additions		239		-		-
Accretion		(30)		(1)	(12)	(12)
Reclassification and other		(1)		(7)	-	-
Balance at end of period	$	208	$	-	$	8

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

	December 31, 2016		December 31, 2015
Outstanding Balance	$	1,821	$	498
Carrying Amount	$	1,386	$	498

There were no material increases or decreases in the expected cash flows of these loans  since the acquisition date. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality.  As of December 31, 2016, for loans that were acquired prior to 2016 with or without specific evidence of deterioration in credit quality, adjustments to the allowance for loan losses have been accounted for through the allowance for loan loss adequacy calculation. For loans that were acquired in 2016 with or without specific evidence of deterioration in credit quality, there were no adjustments to the allowance for loan losses calculation.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  The system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans identified as impaired are evaluated independently.  The Company does not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

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

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2016
Individually evaluated for  impairment	$	23	$	2,601	$	-	$	-	$	-	$	2,624
Loans acquired with deteriorated credit quality		821		565		-		-		-		1,386
Collectively evaluated for impairment		236,333		317,021		19,709		85,508		51,524		710,095
Total Loans	$	237,177	$	320,187	$	19,709	$	85,508	$	51,524	$	714,105

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2015
Individually evaluated for  impairment	$	28	$	8,659	$	-	$	43	$	-	$	8,730
Loans acquired with deteriorated credit quality		140		358		-		-		-		498
Collectively evaluated for impairment		161,652		270,106		18,987		71,047		29,231		551,023
Total Loans	$	161,820	$	279,123	$	18,987	$	71,090	$	29,231	$	560,251

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

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2016	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		2,601		3,427		-
Subtotal		2,624		3,455		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		2,601		3,427		-
Total Impaired Loans	$	2,624	$	3,455	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

The following information for impaired loans is presented for the years ended December 31, 2016, 2015 and 2014:

	Average Recorded	Average Recorded					Interest Income
		Investment					Recognized
	2016		2015			2014	2016		2015			2014
	(In thousands)
Total:
Real Estate Loans
Residential	$	25	$	159	$	233	$	-	$	4	$	5
Commercial		2,671		8,847		7,492		91		526		503
Commercial Loans		-		9		-		-		2		-
Total Loans	$	2,696	$	9,015	$	7,725	$	91	$	532	$	508

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.  As of December 31, 2016, troubled debt restructured loans totaled $1.5 million and resulted in specific reserves of $0.  During 2016, there were no new loan relationships identified as troubled debt restructurings, while one loan with a balance of $5.0 million as of December 31, 2015 was transferred to Foreclosed Real Estate Owned during 2016 as a result of foreclosure on the property and one loan relationship with a balance of $82,000 as of December 31, 2015 was charged-off in 2016. During 2016, the Company recognized charge-offs totaling $2.6 million on loans classified as troubled debt restructurings. 

As of December 31, 2015, troubled debt restructured loans totaled $6.8 million and resulted in specific reserves of $1,613,000.  During 2015, there were two new loan relationships identified as troubled debt restructurings totaling $176,000 based on executed modification agreements, while one loan with a balance of $1.7 million as of December 31, 2014 was transferred to Foreclosed Real Estate Owned during 2015 as a result of foreclosure on the property. During 2015, the Company recognized charge-offs totaling $1.3 million on loans classified as troubled debt restructurings.  Additionally, the Company recognized expenses of $322,000 in foreclosed real estate owned expense related to a property which was previously classified as a troubled debt restructuring.

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets.  As of December 31, 2016 and 2015, foreclosed real estate owned totaled $5,302,000 and $2,847,000, respectively.  As of December 31, 2016, included within foreclosed real estate owned is $297,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end.  As of December 31, 2016, the Company has initiated formal foreclosure proceedings on $421,000 of consumer residential mortgage loans.

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as nonperformance, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis.  Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration.  Loan Review also annually reviews relationships of $1,000,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of  December 31, 2016 and December 31, 2015 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2016
Commercial real estate loans	$	310,432	$	5,432	$	4,323	$	-	$	-	$	320,187
Commercial		84,600		885		23		-		-		85,508
Total	$	395,032	$	6,317	$	4,346	$	-	$	-	$	405,695

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Commercial real estate loans	$	267,892	$	1,837	$	9,394	$	-	$	-	$	279,123
Commercial		71,047		-		43		-		-		71,090
Total	$	338,939	$	1,837	$	9,437	$	-	$	-	$	350,213

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2016 and December 31, 2015 (in thousands):

	Performing		Nonperforming		Total
December 31, 2016
Residential real estate loans	$	235,829	$	1,137	$	237,177
Construction		19,681		28		19,709
Consumer loans to individuals		51,524		-		51,524
Total	$	307,034	$	1,165	$	308,410

	Performing		Nonperforming		Total
December 31, 2015
Residential real estate loans	$	161,380	$	440	$	161,820
Construction		18,987		-		18,987
Consumer loans to individuals		29,231		-		29,231
Total	$	209,598	$	440	$	210,038

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2016 and December 31, 2015 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2016
Real Estate loans
Residential	$	234,790	$	986	$	264	$	1	$	1,136	$	2,387	$	237,177
Commercial		318,979		445		1		-		762		1,208		320,187
Construction		19,681		-		-		-		28		28		19,709
Commercial  loans		85,355		143		10		-		-		153		85,508
Consumer  loans		51,456		39		29		-		-		68		51,524
Total	$	710,261	$	1,613	$	304	$	1	$	1,926	$	3,844	$	714,105

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Charge Offs		(123)		(2,711)		-		(15)		(102)		(2,951)
Recoveries		6		15		-		-		45		66
Provision for loan losses		140		1,813		(12)		(75)		184		2,050
Ending balance, December 31, 2016	$	1,092	$	4,623	$	78	$	307	$	363	$	6,463
Ending balance individually evaluated for impairment	$	-	$	3	$	-	$	-	$	-	$	3
Ending balance collectively evaluated for impairment	$	1,092	$	4,620	$	78	$	307	$	363	$	6,460

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Charge Offs		(224)		(2,883)		-		-		(91)		(3,198)
Recoveries		20		-		-		-		21		41
Provision for loan losses		(50)		4,499		(132)		141		122		4,580
Ending balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Ending balance individually evaluated for impairment	$	-	$	1,613	$	-	$	-	$	-	$	1,613
Ending balance collectively evaluated for impairment	$	1,069	$	3,893	$	90	$	397	$	236	$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluated for impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

The recorded investment in impaired loans, not requiring an allowance for loan losses was $2,624,000 (net of charge-offs against the allowance for loan losses of $831,000) and $2,855,000 (net of charge-offs against the allowance for loan losses of $1,971,000) at December 31, 2016 and 2015, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $0 and $6,373,000 (net of a charge-off against the allowance for loan losses of $73,000) at December 31, 2016 and 2015, respectively. The specific reserve related to impaired loans was $0 for 2016 and $1,613,000 for 2015. For the years ended December 31, 2016 and 2015, the average recorded investment in these impaired loans was $2,696,000, and $9,015,000, respectively, and the interest income recognized on these impaired loans was $91,000 and $532,000, respectively.

During the period ended December 31, 2016, the allowance for commercial real estate loans decreased from $5,506,000 to $4,623,000.  This $883,000 decrease in the required allowance was due to a $1,610,000 decrease inthe specific reserve component resulting from the transfer of an impaired loan with a specific reserve allowance of $1,596,000 at December 31, 2015 to foreclosed real estate during 2016.  This reduction was partially offset by a $419,000 increase in the allowance for commercial real estate loans due to an increase in the historical loss factor from 0.70% at December 31, 2015 to 0.80% on December 31, 2016.

During the period ended December 31, 2015, the allowance for residential real estate loans decreased from $1,323,000 to $1,069,000.  This $254,000 decrease in the required allowance was due primarily to a decrease in the historical loss factor from 0.30% at December 31, 2014 to 0.23% on December 31, 2015.  During the same period, the required allowance for commercial real estate loans increased from $3,890,000 at December 31, 2014 to $5,506,000 on December 31, 2015.  This increase can be attributed to a $1,320,000 increase in the specific reserve component.

 Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $163,000,  $515,000 and $451,000 for 2016, 2015 and 2014, respectively.

As of December 31, 2016 and 2015, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2016, the highest concentrations are in commercial rentals and the hospitality lodging industry, with loans outstanding of $71.8 million, or 70.7% of bank capital, to commercial rentals, and $50.9 million, or 50.1% of bank capital to the hospitality and lodging industry.  Charge-offs on loans within these concentrations were $31,000,  $643,000 and $422,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $54,000 and $0, respectively, in 2016 compared to $113,000 and $0, respectively, in 2015 and $150,000 and $0, respectively, in 2014.  The proceeds from the sales of residential mortgage loans totaled $1.7 million, $4.4 million and $4.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.  As of December 31, 2016 and 2015, the outstanding value of loans serviced for others totaled $35.5 million and $32.9 million, respectively.

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Premises and Equipment

12 Months Ended

Dec. 31, 2016

Premises and Equipment [Abstract]

PREMISES AND EQUIPMENT

NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at December 31 are as follows:

	2016		2015
	(In Thousands)
Land and improvements	$	2,925	$	2,316
Buildings and improvements		17,662		9,857
Furniture and equipment		6,351		4,415
		26,938		16,588
Accumulated depreciation		(13,407)		(10,116)
	$	13,531	$	6,472

Depreciation expense totaled $726,000,  $551,000 and $572,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Certain facilities are leased under various operating leases. Rental expense for these leases was $367,000,  $341,000 and $338,000, respectively, for the years ended December 31, 2016, 2015 and 2014. Future minimum rental commitments under noncancellable leases as of December 31, 2016 were as follows (in thousands):

2017	$	381
2018		381
2019		386
2020		394
2021		311
Thereafter		1,617
	$	3,470

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Deposits

12 Months Ended

Dec. 31, 2016

Deposits [Abstract]

DEPOSITS

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $250,000 or more were $63,982,000and $22,041,000 at December 31, 2016 and 2015, respectively. Included in deposit accounts are deposits of three customer relationships totaling $84,095,000 at December 31, 2016.

At December 31, 2016, the scheduled maturities of time deposits are as follows (in thousands):

2017	$	174,814
2018		53,523
2019		34,710
2020		15,464
2021		16,867
Thereafter		179
	$	295,557

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Borrowings

12 Months Ended

Dec. 31, 2016

Borrowings [Abstract]

BORROWINGS

NOTE 7 – BORROWINGS

Short-term borrowings at December 31 consist of the following:

	2016		2015
	( In Thousands)
Securities sold under agreements to repurchase	$	32,811	$	33,563
Federal Home Loan Bank short-term borrowings		-		19,672
	$	32,811	$	53,235

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2016			2015
	(Dollars In Thousands)
Average balance during the year	$	41,593		$	34,057
Average interest rate during the year		0.31	%		0.25	%
Maximum month-end balance during the year	$	52,672		$	55,183
Weighted average interest rate at the end of the year		0.32	%		0.36	%

Securities sold under agreements to repurchase generally mature within one day to one year from the transaction date. Securities with an amortized cost and fair value of $35,770,000 and $35,147,000 at December 31, 2016 and $36,797,000 and $36,316,000 at December 31, 2015, respectively, were pledged as collateral for these agreements. The securities underlying the agreements were under the Company’s control.

The collateral pledged for repurchase agreements that are classified as secured borrowings is summarized as follows (in thousands):

	As of December 31, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$34,917	$0	$0	$230	$35,147
Total liability recognized for repurchase agreements					$32,811

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $146,517,000 which expires in May, 2017.  There were no borrowings under this line of credit at December 31, 2016.  At December 31, 2015, there were $19,672,000 of borrowings outstanding on this line.  The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000 which expires on June 30, 2017.  There were no borrowings under this line of credit at December 31, 2016 and 2015. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2016. There were no borrowings under this line of credit at December 31, 2016 and December 31, 2015.  The Company also has a line of credit commitment from Zions Bank for $17,000,000.  There were no borrowings under this line of credit at December 31, 2016 and December 31, 2015.

Other borrowings consisted of the following at December 31, 2016 and 2015:

	2016		2015
	(In Thousands)
Notes with the FHLB:
Convertible note due January 2017 at 4.71%	$	10,000	$	10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		4,025		8,000
Amortizing fixed rate borrowing due January 2018 at 0.91%		662		1,267
Amortizing fixed rate borrowing due December 2018 at 1.42%		1,634		2,434
Amortizing fixed rate borrowing due June 2020 at 1.49%		7,078		9,033
Amortizing fixed rate borrowing due December 2020 at 1.71%		4,034		5,000
Amortizing fixed rate borrowing due March 2022 at 1.75%		4,568		5,392
	$	32,001	$	41,126

The convertible note contains an option which allows the FHLB, at quarterly intervals, to change the note to an adjustable-rate advance at three-month LIBOR plus 17 basis points. If the note is converted, the option allows the Bank to put the funds back to the FHLB at no charge.

Contractual maturities and scheduled cash flows of other borrowings at December 31, 2016 are as follows (in thousands):

2017	$	19,253
2018		4,741
2019		3,930
2020		2,951
2021		899
2022		227
	$	32,001

The Bank’s maximum borrowing capacity with the FHLB was $316,832,000 of which $32,001,000 was outstanding at December 31, 2016. Advances from the FHLB are secured by qualifying assets of the Bank.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2016

Employee Benefit Plans [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 8 – EMPLOYEE BENEFIT PLANS

The Company has a defined contributory profit-sharing plan which includes provisions of a 401(k) plan. The plan permits employees to make pre-tax contributions up to 15% of the employee’s compensation, not to exceed the limits set by the Internal Revenue Service. The amount of contributions to the plan, including matching contributions, is at the discretion of the Board of Directors. All employees over the age of 21 are eligible to participate in the plan and receive Company contributions after one year of employment. Eligible employees are able to contribute to the Plan at the beginning of the first quarterly period after their date of employment.  Employee contributions vest immediately, and any Company contributions are fully vested after five years. The Company’s contributions are expensed as the cost is incurred, funded currently, and amounted to $538,000,  $445,000 and $445,000 for the years ended December 31, 2016, 2015 and 2014, respectively. 

    The Company has a non-qualified supplemental executive retirement plan for the benefit of certain executive officers. At December 31, 2016 and 2015, other liabilities include $1,410,000 and $1,427,000 accrued under the Plan. Compensation expense includes approximately $121,000,  $122,000 and $124,000 relating to the supplemental executive retirement plan for 2016, 2015 and 2014, respectively.  To fund the benefits under this plan, the Company is the owner of single premium life insurance policies on participants in the non-qualified retirement plan. At December 31, 2016 and 2015, the cash value of these policies was $36,133,000 and $18,820,000, respectively. 

     As a result of its acquisition of Delaware, the Company has several Supplemental Executive Retirement Plans (“SERPs”) intended as a long-term incentive to designated officers and key employees.  These SERPs provide for annual payments to these individuals after retirement.  The Company’s expense pertaining to these plans amounted to $38,000 in 2016.  At December 31, 2016, other liabilities included $1,563,000 related to these plans.   

The Company provides postretirement benefits in the form of split-dollar life arrangements to employees who meet the eligibility requirements. The net periodic postretirement benefit expense included in salaries and employee benefits was $26,000,  $89,000 and $87,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Through its acquisition of Delaware, the Company also has a plan that provides certain retiring executives, at normal retirement age of 65 or early retirement at age 60, if certain criteria are met, a yearly supplemental benefit at a fixed dollar amount.  The Company expensed $15,000 under this plan in 2016.  At December 31, 2016, the liability under this plan was $602,000.

Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans.  These plans allow directors to defer current director fees and provide a benefit payment for a period of five to fifteen years.  The Company expensed $1,000 under these plans in 2016.  At December 31, 2016, the liability under these plans was $413,000.

Certain key executives have change in control agreements with the Company.  These agreements provide certain potential benefits in the event of termination of employment following a change in control.

The Company participates in the Pentegra Mulitemployer Defined Benefit Pension Plan (EIN 13-5645888 and Plan # 333) as a result of its acquisition of North Penn.  As of December 31, 2016 and 2015, the Company’s Plan was 80.0% and 79.9% funded, respectively, and total contributions made are not more than 5% of the total contributions to the Plan.  The Company’s expense related to the Plan was $54,000 in 2016, $48,000 in 2015 and $17,000 in 2014.  During the plan years ending December 31, 2016, 2015 and 2014, the Company made contributions of $54,000,  $48,000 and $17,000, respectively.

As a result of its acquisition of Delaware, the Company is a member of the New York State Bankers Retirement System.  Substantially all full-time employees who were former employees of Delaware are covered under this defined benefit pension plan (the “Delaware Plan”).  The Company’s funding policy is to contribute the minimum required contribution annually.  Pension cost is computed using the projected unit credit actuarial cost method.  Effective December 31, 2012, the Plan was closed to new participants and accrued benefits were frozen.

The following table sets forth the projected benefit obligation and change in plan assets for the defined benefit pension plan at December 31:

(in Thousands of Dollars)		2016
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	-
Projected benefit obligation acquired		(8,843)
Service cost		(28)
Interest cost		(113)
Actuarial loss		662
Benefits paid		238
Benefit obligation at end fo year	$	(8,084)
Change in plan assets:
Fair value of plan assets at beginning of year	$	-
Fair value acquired		6,932
Actual return on plan assets		12
Benefits paid		(242)
Fair value of assets at end of year		6,702
Funded status at end of year	$	(1,382)

      The Plan paid $238,000 in benefit payments in 2016.  Estimated benefit payments under the Plan are expected to be approximately $482,000,  $490,000,  $480,000,  $481,000 and $471,000 for the next five years.  Payments are expected to be approximately $2,263,000 in total for the five-year period ending December 31, 2026.  No contributions were made in 2016.  The Company is not required to make any contributions to the Plan in 2017.The decrease in the projected discount rate contributed approximately $117,000 to the overall increase in the projected benefit obligation for the year ended December 31, 2016. 

The accumulated benefit obligation for the deferred benefit pension plan was $8,084,000 at December 31, 2016.

The following table sets forth the amounts recognized in accumulated other comprehensive income (in thousands):

Transition asset	$	-
Prior service credit		-
Gain		490
Total	$	490

         Net pension cost included the following components:

(in Thousands of Dollars)		2016
Service cost benefits earned during the period	$	28
Interest cost on projected benefit obligaion		113
Actual return on assets		(180)
Net amortization and deferral		-
NET PERIODIC PENSION COST	$	(39)

         The weighted average assumptions used to determine the benefit obligation at December 31 are as follows:

2016

Discount rate3.90%

    The weighted average assumptions used to determine the net periodic pension cost at December 31 are as follows:

	2016
Discount rate	3.18	%
Expected long-term return on plan assets	6.50	%
Rate of compensation increase	0.00	%

          The expected long-term return on plan assets was determined based upon expected returns on individual asset types included in the asset portfolio.

    The Plan’s weighted-average asset allocations at December 31, by asset category, are as follows:

	2016
Cash equivalents	6.1	%
Equity securities	47.9	%
Fixed income securities	42.6	%
Other	3.4	%
	100.00	%

The Plan’s overall investment strategy is to achieve a mix of approximately 97 percent of investments for long-term growth and 3 percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers.  The target allocation for pension assets is 0 to 20 percent cash equivalents, 40 to 60 percent equity securities, 40 to 60 percent fixed income securities, and 0 to 5 percent other.  Cash equivalents consist primarily of government issues and short-term investment funds.  Equity securities primarily include investments in common stock, depository receipts, preferred stock, and real estate investment trusts.  Fixed income securities include corporate bonds, government issues, mortgaged backed securities, municipals, and other asset backed securities.

The fair value of the Plan’s assets, by asset category, is as follows:

		December 31, 2016
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Foreign currencies		$	11	$	11	$	-	$	-
Short-term investment funds			33		-		33		-
Equity securities:
Common stock			1,430		1,430		-		-
Depository receipts			42		42		-		-
Commingled Pension Trust Fund			1,680		-		1,680		-
Fixed income securities:
Corporate bonds			307		-		307		-
Government issue			1,112		-		1,112		-
Mortgage-backed securities			4		-		4		-
Collateralized mortgage obligations			68		-		68		-
Commingled Pension Trust Fund			1,732		-		1,732		-
Other			283		-		-		283
Total		$	6,702	$	1,483	$	4,936	$	283

The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31, 2016 (in thousands of dollars).

Balance, December 31, 2015$-

Purchase-

Unrealized gain283

Balance, December 31, 2016$283

FASB authoritative guidance on accounting for deferred compensation and postretirement benefit aspects of endorsement split-dollar life insurance arrangements requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance that provides a benefit to an employee that extends to postretirement periods.  The life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s obligation to the employee.  Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement.  This expense is included in the SERP plan expense for 2016 discussed above.  If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the FASB authoritative guidance on employer’s accounting for postretirement benefits other than pensions.  The accumulated postretirement benefit obligation was $405,000 at December 31, 2016.

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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Taxes [Abstract]

INCOME TAXES

NOTE 9 - INCOME TAXES

The components of the provision for federal income taxes are as follows:

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Current	$	1,138	$	2,019	$	2,657
Deferred		746		(387)		(51)
	$	1,884	$	1,632	$	2,606

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as, the allowance for loan losses and loan fees are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.

Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2016		2015		2014
Tax at statutory rates	35.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(13.1)		(11.3)		(7.7)
Nondeductible merger expenses	2.7		-		-
Incentive stock options	0.3		0.3		0.4
Earnings and proceeds on life insurance	(2.8)		(1.8)		(1.5)
Other	(0.2)		0.4		0.2
	21.9	%	21.6	%	25.4	%

The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:

	2016		2015
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,197	$	2,481
Deferred compensation		1,430		485
Purchase price adjustment		-		884
Core deposit intangible		485		-
Prepaid expenses		267		-
Pension liability		655		-
Foreclosed real estate valuation allowance		19		305
AMT tax credit carryforward		260		-
Net operating loss carryforward		2,147		-
Net unrealized loss on securities		2,286		-
Other		310		182
Total Deferred Tax Assets		10,056		4,337
Deferred tax liabilities:
Premises and equipment		347		245
Deferred loan fees		192		172
Net unrealized gains on securities		-		251
Net unrealized gain on pension liability		171		-
Purchase price adjustment		357		-
Total Deferred Tax Liabilities		1,067		668
Net Deferred Tax Asset	$	8,989	$	3,669

The Company’s federal and state income tax returns for taxable years through 2013 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

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Regulatory Matters and Stockholders' Equity

12 Months Ended

Dec. 31, 2016

Regulatory Matters and Stockholders' Equity [Abstract]

REGULATORY MATTERS AND STOCKHOLDERS' EQUITY

NOTE 10 - REGULATORY MATTERS AND STOCKHOLDERS’ EQUITY

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 and Common Equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2016 and 2015, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2016, the most recent notification from the regulators has categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company’s actual capital amounts and ratios are presented in the table:

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provision
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2016:
Total capital (to risk-weighted assets)	$	107,765	14.12	%	≥$61,057	≥8.00	%	≥$76,321	≥10.00	%
Tier 1 capital (to risk-weighted assets)		101,302	13.27		≥45,793	≥6.00		≥61,057	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		101,302	13.27		≥34,344	≥4.50		≥49,609	≥6.50
Tier 1 capital (to average assets)		101,302	9.16		≥44,251	≥4.00		≥55,314	≥5.00
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	97,750	17.09	%	≥$45,751	≥8.00	%	≥$57,189	≥10.00	%
Tier 1 capital (to risk-weighted assets)		90,681	15.86		≥34,313	≥6.00		≥45,751	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		90,681	15.86		≥25,735	≥4.50		≥37,173	≥6.50
Tier 1 capital (to average assets)		90,681	12.40		≥29,252	≥4.00		≥36,565	≥5.00

The Bank’s ratios do not differ significantly from the Company’s ratios presented above.

Effective January 1, 2015, the Company and the Bank became subject to new regulatory capital rules which, among other things, impose a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk-weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The new rules also require unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is exercised, which the Company and the Bank have done.  The final rule limits a banking organization’s dividends, stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers, if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements.  The capital conservation buffer requirements will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer will be effective.  The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of December 31, 2016.

The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank. The amount of these restricted cash reserve balances at December 31, 2016 and 2015 was approximately $1,099,000 and $437,000, respectively.

Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2016, $63,246,000 of retained earnings were available for dividends without prior regulatory approval, subject to the regulatory capital requirements discussed above. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including the Company, unless such loans are collateralized by specific obligations.

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Stock Based Compensation

12 Months Ended

Dec. 31, 2016

Stock-Based Compensation [Abstract]

STOCK BASED COMPENSATION

NOTE 11 - STOCK BASED COMPENSATION

The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the Annual Meeting on April 26, 2006. An aggregate of 275,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 44,000 shares for awards to outside directors. Under this plan, the Company granted 7,423 options to employees in 2015, 12,500 options to employees in 2014, and 28,600 options, which included 4,000 options granted to outside directors in 2013.  No options were granted under this plan in 2016.  As of December 31, 2016, there were 4,058 shares available for stock option awards to outside directors.

At the Annual Meeting held on April 22, 2014, the Company’s shareholders approved the Norwood Financial Corp 2014 Equity Incentive Plan. An aggregate of 250,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 40,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 42,000 shares of restricted stock awards for officers and 8,000 shares of restricted stock awards for outside directors. Under this plan, the Company granted 24,450 shares in 2016 which included 16,000 options to employees, 6,000 shares of restricted stock to officers and 2,450 shares of restricted stock to directors.  In 2015, the Company granted 13,727 shares which included 7,077 options to employees, 4,250 shares of restricted stock to officers and 2,400 shares of restricted stock to directors.  In 2014, the Company granted 9,300 shares, which included 2,800 shares of restricted stock to outside directors.  All shares granted in 2014 were for restricted stock.  The restricted shares vest over a five-year period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the company’s restricted stock plan.  Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.  As of December 31, 2016, there were 202,523 shares available for future awards under this plan, which includes 170,173 shares available for officer awards and 32,350 shares available for awards to outside directors.  Included in these totals are 25,250 shares available for restricted stock awards to officers and 350 shares available for restricted stock awards to outside directors.

Total unrecognized compensation cost related to stock options was $93,000 as of December 31, 2016, $71,000 as of December 31, 2015 and $66,000 as of December 31, 2014.  Salaries and employee benefits expense includes $71,000,  $66,000 and$154,000 of compensation costs related to options for the years ended December 31, 2016, 2015 and 2014, respectively.   Compensation costs related to restricted stock amounted to $89,000,  $55,000 and$0 for the years ended December 31, 2016, 2015 and 2014, respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2016 and 2015 was $579,000 and $398,000 respectively.  Net income was reduced by $130,000,  $92,000 and $146,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:

	2016					2015					2014
		Weighted					Weighted					Weighted
		Average		Average			Average		Average			Average		Aggregate
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	194,521	$	26.91			206,463	$	26.74			219,540	$	26.64
Granted	16,000		33.56			14,500		28.55			12,500		29.08
Exercised	(30,823)		27.34			(16,859)		26.19			(25,577)		27.05
Forfeited	(19,269)		27.86			(9,583)		27.02			-		-
Outstanding, end of year	160,429	$	27.37	$	931,963	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640
Exercisable, end of year	144,429	$	26.39	$	931,963	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640

Exercise prices for options outstanding as of December 31, 2016 ranged from $24.44 to $33.56 per share. The weighted average remaining contractual life is 5.6 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Years Ended December 31,
	2016		2015		2014
Dividend yield		3.93%		3.77%		3.57%
Expected life		10 years		10 years		10 years
Expected volatility		24.84%		24.35%		24.97%
Risk-free interest rate		2.44%		2.28%		2.17%
Weighted average fair value of options granted	$	5.79	$	4.89	$	5.30

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Proceeds from stock option exercises totaled $843,000 in 2016. Shares issued in connection with stock option exercises are issued from available treasury shares. If no treasury shares are available, new shares are issued from available authorized shares. During 2016, all the shares issued in connection with stock option exercises, 30,823 shares in total, were issued from available treasury shares.

As of December 31, 2016, outstanding stock options consist of the following:

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	12,650	$	28.41	1.0	12,650	$	28.41
	13,200		25.00	2.0	13,200		25.00
	12,650		25.99	3.0	12,650		25.99
	1,100		24.44	3.2	1,100		24.44
	15,229		25.25	4.0	15,229		25.25
	19,800		24.97	5.0	19,800		24.97
	21,450		27.05	6.0	21,450		27.05
	1,100		27.55	6.0	1,100		27.55
	2,000		28.95	6.7	2,000		28.95
	21,250		26.90	7.0	21,250		26.90
	10,000		29.08	8.0	10,000		29.08
	14,000		28.55	9.0	14,000		28.55
	16,000		33.56	10.0	-		-
Total	160,429				144,429

A summary of the Company’s restricted stock activity and related information for the years ended December 31 is as follows:

	2016		2015
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	13,810	$28.82	9,300	$29.08
Granted	8,450	33.56	6,650	28.55
Vested	(3,120)	28.85	(1,860)	29.08
Forfeited	(450)	28.80	(280)	29.08
Non-vested at December 31	18,690	$30.96	13,810	$28.82

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Earnings Per Share

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 12 - EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share:

	Years Ended December 31,
	2016		2015		2014
	(In Thousands, Except Per Share Data)
Numerator, net income	$	6,711	$	5,908	$	7,657
Denominator:
Weighted average shares outstanding		3,877		3,682		3,645
Less:  Weighted average unvested restricted shares		(14)		(9)		-
Denominator:  Basic earnings per share		3,863		3,673		3,645
Weighted average shares outstanding		3,863		3,682		3,645
Add:  Dilutive effect of stock options		22		9		12
Denominator:  Diluted earnings per share		3,885		3,691		3,657
Basic earnings per common share	$	1.74	$	1.60	$	2.10
Diluted earnings per common share	$	1.73	$	1.60	$	2.10

Stock options which had no intrinsic value because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 16,000,  14,000, and 12,500 for the years ended December 31, 2016, 2015 and 2014, respectively, based on the closing price of the Company’s common stock which was $33.14,  $28.75 and $29.05 at December 31, 2016, 2015 and 2014, respectively.

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Off-Balance Sheet Financial Instruments

12 Months Ended

Dec. 31, 2016

Off-Balance Sheet Financial Instruments [Abstract]

Off-Balance Sheet Financial Instruments

NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

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:

	December 31,
	2016		2015
	(In Thousands)
Commitments to grant loans	$	22,210	$	19,704
Unfunded commitments under lines of credit		54,789		48,641
Standby letters of credit		5,642		5,286
	$	82,641	$	73,631

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.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. 

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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2016

Fair Values of Financial Instruments [Abstract]

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.

The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e. supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2016 and 2015 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Available for Sale:
U.S. Treasury securities	$	1,997	$	-	$	1,997	$	-
States and political subdivisions		125,101		-		125,101		-
Corporate obligations		10,112		-		10,112		-
Mortgage-backed securities-government
sponsored entities		164,930		-		164,930		-
Equity securities-financial services		424		424		-		-
Total available for sale	$	302,564	$	424	$	302,140	$	-
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2016 and 2015 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Impaired Loans	$	2,624	$	-	$	-	$	2,624
Foreclosed real estate		5,302		-		-		5,302
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	1,473	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	1,151	Present value of future cash flows	Loan discount rate	4-5.25%  (5.11%)
				Probability of default
Foreclosed real estate owned	$	5,302	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7%  (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at December 31, 2016 and 2015.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities:

The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

As of December 31, 2016, the fair value investment in impaired loans totaled $2,624,000 which included seven loans which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2016, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $831,000 over the life of the loans.

As of December 31, 2015, the fair value investment in impaired loans totaled $9,228,000 which included three loans for $6,373,000 for which a valuation allowance of $1,613,000 had been provided based on the estimated value of the collateral or the present value of estimated cash flows, and twenty loans for $2,855,000 which did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.  As of December 31, 2015, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $2,044,000 over the life of the loans.

Mortgage servicing rights (generally carried at cost):

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is determined by estimating potential revenues and expenses of the various loan pools to arrive at a net cash flow stream, and then utilize present value methodologies on the cash flow stream at a current market yield.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

Restricted investment in Federal Home Loan Bank stock (carried at cost):

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Bank owned life insurance (carried at cost): 

The fair value is equal to the cash surrender value of the Bank owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost except certificates of deposit which are at fair value):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair values of the Bank’s financial instruments were as follows at December 31, 2016 and December 31, 2015 (In thousands):

	Fair Value Measurements at December 31, 2016
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	17,174	$	17,174	$	17,174	$	-	$	-
Securities		302,564		302,564		424		302,140		-
Loans receivable, net		707,426		716,661		-		-		716,661
Mortgage servicing rights		232		250		-		-		250
Regulatory stock		2,119		2,119		2,119		-		-
Bank owned life insurance		36,133		36,133		36,133		-		-
Accrued interest receivable		3,643		3,643		3,643		-		-
Financial liabilities:
Deposits		925,385		925,561		629,829		-		295,732
Short-term borrowings		32,811		32,811		32,811		-		-
Other borrowings		32,001		31,863		-		-		31,863
Accrued interest payable		1,069		1,069		1,069		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		559,416
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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Accumulated Other Comprehensive Income

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Income [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income (loss) (in thousands) by component, net of tax, for the years ended December 31, 2016 and 2015:

	Unrealized gains (losses)
	on available for sale		Unrealized gain on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2015	$	488	$	-	$	488
Other comprehensive loss before reclassification		(4,740)		318		(4,422)
Amount reclassified from accumulated other comprehensive income		(185)		-		(185)
Total other comprehensive loss		(4,925)		318		(4,607)
Balance as of December 31, 2016	$	(4,437)	$	318	$	(4,119)
	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the years ended December 31, 2016 and 2015:

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2016		2015
Unrealized gains on available for sale securities	$	284	$	626	Net realized gains on sales of securities
		(99)		(213)	Income tax expense
	$	185	$	413	Net of tax

(a) Amounts in parentheses indicate debits to net income.

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Acquisition of Delaware Bancshares, Inc.

12 Months Ended

Dec. 31, 2016

Acquisition of Delaware Bancshares, Inc. [Abstract]

ACQUISITION OF DELAWARE BANCSHARES, INC.

NOTE 16 – ACQUISITION OF DELAWARE BANCSHARES, INC.

 On July 31, 2016, Norwood Financial Corp. (the “Company”) closed on its acquisition of Delaware Bancshares, Inc. (“Delaware”)  pursuant to the terms of the Agreement and Plan of Merger, dated March 10, 2016, by and among the Company, Wayne Bank, Delaware and The National Bank of Delaware Countyd (the “Merger Agreement”). 

Pursuant to the terms of the Merger Agreement, Delaware was merged with and into the Company, with the Company as the surviving corporation of the merger (the “Merger”).  At the effective time of the Merger, each outstanding share of the common stock of Delaware was converted into, at the election of the holder but subject to the limitations and allocation and proration provisions set forth in the Merger Agreement, either $16.68 in cash or 0.6221 of a share of the common stock, par value $0.10 per share (the “Common Stock”) of the Company.  In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of Norwood common stock.  Immediately following the Merger, The National Bank of Delaware County (“NBDC”) was merged with and into Wayne Bank, a wholly-owned subsidiary of the Company, with Wayne Bank as the surviving entity.

In connection with the Merger, the Company assumed the obligations of Delaware under the Indenture, dated as of October 31, 2007, by and between Delaware, as issuer, and Wells Fargo Bank, National Association, as trustee (the “Indenture”) and Delaware’s Junior Subordinated Debt Securities, due January 1, 2038 (the “Debt Securities”) issued thereunder.  The Debt Securities were issued by Delaware in connection with a private placement completed on October 31, 2007 of $8.0 million of trust preferred securities issued through the Delaware Bancshares Capital Trust I (the “Trust”).  The proceeds from the initial sale of the trust preferred securities were used by the Trust to purchase the Debt Securities.  The Debt Securities bore interest at a variable rate which reset quarterly at LIBOR plus 2.4%, and were redeemable, in whole or in part, without penalty, at the option of the Company, beginning on January 1, 2013 and on any January 1, April 1, July 1 or October 1 thereafter.  The interest payments on the Debt Securities made by the Company were used to pay the quarterly distributions payable by the Trust to the holders of the trust preferred securities.  On October 3, 2016, the Company redeemed the Debt Securities and the trust preferred securities in full.

The acquired assets and assumed liabilities were measured at estimated fair values.  Management made significant estimates and exercised significant judgment in accounting for the acquisition.  Management measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, and historical loss factors of NBDC.  The Company also recorded an identifiable intangible asset representing the core deposit base of NBDC based on management’s evaluation of the cost of such deposits relative to alternative funding sources.  Management used significant estimates including the average lives of depository accounts, future interest rate levels, and the cost of servicing various depository products.  Management used market quotations to determine the fair value of investment securities.

The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration.  NBDC loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality.  Such loans were fair valued and the difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a non-accretable difference.  At the acquisition date, the Company recorded $1,410,000 of purchased credit-impaired loans subject to a non-accretable difference of $260,000.  The method of measuring carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such, the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans at amortized cost.

NBDC’s loans without evidence of credit deterioration were fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value.  Additionally, consideration was given to management’s best estimates of default rates and payment speeds.  At acquisition, NBDC’s loan portfolio without evidence of deterioration totaled $111,307,000 and was recorded at a fair value of $109,693,000.

The following table summarizes the purchase of Delaware Bancshares, Inc. as of July 31, 2016:

(Dollars in Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Delaware Bancshares, Inc. common shares settled for stock		694,114
Exchange Ratio		0.6221
Norwood Financial Corp. shares issued		431,605
Value assigned to Norwood Financial Corp. common share	$	28.15
Purchase price assigned to Delaware Bancshares, Inc. common shares			$	12,150
exchanged for Norwood Financial Corp.
Purchase Price Consideration - Cash for Common Stock
Delaware Bancshares, Inc. shares exchanged for cash		231,385
Purchase price paid to each Delaware Bancshares, Inc. common share exchanged for cash	$	16.68
Purchase price assigned to Delaware Bancshares, Inc. common shares exchanged for cash			$	3,860
Purchase price consideration - Cash-in-lieu of Fractional Shares				6
Total Purchase Price			$	16,016
Net Assets Acquired:
Delaware Bancshares, Inc. shareholders' equity	$	19,357
Delaware Bancshares, Inc. goodwill and intangibles		(7,640)
Total tangible equity		11,717
Adjustments to reflect assets acquired at fair value:
Investments		219
Loans
Interest rate		1,486
General credit		(1,614)
Specific credit - non-amortizing		(260)
Specific credit - amortizing		(239)
Core deposit intangible		449
Deferred loan fees		(296)
Premises and equipment		3,053
Allowance for loan and lease losses		1,651
Deferred tax assets		(1,417)
Other		(97)
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(252)
				14,400
Goodwill resulting from merger			$	1,616

The following condensed statement reflects the values assigned to Delaware Bancshares, Inc. net assets as of acquisition date:

(In Thousands)

Total purchase price			$	16,016
Net assets acquired:
Cash	$	14,977
Securities available for sale		208,488
Loans		116,674
Premises and equipment, net		7,292
Regulatory stock		279
Accrued interest receivable		1,626
Bank-owned life insurance		14,762
Core deposit intangible		449
Deferred tax assets		3,034
Other assets		3,282
Time deposits		(71,342)
Deposits other than time deposits		(255,921)
Borrowings		(21,232)
Accrued interest payable		(95)
Other liabilities		(7,873)
				14,400
Goodwill resulting from Delaware Bancshares, Inc., Merger			$	1,616

The Company recorded goodwill and other intangibles associated with the purchase of Delaware Bancshares, Inc. totaling $1,616,000.  Goodwill is not amortized, but is periodically evaluated for impairment.  The Company did not recognize any impairment during the twelve months ended December 31, 2016.  The carrying amount of the goodwill at December 31, 2016 related to the Delaware acquisition was $1,616,000.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. The core deposit intangible recorded with the purchase of Delaware is being amortized over ten years.  Such lives are also periodically reassessed to determine if any amortization period adjustments are required.  During the twelve months ended December 31, 2016, no such adjustments were recorded.  The identifiable intangible assets consist of a core deposit intangible which is being amortized on an accelerated basis over the useful life of such assets.  The gross carrying amount of the core deposit intangible at December 31, 2016 was $449,000 with $14,000 accumulated amortization as of that date.

As of December 31, 2016, the current year and estimated future amortization expense for the core deposit intangible is:

(In thousands)
2017	$	30
2018		30
2019		30
2020		30
2021		30
After five years		299
	$	449

Results of operations for Delaware Bancshares, Inc. prior to the acquisition date are not included in the Consolidated Statement of Income for the year ended December 31, 2016.  Due to the significant amount of fair value adjustments, historical results of Delaware Bancshares, Inc. are not relevant to the Company’s results of operations.  Therefore, no pro forma information is presented.

The following table presents financial information regarding the former Delaware Bancshares, Inc. operations included in our Consolidated Statement of Income from the date of acquisition through December 31, 2016 under the column “Actual from acquisition date through December 31, 2016”.  In addition, the following table presents unaudited pro forma information as if the acquisition of Delaware Bancshares, Inc. had occurred on January 1, 2016  and 2015 under the “Pro Forma” columns.  The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results.  Furthermore, the unaudited pro-forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.  Merger and acquisition integration costs and amortization of fair value adjustments are included in the numbers below.

	Actual From
	Acquisition Date
	Through			Pro Forma
	December 31,			Year Ended December 31,
(In Thousands, Except Per Share Data)	2016		2016		2015
Net interest income	$	3,900	$	37,199	$	33,787
Non-interest income		893		6,487		7,939
Net income		750		3,588		6,944
Pro forma earnings per share:
Basic	$	0.18	$	0.87	$	1.69
Diluted	$	0.18	$	0.87	$	1.68

Nonrecurring merger and acquisition integration costs included in the pro-forma table above are (in thousands):

Professional fees	$	-	$	1,602	$	80
Data processing related		-		638		-
Other		-		810		-

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Norwood Financial Corp (Parent Company Only) Financial Information

12 Months Ended

Dec. 31, 2016

Norwood Financial Corp (Parent Company Only) Financial Information [Abstract]

NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

NOTE 17 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2016		2015
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	3,005	$	2,151
Securities available for sale		397		384
Investment in bank subsidiary		105,138		95,895
Other assets		4,539		4,113
Total assets	$	113,079	$	102,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	2,000	$	1,545
Stockholders’ equity		111,079		100,998
Total liabilities and stockholders' equity	$	113,079	$	102,543

STATEMENTS OF INCOME

	Years Ended December 31,
	2016		2015		2014
Income:	(In Thousands)
Dividends from bank subsidiary	$	28,598	$	4,574	$	4,377
Other interest income		12		11		10
		28,610		4,585		4,387
Expenses		1,347		313		346
		27,263		4,272		4,041
Income tax benefit		(225)		(103)		(114)
		27,488		4,375		4,155
Equity in undistributed earnings of subsidiary		(20,777)		1,533		3,502
Net Income	$	6,711	$	5,908	$	7,657
Comprehensive Income	$	2,104	$	5,934	$	10,721

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,711	$	5,908	$	7,657
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		20,777		(1,533)		(3,502)
Other, net		(305)		(19)		177
Net Cash Provided by Operating Activities		27,183		4,356		4,332
CASH FLOWS FROM INVESTING ACTIVITIES
Outlays for busines acquisitions		(2,324)		-		-
Net Cash Used in Investing Activities		(2,324)		-		-
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings		(19,856)		-		-
Stock options exercised		843		441		691
Tax benefit of stock options exercised		38		16		17
ESOP purchase of shares from treasury stock		131		146		150
Purchase of treasury stock		(447)		(127)		(179)
Cash dividends paid		(4,714)		(4,527)		(4,370)
Net Cash Used in Financing Activities		(24,005)		(4,051)		(3,691)
Net Increase in Cash and Cash Equivalents		854		305		641
CASH AND CASH EQUIVALENTS - BEGINNING		2,151		1,846		1,205
CASH AND CASH EQUIVALENTS - ENDING	$	3,005	$	2,151	$	1,846

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies [Abstract]

Principles of Consolidation [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., Norwood Settlement Services, LLC and WTRO Properties. All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates [Policy Text Block]

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.

Concentrations of Credit Risk [Policy Text Block]

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located within its markets in northeastern Pennsylvania and the Southern Tier of New York. Note 3 discusses the types of securities that the Company invests in. Note 4 discusses the types of lending that the Company engages in. The Company does not have any significant concentrations to any one industry or customer.

Concentrations of Credit Risk

The Bank operates primarily in Wayne, Pike, Lackawanna and Monroe Counties, Pennsylvania and Delaware and Sullivan Counties, New York.  Accordingly, the Bank has extended credit primarily to commercial entities and individuals in these areas whose ability to honor their contracts is influenced by the region’s economy. These customers are also the primary depositors of the Bank. The Bank is limited in extending credit by legal lending limits to any single borrower or group of related borrowers.

Securities [Policy Text Block]

Securities

Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported in other comprehensive income, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the term of the security.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

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

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

Regulatory Stock

The Company, as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula. This regulatory stock has no quoted market value and is carried at cost.

Management evaluates the regulatory stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management considers the FHLB’s regulatory capital ratios, liquidity, and the fact that new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairment charge is necessary related to FHLB stock as of December 31, 2016.

Loans Receivable [Policy Text Block]

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans.  The Company is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Troubled Debt Restructurings [Policy Text Block]

Troubled Debt Restructurings

A loan is considered to be a troubled debt restructuring (TDR) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. 

Loans Acquired [Policy Text Block]

Loans Acquired

Loans acquired including loans that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance.  Loans are evaluated individually to determine if there is evidence of deterioration of credit quality since origination.  The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance.  Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life.  Decreases in expected cash flows are recognized immediately as impairment.  Any valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

For purchased loans acquired that are not deemed impaired at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value.  Loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for credit losses for these loans is similar to originated loans; however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit discounts.  The remaining differences between the purchase price and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

Mortgage Servicing Rights [Policy Text Block]

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon a third party appraisal. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. The Company’s loan servicing assets at December 31, 2016 and 2015, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2016 and 2015, were $232,000 and $261,000, respectively.

Allowance for Loan Losses [Policy Text Block]

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans were acquired with impairment or are the subject of a restructuring agreement.

Premises and Equipment [Policy Text Block]

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated principally on the straight-line method over the respective assets estimated useful lives as follows:

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Transfers of Financial Assets [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Foreclosed Real Estate [Policy Text Block]

Foreclosed Real Estate

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value less cost to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of its carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other expenses.

Bank Owned Life Insurance [Policy Text Block]

Bank Owned Life Insurance

The Company invests in bank owned life insurance (BOLI) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Company is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies or from death benefits realized is included in other income on the Consolidated Statements of  Income.

Goodwill [Policy Text Block]

Goodwill

In connection with two acquisitions the Company recorded goodwill in the amount of $11.3 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss. No impairment was recognized for the years ended December 31, 2016, 2015 and 2014.

Intangible Assets [Policy Text Block]

Other Intangible Assets

At December 31, 2016, the Company had other intangible assets of $612,000 which is net of accumulated amortization of $732,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2015, the Company had other intangible assets of $285,000 which was net of accumulated amortization of $610,000.  Amortization expense related to other intangible assets was $122,000,  $105,000 and $121,000 for the years ended December 31, 2016, 2015 and 2014. 

As of December 31, 2016, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2017	$	150
2018		126
2019		101
2020		77
2021		52
Thereafter		106
	$	612

Income Taxes [Policy Text Block]

Income Taxes

Deferred income tax assets and liabilities are determined based on the differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. These differences are measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiary file a consolidated federal income tax return. The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company analyzes each tax position taken in its tax returns and determines the likelihood that the position will be realized. Only tax positions that are “more-likely-than-not” to be realized can be recognized in an entity’s financial statements. For tax positions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized in the financial statements. The Company does not have any unrecognized tax benefits at December 31, 2016 or 2015 or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs [Policy Text Block]

Advertising Costs

Advertising costs are expensed as incurred.

Earnings per Share [Policy Text Block]

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 less any unvested restricted shares. 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. Treasury shares are not deemed outstanding for earnings per share calculations.

Pension and Other Postretirement Plans, Policy [Policy Text Block]

Employee Benefit Plans

The Companyhas a defined contributory profit-sharing plan which includes provisions of a 401 (k) plan.  The Company’s contributions are expensed as the cost is incurred.

The Company has several supplemental executive retirement plans.  To fund the benefits under these plans, the Company is the owner of single premium life insurance policies on the particiapants.

The Company provides pension benefits to eligible employees.  The Company’s funding policy is to contribute the minimum required contributions annually.

Stock Option Plans [Policy Text Block]

Stock Option Plans

The Company recognizes the value of share-based payment transactions as compensation costs in the financial statements over the period that an employee provides service in exchange for the award. The fair value of the share-based payments for stock options is estimated using the Black-Scholes option-pricing model. The Company used the modified-prospective transition method to record compensation expense.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method.

Restricted Stock

The Company recognizes compensation cost related to restricted stock based on the market price of the stock at the grant date over the vesting period.  The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted stock under the Company’s 2014 Equity Incentive Plan.  The Company recognizes compensation expense for the fair value of the restricted stock on a straight-line basis over the requisite service period for the entire award.

Cash Flow Information [ Policy Text Block]

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.

Off-Balance Sheet Financial Instruments [Policy Text Block]

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, letters of credit and commitments to sell loans. Such financial instruments are recorded on the balance sheets when they become receivable or payable.

Trust Assets [Policy Text Block]

Trust Assets

Assets held by the Company in a fiduciary capacity for customers are not included in the financial statements since such items are not assets of the Company. Trust income is reported on the accrual method.

Treasury Stock [Policy]

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income [Policy Text Block]

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and defined benefit pension obligations, 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 as presented in the Consolidated Statement of Comprehensive Income.

Segment Reporting [Policy Text Block]

Segment Reporting

The Company acts as an independent community financial services provider and offers traditional banking related financial services to individual, business and government customers. Through its branch and automated teller machine network, the Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Company also performs personal, corporate, pension and fiduciary services through its Trust Department.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Company. As such, discrete information is not available and segment reporting would not be meaningful.

New Accounting Standards [Policy Text Block]

New Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.  The Company is currently assessing practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements.  Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1% increase in assets and liabilities.  The Company also anticipates additional disclosures to be provided at adoption.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after    December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The amendments in this Update should be applied using a retrospective transition method to each period presented.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which represents changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications.  Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Summary of Significant Accounting Policies [Abstract]

Premises and Equipment, Schedule of Useful Life [Table Text Block]

	Years
Buildings and improvements	10 - 40
Furniture and equipment	3 - 10

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2017	$	150
2018		126
2019		101
2020		77
2021		52
Thereafter		106
	$	612

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Securities (Tables)

12 Months Ended

Dec. 31, 2016

Securities [Abstract]

Amortized Cost and Fair Values of Securities [Table Text Block]

	December 31, 2016
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,005	$	-	$	(8)	$	1,997
States and political subdivisions		127,585		884		(3,368)		125,101
Corporate obligations		10,255		37		(180)		10,112
Mortgage-backed securities-
government sponsored entities		169,124		26		(4,220)		164,930
Total debt securities		308,969		947		(7,776)		302,140
Equity securities-financial services		320		104		-		424
	$	309,289	$	1,051	$	(7,776)	$	302,564

	December 31, 2015
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Government agencies	$	9,275	$	2	$	(108)	$	9,169
States and political subdivisions		59,120		1,747		(112)		60,755
Corporate obligations		4,933		45		(4)		4,974
Mortgage-backed securities-
government sponsored entities		64,491		23		(945)		63,569
Total debt securities		137,819		1,817		(1,169)		138,467
Equity securities-financial services		292		92		-		384
	$	138,111	$	1,909	$	(1,169)	$	138,851

Investments' Gross Unrealized Losses and Fair Value [Table Text Block]

	December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities	$	1,997	$	(8)	$	-	$	-	$	1,997	$	(8)
States and political subdivisions		90,109		(3,362)		205		(6)		90,314		(3,368)
Corporate obligations		6,895		(180)		-		-		6,895		(180)
Mortgage-backed securities-government sponsored entities		152,614		(3,912)		9,967		(308)		162,581		(4,220)
	$	251,615	$	(7,462)	$	10,172	$	(314)	$	261,787	$	(7,776)

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies	$	6,058	$	(71)	$	2,109	$	(37)	$	8,167	$	(108)
States and political subdivisions		9,086		(99)		1,417		(13)		10,503		(112)
Corporate obligations		2,221		(4)		-		-		2,221		(4)
Mortgage-backed securities-government sponsored entities		40,300		(432)		16,595		(513)		56,895		(945)
	$	57,665	$	(606)	$	20,121	$	(563)	$	77,786	$	(1,169)

Securities by Contractual Maturity [Table Text Block]

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	2,240	$	2,243
Due after one year through five years		24,272		23,996
Due after five years through ten years		45,285		43,577
Due after ten years		68,048		67,394
		139,845		137,210
Mortgage-backed securities - government sponsored entities		169,124		164,930
	$	308,969	$	302,140

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Loans Receivable and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2016

Loans Receivable and Allowance for Loan Losses [Abstract]

Composition of Loans Receivable [Table Text Block]

	December 31, 2016				December 31, 2015
Real Estate:
Residential	$	237,177	33.2	%	$	161,820	28.9	%
Commercial		320,187	44.8			279,123	49.8
Construction		19,709	2.8			18,987	3.4
Commercial, financial and agricultural		85,508	12.0			71,090	12.7
Consumer loans to individuals		51,524	7.2			29,231	5.2
Total loans		714,105	100.0	%		560,251	100.0	%
Deferred fees, net		(216)				(326)
Total loans receivable		713,889				559,925
Allowance for loan losses		(6,463)				(7,298)
Net loans receivable	$	707,426			$	552,627

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Table Text Block]

(In Thousands)		July 31, 2016
Contractually required principal and interest	$	2,621
Non-accretable discount		(1,014)
Expected cash flows		1,607
Accretable discount		(239)
Estimated fair value	$	1,368

Changes In The Accretable Yield For Purchased Credit Impaired Loans [Table Text Block]

	2016		2015		2014
Balance at beginning of period	$	-	$	8	$	20
Additions		239		-		-
Accretion		(30)		(1)	(12)	(12)
Reclassification and other		(1)		(7)	-	-
Balance at end of period	$	208	$	-	$	8

Additional Information Regarding Loans Acquired and Accounted for in Accordance with ASC 310-30 [Table Text Block]

	December 31, 2016		December 31, 2015
Outstanding Balance	$	1,821	$	498
Carrying Amount	$	1,386	$	498

Schedule of Loans Individually and Collectively Evaluated for Impairment [Table Text Block]

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2016
Individually evaluated for  impairment	$	23	$	2,601	$	-	$	-	$	-	$	2,624
Loans acquired with deteriorated credit quality		821		565		-		-		-		1,386
Collectively evaluated for impairment		236,333		317,021		19,709		85,508		51,524		710,095
Total Loans	$	237,177	$	320,187	$	19,709	$	85,508	$	51,524	$	714,105

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2015
Individually evaluated for  impairment	$	28	$	8,659	$	-	$	43	$	-	$	8,730
Loans acquired with deteriorated credit quality		140		358		-		-		-		498
Collectively evaluated for impairment		161,652		270,106		18,987		71,047		29,231		551,023
Total Loans	$	161,820	$	279,123	$	18,987	$	71,090	$	29,231	$	560,251

Impaired Loans and Related Interest Income by Loan Portfolio Class [Table Text Block]

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2016	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		2,601		3,427		-
Subtotal		2,624		3,455		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		2,601		3,427		-
Total Impaired Loans	$	2,624	$	3,455	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2015	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	168	$	173	$	-
Commercial		2,644		4,610		-
Commercial, financial and agricultural		43		43
Subtotal		2,855		4,826		-
With an allowance recorded:
Real Estate Loans
Commercial		6,373		6,446		1,613
Subtotal		6,373		6,446		1,613
Total:
Real Estate Loans
Residential		168		173		-
Commercial		9,017		11,056		1,613
Commercial, financial and agricultural		43		43		-
Total Impaired Loans	$	9,228	$	11,272	$	1,613

The following information for impaired loans is presented for the years ended December 31, 2016, 2015 and 2014:

	Average Recorded	Average Recorded					Interest Income
		Investment					Recognized
	2016		2015			2014	2016		2015			2014
	(In thousands)
Total:
Real Estate Loans
Residential	$	25	$	159	$	233	$	-	$	4	$	5
Commercial		2,671		8,847		7,492		91		526		503
Commercial Loans		-		9		-		-		2		-
Total Loans	$	2,696	$	9,015	$	7,725	$	91	$	532	$	508

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating [Table Text Block]

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2016
Commercial real estate loans	$	310,432	$	5,432	$	4,323	$	-	$	-	$	320,187
Commercial		84,600		885		23		-		-		85,508
Total	$	395,032	$	6,317	$	4,346	$	-	$	-	$	405,695

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Commercial real estate loans	$	267,892	$	1,837	$	9,394	$	-	$	-	$	279,123
Commercial		71,047		-		43		-		-		71,090
Total	$	338,939	$	1,837	$	9,437	$	-	$	-	$	350,213

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits. Nonperforming loans include loans that have been placed on nonaccrual status and loans remaining in accrual status on which the contractual payment of principal and interest has become 90 days past due. The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2016 and December 31, 2015 (in thousands):

	Performing		Nonperforming		Total
December 31, 2016
Residential real estate loans	$	235,829	$	1,137	$	237,177
Construction		19,681		28		19,709
Consumer loans to individuals		51,524		-		51,524
Total	$	307,034	$	1,165	$	308,410

	Performing		Nonperforming		Total
December 31, 2015
Residential real estate loans	$	161,380	$	440	$	161,820
Construction		18,987		-		18,987
Consumer loans to individuals		29,231		-		29,231
Total	$	209,598	$	440	$	210,038

Loan Portfolio Summarized by the Past Due Status [Table Text Block]

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2016
Real Estate loans
Residential	$	234,790	$	986	$	264	$	1	$	1,136	$	2,387	$	237,177
Commercial		318,979		445		1		-		762		1,208		320,187
Construction		19,681		-		-		-		28		28		19,709
Commercial  loans		85,355		143		10		-		-		153		85,508
Consumer  loans		51,456		39		29		-		-		68		51,524
Total	$	710,261	$	1,613	$	304	$	1	$	1,926	$	3,844	$	714,105

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2015
Real Estate loans
Residential	$	160,683	$	646	$	51	$	-	$	440	$	1,137	$	161,820
Commercial		272,125		310		39		-		6,649		6,998		279,123
Construction		18,959		28		-		-		-		28		18,987
Commercial  loans		71,043		4		-		-		43		47		71,090
Consumer  loans		29,179		41		11		-		-		52		29,231
Total	$	551,989	$	1,029	$	101	$	-	$	7,132	$	8,262	$	560,251

Allowance for Loan Losses and Recorded Investment in Financing Receivables [Table Text Block]

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Charge Offs		(123)		(2,711)		-		(15)		(102)		(2,951)
Recoveries		6		15		-		-		45		66
Provision for loan losses		140		1,813		(12)		(75)		184		2,050
Ending balance, December 31, 2016	$	1,092	$	4,623	$	78	$	307	$	363	$	6,463
Ending balance individually evaluated for impairment	$	-	$	3	$	-	$	-	$	-	$	3
Ending balance collectively evaluated for impairment	$	1,092	$	4,620	$	78	$	307	$	363	$	6,460

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Charge Offs		(224)		(2,883)		-		-		(91)		(3,198)
Recoveries		20		-		-		-		21		41
Provision for loan losses		(50)		4,499		(132)		141		122		4,580
Ending balance, December 31, 2015	$	1,069	$	5,506	$	90	$	397	$	236	$	7,298
Ending balance individually evaluated for impairment	$	-	$	1,613	$	-	$	-	$	-	$	1,613
Ending balance collectively evaluated for impairment	$	1,069	$	3,893	$	90	$	397	$	236	$	5,685

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2013	$	1,441	$	3,025	$	898	$	184	$	160	$	5,708
Charge Offs		(270)		(1,196)		-		-		(80)		(1,546)
Recoveries		-		2		-		-		31		33
Provision for loan losses		152		2,059		(676)		72		73		1,680
Ending balance, December 31, 2014	$	1,323	$	3,890	$	222	$	256	$	184	$	5,875
Ending balance individually evaluated for impairment	$	-	$	293	$	-	$	-	$	-	$	293
Ending balance collectively evaluated for impairment	$	1,323	$	3,597	$	222	$	256	$	184	$	5,582

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Premises and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Components of premises and equipment at December 31 are as follows:

	2016		2015
	(In Thousands)
Land and improvements	$	2,925	$	2,316
Buildings and improvements		17,662		9,857
Furniture and equipment		6,351		4,415
		26,938		16,588
Accumulated depreciation		(13,407)		(10,116)
	$	13,531	$	6,472

Operating Leases of Lessee Disclosure [Table Text Block]

2017	$	381
2018		381
2019		386
2020		394
2021		311
Thereafter		1,617
	$	3,470

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Deposits (Tables)

12 Months Ended

Dec. 31, 2016

Deposits [Abstract]

Schedule of Maturities of Time Deposits [Table Text Block]

Aggregate time deposits in denominations of $250,000 or more were $63,982,000and $22,041,000 at December 31, 2016 and 2015, respectively. Included in deposit accounts are deposits of three customer relationships totaling $84,095,000 at December 31, 2016.

At December 31, 2016, the scheduled maturities of time deposits are as follows (in thousands):

2017	$	174,814
2018		53,523
2019		34,710
2020		15,464
2021		16,867
Thereafter		179
	$	295,557

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2016

Borrowings [Abstract]

Schedule of Short-term Debt [Table Text Block]

Short-term borrowings at December 31 consist of the following:

	2016		2015
	( In Thousands)
Securities sold under agreements to repurchase	$	32,811	$	33,563
Federal Home Loan Bank short-term borrowings		-		19,672
	$	32,811	$	53,235

The outstanding balances and related information of short-term borrowings are summarized as follows:

	Years Ended December 31,
	2016			2015
	(Dollars In Thousands)
Average balance during the year	$	41,593		$	34,057
Average interest rate during the year		0.31	%		0.25	%
Maximum month-end balance during the year	$	52,672		$	55,183
Weighted average interest rate at the end of the year		0.32	%		0.36	%

Schedule of remaining contractual maturity of repurchase agreements [Table Text Block]

	As of December 31, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$34,917	$0	$0	$230	$35,147
Total liability recognized for repurchase agreements					$32,811

	As of December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Obligations of U.S. Government  agencies	$35,515	$139	$277	$385	$36,316
Total liability recognized for repurchase agreements					$33,563

Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]

	2016		2015
	(In Thousands)
Notes with the FHLB:
Convertible note due January 2017 at 4.71%	$	10,000	$	10,000
Amortizing fixed rate borrowing due December 2017 at 1.27%		4,025		8,000
Amortizing fixed rate borrowing due January 2018 at 0.91%		662		1,267
Amortizing fixed rate borrowing due December 2018 at 1.42%		1,634		2,434
Amortizing fixed rate borrowing due June 2020 at 1.49%		7,078		9,033
Amortizing fixed rate borrowing due December 2020 at 1.71%		4,034		5,000
Amortizing fixed rate borrowing due March 2022 at 1.75%		4,568		5,392
	$	32,001	$	41,126

Schedule of Contractual Maturities of Other Borrowings [Table Text Block]

2017	$	19,253
2018		4,741
2019		3,930
2020		2,951
2021		899
2022		227
	$	32,001

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2016

Pension Plans And Other Postretirement Benefits [Abstract]

Schedule of Defined Benefit Plans Disclosures [Table Text Block]

(in Thousands of Dollars)		2016
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	-
Projected benefit obligation acquired		(8,843)
Service cost		(28)
Interest cost		(113)
Actuarial loss		662
Benefits paid		238
Benefit obligation at end fo year	$	(8,084)
Change in plan assets:
Fair value of plan assets at beginning of year	$	-
Fair value acquired		6,932
Actual return on plan assets		12
Benefits paid		(242)
Fair value of assets at end of year		6,702
Funded status at end of year	$	(1,382)

Schedule of Amounts Recognized in Balance Sheet [Table Text Block]

Transition asset	$	-
Prior service credit		-
Gain		490
Total	$	490

Schedule of Net Benefit Costs [Table Text Block]

(in Thousands of Dollars)		2016
Service cost benefits earned during the period	$	28
Interest cost on projected benefit obligaion		113
Actual return on assets		(180)
Net amortization and deferral		-
NET PERIODIC PENSION COST	$	(39)

Schedule of Assumptions Used [Table Text Block]

         The weighted average assumptions used to determine the benefit obligation at December 31 are as follows:

2016

Discount rate3.90%

    The weighted average assumptions used to determine the net periodic pension cost at December 31 are as follows:

	2016
Discount rate	3.18	%
Expected long-term return on plan assets	6.50	%
Rate of compensation increase	0.00	%

Schedule of Allocation of Plan Assets [Table Text Block]

The Plan’s weighted-average asset allocations at December 31, by asset category, are as follows:

	2016
Cash equivalents	6.1	%
Equity securities	47.9	%
Fixed income securities	42.6	%
Other	3.4	%
	100.00	%

The Plan’s overall investment strategy is to achieve a mix of approximately 97 percent of investments for long-term growth and 3 percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers.  The target allocation for pension assets is 0 to 20 percent cash equivalents, 40 to 60 percent equity securities, 40 to 60 percent fixed income securities, and 0 to 5 percent other.  Cash equivalents consist primarily of government issues and short-term investment funds.  Equity securities primarily include investments in common stock, depository receipts, preferred stock, and real estate investment trusts.  Fixed income securities include corporate bonds, government issues, mortgaged backed securities, municipals, and other asset backed securities.

The fair value of the Plan’s assets, by asset category, is as follows:

		December 31, 2016
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Foreign currencies		$	11	$	11	$	-	$	-
Short-term investment funds			33		-		33		-
Equity securities:
Common stock			1,430		1,430		-		-
Depository receipts			42		42		-		-
Commingled Pension Trust Fund			1,680		-		1,680		-
Fixed income securities:
Corporate bonds			307		-		307		-
Government issue			1,112		-		1,112		-
Mortgage-backed securities			4		-		4		-
Collateralized mortgage obligations			68		-		68		-
Commingled Pension Trust Fund			1,732		-		1,732		-
Other			283		-		-		283
Total		$	6,702	$	1,483	$	4,936	$	283

Schedule of Changes in Fair Value of Plan Assets [Table Text Block]

The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31, 2016 (in thousands of dollars).

Balance, December 31, 2015$-

Purchase-

Unrealized gain283

Balance, December 31, 2016$283

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Taxes [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
Current	$	1,138	$	2,019	$	2,657
Deferred		746		(387)		(51)
	$	1,884	$	1,632	$	2,606

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2016		2015		2014
Tax at statutory rates	35.0	%	34.0	%	34.0	%
Tax exempt interest income, net of interest expense disallowance	(13.1)		(11.3)		(7.7)
Nondeductible merger expenses	2.7		-		-
Incentive stock options	0.3		0.3		0.4
Earnings and proceeds on life insurance	(2.8)		(1.8)		(1.5)
Other	(0.2)		0.4		0.2
	21.9	%	21.6	%	25.4	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	2016		2015
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	2,197	$	2,481
Deferred compensation		1,430		485
Purchase price adjustment		-		884
Core deposit intangible		485		-
Prepaid expenses		267		-
Pension liability		655		-
Foreclosed real estate valuation allowance		19		305
AMT tax credit carryforward		260		-
Net operating loss carryforward		2,147		-
Net unrealized loss on securities		2,286		-
Other		310		182
Total Deferred Tax Assets		10,056		4,337
Deferred tax liabilities:
Premises and equipment		347		245
Deferred loan fees		192		172
Net unrealized gains on securities		-		251
Net unrealized gain on pension liability		171		-
Purchase price adjustment		357		-
Total Deferred Tax Liabilities		1,067		668
Net Deferred Tax Asset	$	8,989	$	3,669

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Regulatory Matters and Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2016

Regulatory Matters and Stockholders' Equity [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

								To be Well Capitalized
								under Prompt
					For Capital Adequacy			Corrective Action
	Actual				Purposes			Provision
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollars  in Thousands)
As of December 31, 2016:
Total capital (to risk-weighted assets)	$	107,765	14.12	%	≥$61,057	≥8.00	%	≥$76,321	≥10.00	%
Tier 1 capital (to risk-weighted assets)		101,302	13.27		≥45,793	≥6.00		≥61,057	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		101,302	13.27		≥34,344	≥4.50		≥49,609	≥6.50
Tier 1 capital (to average assets)		101,302	9.16		≥44,251	≥4.00		≥55,314	≥5.00
As of December 31, 2015:
Total capital (to risk-weighted assets)	$	97,750	17.09	%	≥$45,751	≥8.00	%	≥$57,189	≥10.00	%
Tier 1 capital (to risk-weighted assets)		90,681	15.86		≥34,313	≥6.00		≥45,751	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		90,681	15.86		≥25,735	≥4.50		≥37,173	≥6.50
Tier 1 capital (to average assets)		90,681	12.40		≥29,252	≥4.00		≥36,565	≥5.00

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Stock Based Compensation (Tables)

12 Months Ended

Dec. 31, 2016

Stock-Based Compensation [Abstract]

Summary of Stock Option Activity [Table Text Block]

	2016					2015					2014
		Weighted					Weighted					Weighted
		Average		Average			Average		Average			Average		Aggregate
		Exercise		Intrinsic			Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	194,521	$	26.91			206,463	$	26.74			219,540	$	26.64
Granted	16,000		33.56			14,500		28.55			12,500		29.08
Exercised	(30,823)		27.34			(16,859)		26.19			(25,577)		27.05
Forfeited	(19,269)		27.86			(9,583)		27.02			-		-
Outstanding, end of year	160,429	$	27.37	$	931,963	194,521	$	26.91	$	362,754	206,463	$	26.74	$	477,640
Exercisable, end of year	144,429	$	26.39	$	931,963	180,021	$	26.78	$	359,854	193,963	$	26.59	$	477,640

Schedule of Fair Value Assumptions [Table Text Block]

	Years Ended December 31,
	2016		2015		2014
Dividend yield		3.93%		3.77%		3.57%
Expected life		10 years		10 years		10 years
Expected volatility		24.84%		24.35%		24.97%
Risk-free interest rate		2.44%		2.28%		2.17%
Weighted average fair value of options granted	$	5.79	$	4.89	$	5.30

Schedule of Outstanding Stock Options [Table Text Block]

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	12,650	$	28.41	1.0	12,650	$	28.41
	13,200		25.00	2.0	13,200		25.00
	12,650		25.99	3.0	12,650		25.99
	1,100		24.44	3.2	1,100		24.44
	15,229		25.25	4.0	15,229		25.25
	19,800		24.97	5.0	19,800		24.97
	21,450		27.05	6.0	21,450		27.05
	1,100		27.55	6.0	1,100		27.55
	2,000		28.95	6.7	2,000		28.95
	21,250		26.90	7.0	21,250		26.90
	10,000		29.08	8.0	10,000		29.08
	14,000		28.55	9.0	14,000		28.55
	16,000		33.56	10.0	-		-
Total	160,429				144,429

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	2016		2015
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	13,810	$28.82	9,300	$29.08
Granted	8,450	33.56	6,650	28.55
Vested	(3,120)	28.85	(1,860)	29.08
Forfeited	(450)	28.80	(280)	29.08
Non-vested at December 31	18,690	$30.96	13,810	$28.82

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Earnings Per Share [Table Text Block]

	Years Ended December 31,
	2016		2015		2014
	(In Thousands, Except Per Share Data)
Numerator, net income	$	6,711	$	5,908	$	7,657
Denominator:
Weighted average shares outstanding		3,877		3,682		3,645
Less:  Weighted average unvested restricted shares		(14)		(9)		-
Denominator:  Basic earnings per share		3,863		3,673		3,645
Weighted average shares outstanding		3,863		3,682		3,645
Add:  Dilutive effect of stock options		22		9		12
Denominator:  Diluted earnings per share		3,885		3,691		3,657
Basic earnings per common share	$	1.74	$	1.60	$	2.10
Diluted earnings per common share	$	1.73	$	1.60	$	2.10

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Off-Balance Sheet Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2016

Off-Balance Sheet Financial Instruments [Abstract]

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

	December 31,
	2016		2015
	(In Thousands)
Commitments to grant loans	$	22,210	$	19,704
Unfunded commitments under lines of credit		54,789		48,641
Standby letters of credit		5,642		5,286
	$	82,641	$	73,631

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Fair Values of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2016

Fair Values of Financial Instruments [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Available for Sale:
U.S. Treasury securities	$	1,997	$	-	$	1,997	$	-
States and political subdivisions		125,101		-		125,101		-
Corporate obligations		10,112		-		10,112		-
Mortgage-backed securities-government
sponsored entities		164,930		-		164,930		-
Equity securities-financial services		424		424		-		-
Total available for sale	$	302,564	$	424	$	302,140	$	-
December 31, 2015
Available for Sale:
U.S. Government agencies	$	9,169	$	-	$	9,169	$	-
States and political subdivisions		60,755		-		60,755		-
Corporate obligations		4,974		-		4,974		-
Mortgage-backed securities-government
sponsored entities		63,569		-		63,569		-
Equity securities-financial services		384		384		-		-
Total available for sale	$	138,851	$	384	$	138,467	$	-

Fair Value, Assets Measured on Nonrecurring Basis [Table Text Block]

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2016
Impaired Loans	$	2,624	$	-	$	-	$	2,624
Foreclosed real estate		5,302		-		-		5,302
December 31, 2015
Impaired Loans	$	7,615	$	-	$	-	$	7,615
Foreclosed real estate		2,847		-		-		2,847

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	1,473	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	1,151	Present value of future cash flows	Loan discount rate	4-5.25%  (5.11%)
				Probability of default
Foreclosed real estate owned	$	5,302	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	2,574	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	5,041	Present value of future cash flows	Loan discount rate	4-7%  (5.61%)
				Probability of default	0%
Foreclosed real estate owned	$	2,847	Appraisal of collateral(1)	Liquidation Expenses(2)	10%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Fair Value Measurements at December 31, 2016
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	17,174	$	17,174	$	17,174	$	-	$	-
Securities		302,564		302,564		424		302,140		-
Loans receivable, net		707,426		716,661		-		-		716,661
Mortgage servicing rights		232		250		-		-		250
Regulatory stock		2,119		2,119		2,119		-		-
Bank owned life insurance		36,133		36,133		36,133		-		-
Accrued interest receivable		3,643		3,643		3,643		-		-
Financial liabilities:
Deposits		925,385		925,561		629,829		-		295,732
Short-term borrowings		32,811		32,811		32,811		-		-
Other borrowings		32,001		31,863		-		-		31,863
Accrued interest payable		1,069		1,069		1,069		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	10,010	$	10,010	$	10,010	$	-	$	-
Securities		138,851		138,851		384		138,467		-
Loans receivable, net		552,627		559,416		-		-		559,416
Mortgage servicing rights		261		291		-		-		291
Regulatory stock		3,412		3,412		3,412		-		-
Bank owned life insurance		18,820		18,820		18,820		-		-
Accrued interest receivable		2,363		2,363		2,363		-		-
Financial liabilities:
Deposits		550,909		551,175		354,162		-		197,013
Short-term borrowings		53,235		53,235		53,235		-		-
Other borrowings		41,126		41,260		-		-		41,260
Accrued interest payable		957		957		957		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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Accumulated Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Income [Abstract]

Components of Accumulated Other Comprehensive Income [Table Text Block]

	Unrealized gains (losses)
	on available for sale		Unrealized gain on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2015	$	488	$	-	$	488
Other comprehensive loss before reclassification		(4,740)		318		(4,422)
Amount reclassified from accumulated other comprehensive income		(185)		-		(185)
Total other comprehensive loss		(4,925)		318		(4,607)
Balance as of December 31, 2016	$	(4,437)	$	318	$	(4,119)
	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2014	$	462
Other comprehensive income before reclassification		439
Amount reclassified from accumulated other comprehensive income		(413)
Total other comprehensive income		26
Balance as of December 31, 2015	$	488

Items Reclassified Out of Each Component of OCI [Table Text Block]

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				Consolidated
	Comprehensive				Statement of
Details about other comprehensive income	Income (Loss) (a)				Income
		Twelve months		Twelve months
		ended		ended
		December 31,		December 31,
		2016		2015
Unrealized gains on available for sale securities	$	284	$	626	Net realized gains on sales of securities
		(99)		(213)	Income tax expense
	$	185	$	413	Net of tax

Amounts in parentheses indicate debits to net income

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Acquisition of Delaware Bancshares, Inc. (Tables)

12 Months Ended

Dec. 31, 2016

Business Acquisition [Line Items]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

(Dollars in Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Delaware Bancshares, Inc. common shares settled for stock		694,114
Exchange Ratio		0.6221
Norwood Financial Corp. shares issued		431,605
Value assigned to Norwood Financial Corp. common share	$	28.15
Purchase price assigned to Delaware Bancshares, Inc. common shares			$	12,150
exchanged for Norwood Financial Corp.
Purchase Price Consideration - Cash for Common Stock
Delaware Bancshares, Inc. shares exchanged for cash		231,385
Purchase price paid to each Delaware Bancshares, Inc. common share exchanged for cash	$	16.68
Purchase price assigned to Delaware Bancshares, Inc. common shares exchanged for cash			$	3,860
Purchase price consideration - Cash-in-lieu of Fractional Shares				6
Total Purchase Price			$	16,016
Net Assets Acquired:
Delaware Bancshares, Inc. shareholders' equity	$	19,357
Delaware Bancshares, Inc. goodwill and intangibles		(7,640)
Total tangible equity		11,717
Adjustments to reflect assets acquired at fair value:
Investments		219
Loans
Interest rate		1,486
General credit		(1,614)
Specific credit - non-amortizing		(260)
Specific credit - amortizing		(239)
Core deposit intangible		449
Deferred loan fees		(296)
Premises and equipment		3,053
Allowance for loan and lease losses		1,651
Deferred tax assets		(1,417)
Other		(97)
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(252)
				14,400
Goodwill resulting from merger			$	1,616

The following condensed statement reflects the values assigned to Delaware Bancshares, Inc. net assets as of acquisition date:

(In Thousands)

Total purchase price			$	16,016
Net assets acquired:
Cash	$	14,977
Securities available for sale		208,488
Loans		116,674
Premises and equipment, net		7,292
Regulatory stock		279
Accrued interest receivable		1,626
Bank-owned life insurance		14,762
Core deposit intangible		449
Deferred tax assets		3,034
Other assets		3,282
Time deposits		(71,342)
Deposits other than time deposits		(255,921)
Borrowings		(21,232)
Accrued interest payable		(95)
Other liabilities		(7,873)
				14,400
Goodwill resulting from Delaware Bancshares, Inc., Merger			$	1,616

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2017	$	150
2018		126
2019		101
2020		77
2021		52
Thereafter		106
	$	612

Business Acquisition, Pro Forma Information [Table Text Block]

	Actual From
	Acquisition Date
	Through			Pro Forma
	December 31,			Year Ended December 31,
(In Thousands, Except Per Share Data)	2016		2016		2015
Net interest income	$	3,900	$	37,199	$	33,787
Non-interest income		893		6,487		7,939
Net income		750		3,588		6,944
Pro forma earnings per share:
Basic	$	0.18	$	0.87	$	1.69
Diluted	$	0.18	$	0.87	$	1.68

Business Acquisition, Pro Forma Information, Nonrecurring Adjustments [Table Text Block]

Professional fees	$	-	$	1,602	$	80
Data processing related		-		638		-
Other		-		810		-

Delaware Bancshares, Inc. Acquisition [Member]

Business Acquisition [Line Items]

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

(In thousands)
2017	$	30
2018		30
2019		30
2020		30
2021		30
After five years		299
	$	449

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Norwood Financial Corp (Parent Company Only) Financial Information (Tables) - Parent Company [Member]

12 Months Ended

Dec. 31, 2016

Condensed Financial Statements, Captions [Line Items]

Parent Company Only - Balance Sheets [Table Text Block]

	December 31,
	2016		2015
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	3,005	$	2,151
Securities available for sale		397		384
Investment in bank subsidiary		105,138		95,895
Other assets		4,539		4,113
Total assets	$	113,079	$	102,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	2,000	$	1,545
Stockholders’ equity		111,079		100,998
Total liabilities and stockholders' equity	$	113,079	$	102,543

Parent Company Only - Statements of Income [Table Text Block]

STATEMENTS OF INCOME

	Years Ended December 31,
	2016		2015		2014
Income:	(In Thousands)
Dividends from bank subsidiary	$	28,598	$	4,574	$	4,377
Other interest income		12		11		10
		28,610		4,585		4,387
Expenses		1,347		313		346
		27,263		4,272		4,041
Income tax benefit		(225)		(103)		(114)
		27,488		4,375		4,155
Equity in undistributed earnings of subsidiary		(20,777)		1,533		3,502
Net Income	$	6,711	$	5,908	$	7,657
Comprehensive Income	$	2,104	$	5,934	$	10,721

Parent Company Only - Statements of Cash Flows [Table Text Block]

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2016		2015		2014
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,711	$	5,908	$	7,657
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		20,777		(1,533)		(3,502)
Other, net		(305)		(19)		177
Net Cash Provided by Operating Activities		27,183		4,356		4,332
CASH FLOWS FROM INVESTING ACTIVITIES
Outlays for busines acquisitions		(2,324)		-		-
Net Cash Used in Investing Activities		(2,324)		-		-
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings		(19,856)		-		-
Stock options exercised		843		441		691
Tax benefit of stock options exercised		38		16		17
ESOP purchase of shares from treasury stock		131		146		150
Purchase of treasury stock		(447)		(127)		(179)
Cash dividends paid		(4,714)		(4,527)		(4,370)
Net Cash Used in Financing Activities		(24,005)		(4,051)		(3,691)
Net Increase in Cash and Cash Equivalents		854		305		641
CASH AND CASH EQUIVALENTS - BEGINNING		2,151		1,846		1,205
CASH AND CASH EQUIVALENTS - ENDING	$	3,005	$	2,151	$	1,846

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Nature of Operations (Details)	12 Months Ended
	Dec. 31, 2016 segment
Basis of Presentation [Abstract]
Number of Reportable Segments	1

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Summary of Significant Accounting Policies (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summary of Significant Accounting Policies [Abstract]
Impairment of investments	$ 0
Unrecognized Tax Benefits	0	$ 0
Unrecognized tax benefits expected within next twelve months	$ 0

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Summary of Significant Accounting Policies (Mortgage Servicing Rights) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Summary of Significant Accounting Policies [Abstract]
Servicing Assets	$ 232	$ 261

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Summary of Significant Accounting Policies (Useful Life of Premises and Equipment) (Details)	12 Months Ended
	Dec. 31, 2016
Minimum [Member] | Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years
Minimum [Member] | Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Maximum [Member] | Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	40 years
Maximum [Member] | Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years

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Summary of Significant Accounting Policies (Goodwill) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Goodwill	$ 11,331	$ 9,715
Goodwill, Impairment Loss	$ 0	$ 0	$ 0

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Summary of Significant Accounting Policies (Intangible Assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Intangible Assets, Net (Excluding Goodwill)	$ 612	$ 285
Finite-Lived Intangible Assets, Accumulated Amortization	$ 732	610
Finite-Lived Intangible Assets, Amortization Method	sum-of-the-years digits method
Finite-Lived Intangible Asset, Useful Life	10 years
Amortization of Intangibles	$ 122	$ 105	$ 121
2017	150
2018	126
2019	101
2020	77
2021	52
Thereafter	106
Amortization Expense for the Core Deposit Intangible, Total	$ 612

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Securities (Amortized Cost and Fair Values of Securities) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	$ 309,289	$ 138,111
Available-for-sale Securities, Gross Unrealized Gains	1,051	1,909
Available for Sale, Gross Unrealized Losses	(7,776)	(1,169)
Available for Sale, Fair Value	302,564	138,851
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	308,969	137,819
Available-for-sale Securities, Gross Unrealized Gains	947	1,817
Available for Sale, Gross Unrealized Losses	(7,776)	(1,169)
Available for Sale, Fair Value	302,140	138,467
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	2,005	9,275
Available-for-sale Securities, Gross Unrealized Gains		2
Available for Sale, Gross Unrealized Losses	(8)	(108)
Available for Sale, Fair Value	1,997	9,169
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	127,585	59,120
Available-for-sale Securities, Gross Unrealized Gains	884	1,747
Available for Sale, Gross Unrealized Losses	(3,368)	(112)
Available for Sale, Fair Value	125,101	60,755
Corporate obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	10,255	4,933
Available-for-sale Securities, Gross Unrealized Gains	37	45
Available for Sale, Gross Unrealized Losses	(180)	(4)
Available for Sale, Fair Value	10,112	4,974
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	169,124	64,491
Available-for-sale Securities, Gross Unrealized Gains	26	23
Available for Sale, Gross Unrealized Losses	(4,220)	(945)
Available for Sale, Fair Value	164,930	63,569
Equity securities-financial services [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	320	292
Available-for-sale Securities, Gross Unrealized Gains	104	92
Available for Sale, Gross Unrealized Losses	0
Available for Sale, Fair Value	$ 424	$ 384

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Securities (Investments' Gross Unrealized Losses and Fair Value) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($)
Schedule of Investments [Line Items]
Debt securities in unrealized loss position in the less than twelve months category | security	235
Debt securities in unrealized loss position in the twelve months or more category | security	12
Impairment of investments	$ 0
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	1,997	$ 6,058
Less than 12 Months, Unrealized Losses	(8)	(71)
12 Months or More, Fair Value	0	2,109
12 Months or More, Unrealized Losses	0	(37)
Total, Fair Value	1,997	8,167
Total, Unrealized Losses	(8)	(108)
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	90,109	9,086
Less than 12 Months, Unrealized Losses	(3,362)	(99)
12 Months or More, Fair Value	205	1,417
12 Months or More, Unrealized Losses	(6)	(13)
Total, Fair Value	90,314	10,503
Total, Unrealized Losses	(3,368)	(112)
Corporate obligations [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	6,895	2,221
Less than 12 Months, Unrealized Losses	(180)	(4)
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Losses	0	0
Total, Fair Value	6,895	2,221
Total, Unrealized Losses	(180)	(4)
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	152,614	40,300
Less than 12 Months, Unrealized Losses	(3,912)	(432)
12 Months or More, Fair Value	9,967	16,595
12 Months or More, Unrealized Losses	(308)	(513)
Total, Fair Value	162,581	56,895
Total, Unrealized Losses	(4,220)	(945)
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	251,615	57,665
Less than 12 Months, Unrealized Losses	(7,462)	(606)
12 Months or More, Fair Value	10,172	20,121
12 Months or More, Unrealized Losses	(314)	(563)
Total, Fair Value	261,787	77,786
Total, Unrealized Losses	$ (7,776)	$ (1,169)

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Securities (Securities by Contractual Maturity) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Securities [Abstract]
Available for Sale, Amortized Cost, Due in one year or less	$ 2,240
Available for Sale, Amortized Cost, Due after one year through five years	24,272
Available for Sale, Amortized Cost, Due after five years through ten years	45,285
Available for Sale, Amortized Cost, Due after ten years	68,048
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	139,845
Available for Sale, Amortized Cost, Mortgage-backed securities- government sponsored agencies	169,124
Available for Sale, Amortized Cost, Total	308,969
Available for Sale, Fair Value, Due in one year or less	2,243
Available for Sale, Fair Value, Due after one year through five years	23,996
Available for Sale, Fair Value, Due after five years through ten years	43,577
Available for Sale, Fair Value, Due after ten years	67,394
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Total	137,210
Available for Sale, Fair Value, Mortgage-backed securities- government sponsored agencies	164,930
Available for Sale, Fair Value, Total	$ 302,140

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Securities (Gross Realized Gains and Losses on Sales of Securities Available-for-Sale) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Securities [Abstract]
Gross realized gains	$ 284	$ 626	$ 1,199
Gross realized losses	0	0	29
Proceeds from sale of securities	110,748	44,976	$ 66,263
Available-for-sale Securities Pledged as Collateral	$ 230,263	$ 97,671

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Loans Receivable and Allowance for Loan Losses (Composition of Loans Receivable) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 714,105	$ 560,251
Deferred fees, net	(216)	(326)
Total loans receivable	713,889	559,925
Allowance for loan losses	(6,463)	(7,298)	$ (5,875)	$ (5,708)
Net loans receivable	$ 707,426	$ 552,627
Percent of Loans	100.00%	100.00%
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 237,177	$ 161,820
Allowance for loan losses	$ (1,092)	$ (1,069)	(1,323)	(1,441)
Percent of Loans	33.20%	28.90%
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 320,187	$ 279,123
Allowance for loan losses	$ (4,623)	$ (5,506)	(3,890)	(3,025)
Percent of Loans	44.80%	49.80%
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 19,709	$ 18,987
Allowance for loan losses	$ (78)	$ (90)	(222)	(898)
Percent of Loans	2.80%	3.40%
Commercial, financial and agricultural loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 85,508	$ 71,090
Allowance for loan losses	$ (307)	$ (397)	(256)	(184)
Percent of Loans	12.00%	12.70%
Consumer loans to individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 51,524	$ 29,231
Allowance for loan losses	$ (363)	$ (236)	$ (184)	$ (160)
Percent of Loans	7.20%	5.20%

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Loans Receivable and Allowance for Loan Losses (Components of Purchase Accounting Adjustments) (Details) $ in Thousands	Jul. 31, 2016 USD ($)
Loans Receivable and Allowance for Loan Losses [Abstract]
Contractually required principal and interest	$ 2,621
Non-accretable discount	(1,014)
Expected cash flows	1,607
Accretable discount	(239)
Estimated fair value	$ 1,368

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Loans Receivable and Allowance for Loan Losses (Changes in the Accretable Yield for Purchased Credit Impaired Loans) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loans Receivable and Allowance for Loan Losses [Abstract]
Balance at beginning of period	$ 0	$ 8	$ 20
Additions	239	0	0
Accretion	(30)	(1)	(12)
Reclassification and other	(1)	(7)	0
Balance at end of period	$ 208	$ 0	$ 8

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Loans Receivable and Allowance for Loan Losses (Loans Acquired and Accounted for in Accordance with ASC 310-30) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Loans Receivable and Allowance for Loan Losses [Abstract]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Outstanding Balance	$ 1,821	$ 498
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	1,386	$ 498
Certain Loans and Debt Securities Acquired in Transfer, Allowance for Credit Losses Due to Subsequent Impairment	$ 0

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Loans Receivable and Allowance for Loan Losses (Loans Individually and Collectively Evaluated for Impairment) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 2,624	$ 8,730
Loans acquired with deteriorated credit quality	1,386	498
Collectively evaluated for impairment	710,095	551,023
Total Loans	714,105	560,251
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	23	28
Loans acquired with deteriorated credit quality	821	140
Collectively evaluated for impairment	236,333	161,652
Total Loans	237,177	161,820
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	2,601	8,659
Loans acquired with deteriorated credit quality	565	358
Collectively evaluated for impairment	317,021	270,106
Total Loans	320,187	279,123
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0	0
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	19,709	18,987
Total Loans	19,709	18,987
Commercial, financial and agricultural loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0	43
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	85,508	71,047
Total Loans	85,508	71,090
Consumer loans to individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	0	0
Loans acquired with deteriorated credit quality	0	0
Collectively evaluated for impairment	51,524	29,231
Total Loans	$ 51,524	$ 29,231

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Loans Receivable and Allowance for Loan Losses (Impaired Loans and Related Interest Income by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 2,624	$ 2,855
Impaired Financing Receivable, with Related Allowance, Recorded Investment		6,373
Impaired Financing Receivable, Recorded Investment	2,624	9,228
Unpaid Principal Balance, With no related allowance recorded	3,455	4,826
Unpaid Principal Balance, With an allowance recorded		6,446
Unpaid Principal Balance, Total	3,455	11,272
Associated Allowance		1,613
Average Recorded Investment, Total	2,696	9,015	$ 7,725
Interest Income Recognized, Total	91	532	508
Commercial, financial and agricultural loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		43
Impaired Financing Receivable, Recorded Investment		43
Unpaid Principal Balance, With no related allowance recorded		43
Unpaid Principal Balance, Total		43
Average Recorded Investment, Total		9	0
Interest Income Recognized, Total	0	2	0
Residential Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	23	168
Impaired Financing Receivable, Recorded Investment	23	168
Unpaid Principal Balance, With no related allowance recorded	28	173
Unpaid Principal Balance, Total	28	173
Associated Allowance	0	0
Average Recorded Investment, Total	25	159	233
Interest Income Recognized, Total	0	4	5
Commercial Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,601	2,644
Impaired Financing Receivable, with Related Allowance, Recorded Investment		6,373
Impaired Financing Receivable, Recorded Investment	2,601	9,017
Unpaid Principal Balance, With no related allowance recorded	3,427	4,610
Unpaid Principal Balance, With an allowance recorded		6,446
Unpaid Principal Balance, Total	3,427	11,056
Associated Allowance		1,613
Average Recorded Investment, Total	2,671	8,847	7,492
Interest Income Recognized, Total	$ 91	$ 526	$ 503

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Loans Receivable and Allowance for Loan Losses (Troubled Debt Restructurings) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($)
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Impaired Financing Receivable, Related Allowance		$ 1,613
Mortgage Loans on Real Estate, Foreclosures	$ 5,000	$ 1,700
Mortgage Loans on Real Estate, Number of Foreclosures | loan	1	1
Foreclosed Real Estate Expense	$ 680	$ 911	$ 1,555
Troubled Debt Restructured Loans [Member]
Troubled Debt Restructuring, Debtor, Subsequent Periods [Line Items]
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,500	6,800
New Loans Identified as Troubled Debt Restructurings		$ 176
New Loans Identified as Troubled Debt Restructurings, Number of Loans | loan		2
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	2,600	$ 1,300
Financing Receivable, Modifications, Recorded Investment		82
Impaired Financing Receivable, Related Allowance	$ 0	1,613
Foreclosed Real Estate Expense		$ 322

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Loans Receivable and Allowance for Loan Losses (Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	$ 405,695	$ 350,213
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	395,032	338,939
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	6,317	1,837
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	4,346	9,437
Doubtful or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	308,410	210,038
Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	307,034	209,598
Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	1,165	440
Commercial Real Estate Loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	320,187	279,123
Commercial Real Estate Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	310,432	267,892
Commercial Real Estate Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	5,432	1,837
Commercial Real Estate Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	4,323	9,394
Commercial Real Estate Loans [Member] | Doubtful or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial Real Estate Loans [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial, financial and agricultural loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	85,508	71,090
Commercial, financial and agricultural loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	84,600	71,047
Commercial, financial and agricultural loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	885	0
Commercial, financial and agricultural loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	23	43
Commercial, financial and agricultural loans [Member] | Doubtful or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Commercial, financial and agricultural loans [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	0	0
Residential Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	237,177	161,820
Residential Real Estate Loans [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	235,829	161,380
Residential Real Estate Loans [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	1,137	440
Construction Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	19,709	18,987
Construction Real Estate Loans [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	19,681	18,987
Construction Real Estate Loans [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	28	0
Consumer loans to individuals [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	51,524	29,231
Consumer loans to individuals [Member] | Performing Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	51,524	29,231
Consumer loans to individuals [Member] | Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	$ 0	$ 0

XML

Loans Receivable and Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 710,261	$ 551,989
Non-Accrual	1,926	7,132
Total Past Due and Non-Accrual	3,844	8,262
Total Loans	714,105	560,251
Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,613	1,029
Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	304	101
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1	0
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	234,790	160,683
Non-Accrual	1,136	440
Total Past Due and Non-Accrual	2,387	1,137
Total Loans	237,177	161,820
Residential Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	986	646
Residential Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	264	51
Residential Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1	0
Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	318,979	272,125
Non-Accrual	762	6,649
Total Past Due and Non-Accrual	1,208	6,998
Total Loans	320,187	279,123
Commercial Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	445	310
Commercial Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1	39
Commercial Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	19,681	18,959
Non-Accrual	28	0
Total Past Due and Non-Accrual	28	28
Total Loans	19,709	18,987
Construction Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		28
Construction Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial, financial and agricultural loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	85,355	71,043
Non-Accrual	0	43
Total Past Due and Non-Accrual	153	47
Total Loans	85,508	71,090
Commercial, financial and agricultural loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	143	4
Commercial, financial and agricultural loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	10	0
Commercial, financial and agricultural loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Consumer loans to individuals [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	51,456	29,179
Non-Accrual	0	0
Total Past Due and Non-Accrual	68	52
Total Loans	51,524	29,231
Consumer loans to individuals [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	39	41
Consumer loans to individuals [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	29	11
Consumer loans to individuals [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 0	$ 0

XML

Loans Receivable and Allowance for Loan Losses (Allowance for Loan Losses and Recorded Investment in Financing Receivables) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	$ 7,298	$ 5,875	$ 5,708
Charge Offs	(2,951)	(3,198)	(1,546)
Recoveries	66	41	33
Provision for Loan Losses	2,050	4,580	1,680
Allowance at end of period	6,463	7,298	5,875
Ending balance individually evaluated for impairment	3	1,613	293
Ending balance collectively evaluated for impairment	6,460	5,685	5,582
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	1,069	1,323	1,441
Charge Offs	(123)	(224)	(270)
Recoveries	6	20
Provision for Loan Losses	140	(50)	152
Allowance at end of period	1,092	1,069	1,323
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	1,092	1,069	1,323
Commercial Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	5,506	3,890	3,025
Charge Offs	(2,711)	(2,883)	(1,196)
Recoveries	15	0	2
Provision for Loan Losses	1,813	4,499	2,059
Allowance at end of period	4,623	5,506	3,890
Ending balance individually evaluated for impairment	3	1,613	293
Ending balance collectively evaluated for impairment	4,620	3,893	3,597
Construction Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	90	222	898
Charge Offs	0	0
Recoveries	0	0
Provision for Loan Losses	(12)	(132)	(676)
Allowance at end of period	78	90	222
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	78	90	222
Commercial, financial and agricultural loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	397	256	184
Charge Offs	(15)	0
Recoveries	0	0
Provision for Loan Losses	(75)	141	72
Allowance at end of period	307	397	256
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	307	397	256
Consumer loans to individuals [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance at beginning of period	236	184	160
Charge Offs	(102)	(91)	(80)
Recoveries	45	21	31
Provision for Loan Losses	184	122	73
Allowance at end of period	363	236	184
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	$ 363	$ 236	$ 184

XML

Loans Receivable and Allowance for Loan Losses (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Outstanding Balance	$ 1,821	$ 498
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	1,386	498
Real Estate Acquired Through Foreclosure	5,302	2,847
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	163	515	$ 451
Loans and Leases Receivable, Gross	714,105	560,251
Impaired Financing Receivable, Recorded Investment	2,624	9,228
Impaired Financing Receivable, Related Allowance		1,613
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,624	2,855
Impaired Financing Receivable, with Related Allowance, Recorded Investment		6,373
Write downs	2,951	3,198	1,546
Proceeds from Sale of Mortgage Loans Held-for-sale	1,739	4,410	4,419
Servicing Asset at Amortized Cost	35,500	32,900
Customer Concentration Risk [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Allowance for Credit Losses, Write-downs	31	643	$ 422
Hospitality Lodging Industry [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 71,800
Concentration Risk, Percentage	70.70%
Automobile Dealers [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 50,900
Concentration Risk, Percentage	50.10%
Troubled Debt Restructured Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Related Allowance	$ 0	1,613
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	821	140
Real Estate Acquired Through Foreclosure	297
Mortgage Loans in Process of Foreclosure, Amount	421
Allowance for Loan and Lease Losses, Adjustments, Other		(254)
Loans and Leases Receivable, Gross	237,177	161,820
Allowance for Loan and Lease Losses, Real Estate		1,069
Impaired Financing Receivable, Recorded Investment	23	168
Impaired Financing Receivable, Related Allowance	0	0
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	23	$ 168
Historical loss factor		0.23%	0.30%
Write downs	123	$ 224	$ 270
Gross Realized Gains on Loans	54	113	150
Gross Realized Losses on Loans	0	0	0
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	565	358
Allowance for Loan and Lease Losses, Adjustments, Other	419	1,320
Allowance for Loan and Lease Losses, Period Increase (Decrease)	(883)
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses		1,596
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses, Decreases		1,610
Loans and Leases Receivable, Gross	320,187	279,123
Allowance for Loan and Lease Losses, Real Estate	4,623	5,506	3,890
Impaired Financing Receivable, Recorded Investment	2,601	9,017
Impaired Financing Receivable, Related Allowance		1,613
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 2,601	2,644
Impaired Financing Receivable, with Related Allowance, Recorded Investment		$ 6,373
Historical loss factor	0.80%	0.70%
Write downs	$ 2,711	$ 2,883	$ 1,196
Impaired Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Recorded Investment	2,624	9,228
Impaired Financing Receivable, Related Allowance	0	1,613
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		2,855
Impaired Financing Receivable, with Related Allowance, Recorded Investment		6,373
Impaired Loans Not Requiring an Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Allowance for Credit Losses, Write-downs	831	1,971
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,624	2,855
Impaired Loans Requiring an Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Allowance for Credit Losses, Write-downs		73
Impaired Financing Receivable, with Related Allowance, Recorded Investment	$ 0	$ 6,373

XML

Premises and Equipment (Schedule of Premises and Equipment) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 26,938	$ 16,588
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(13,407)	(10,116)
Property, Plant and Equipment, Net, Total	13,531	6,472
Depreciation Premises and Equipment	726	551	$ 572
Land and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	2,925	2,316
Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	17,662	9,857
Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 6,351	$ 4,415

XML

Premises and Equipment (Schedule of Future Minimum Rental Payments of Operating Leases) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Premises and Equipment [Abstract]
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 381
Operating Leases, Future Minimum Payments, Due in Two Years	381
Operating Leases, Future Minimum Payments, Due in Three Years	386
Operating Leases, Future Minimum Payments, Due in Four Years	394
Operating Leases, Future Minimum Payments, Due in Five Years	311
Operating Leases, Future Minimum Payments, Due Thereafter	1,617
Operating Leases, Future Minimum Payments Due, Total	3,470
Operating Leases, Rent Expense, Net	$ 367	$ 341	$ 338

XML

Deposits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Time Deposit Maturities, Next Twelve Months	$ 174,814
Time Deposit Maturities, Year Two	53,523
Time Deposit Maturities, Year Three	34,710
Time Deposit Maturities, Year Four	15,464
Time Deposit Maturities, Year Five	16,867
Time Deposit Maturities, after Year Five	179
Time Deposits, Total	295,557	$ 196,747
Time Deposits, $250,000 or More	63,982	$ 22,041
Major Customer Deposits [Member]
Deposits of one customer relationship	$ 84,095

XML

Borrowings (Narrative) (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Available-for-sale Securities Pledged as Collateral	$ 230,263,000	$ 97,671,000
FHLB of Pittsburgh [Member]
Long-term Line of Credit	0	19,672,000
Line of Credit Facility, Maximum Borrowing Capacity	146,517,000
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	316,832,000
Advances from Federal Home Loan Banks	32,001,000
Atlantic Central Bankers Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	7,000,000
PNC Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	16,000,000
Zion Bank [Member]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	17,000,000
Securities Sold under Agreements to Repurchase [Member]
Available-for-sale securities pledged as collateral, amortized cost	35,770,000	36,797,000
Available-for-sale Securities Pledged as Collateral	$ 35,147,000	$ 36,316,000

XML

Borrowings (Short-Term Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Short-term Debt [Line Items]
Short-term Borrowings	$ 32,811	$ 53,235
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Short-term Borrowings	$ 32,811	33,563
FHLB of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member]
Short-term Debt [Line Items]
Short-term Borrowings		$ 19,672

XML

Borrowings (Outstanding Balances and Related Information) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Borrowings [Abstract]
Short-term Debt, Average Outstanding Amount	$ 41,593	$ 34,057
Short-term Debt, Average Interest Rate During the Year	0.31%	0.25%
Short-term Debt, Maximum Month-end Outstanding Amount	$ 52,672	$ 55,183
Short-term Debt, Weighted Average Interest Rate	0.32%	0.36%

XML

Borrowings (Other Borrowings) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Long-term Federal Home Loan Bank Advances	$ 32,001	$ 41,126
Convertible note due July 2015 at 4.34% [Member]
Debt Instrument, Basis Spread on Variable Rate	0.17%
Debt Instrument, Description of Variable Rate Basis	three-month LIBOR
Convertible note due January 2017 at 4.71% [Member]
Long-term Federal Home Loan Bank Advances	$ 10,000	10,000
Debt Instrument, Interest Rate, Stated Percentage	4.71%
Amortizing fixed rate borrowing due December 2017 at 1.27% [Member]
Long-term Federal Home Loan Bank Advances	$ 4,025	8,000
Debt Instrument, Interest Rate, Stated Percentage	1.27%
Amortizing fixed rate borrowing due January 2018 at 0.91% [Member]
Long-term Federal Home Loan Bank Advances	$ 662	1,267
Debt Instrument, Interest Rate, Stated Percentage	0.91%
Amortizing fixed rate borrowing due December 2018 at 1.42% [Member]
Long-term Federal Home Loan Bank Advances	$ 1,634	2,434
Debt Instrument, Interest Rate, Stated Percentage	1.42%
Amortizing fixed rate borrowing due June 2020 at 1.49% [Member]
Long-term Federal Home Loan Bank Advances	$ 7,078	9,033
Debt Instrument, Interest Rate, Stated Percentage	1.49%
Amortizing fixed rate borrowing due December 2020 at 1.71% [Member]
Long-term Federal Home Loan Bank Advances	$ 4,034	5,000
Debt Instrument, Interest Rate, Stated Percentage	1.71%
Amortizing fixed rate borrowing due March 2022 at 1.75% [Member]
Long-term Federal Home Loan Bank Advances	$ 4,568	$ 5,392
Debt Instrument, Interest Rate, Stated Percentage	1.75%

XML

Borrowings (Contractual Maturities of Other Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Borrowings [Abstract]
Federal Home Loan Bank, Advances, Maturities Summary, Due in Next Twelve Months	$ 19,253
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Two	4,741
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Three	3,930
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Four	2,951
Federal Home Loan Bank, Advances, Maturities Summary, Due in Year Five	899
Federal Home Loan Bank, Advances, Maturities Summary, Due after Year Five	227
Long-term Federal Home Loan Bank Advances, Total	$ 32,001	$ 41,126

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Borrowings (Collateral Pledged for Repurchase Agreements) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 230,263	$ 97,671
Short-term Borrowings	32,811	53,235
US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	35,147	36,316
Maturity Overnight [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	34,917	35,515
Maturity Less than 30 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	0	139
Maturity 30 to 90 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	0	277
Maturity Greater than 90 Days [Member] | US Treasury Securities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	230	385
Securities Sold under Agreements to Repurchase [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	35,147	36,316
Short-term Borrowings	$ 32,811	$ 33,563

XML

Employee Benefit Plans (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	15.00%
Defined Contribution Plan, Employer Contributions, Vesting Period	5 years
Defined Contribution Plan, Cost Recognized	$ 538,000	$ 445,000	$ 445,000
Defined Benefit Plan, Benefit Obligation	8,084,000
Defined Benefit Plan, Net Periodic Benefit Cost	$ (39,000)
Defined Benefit Plan, Percentage of Plan Funded	80.00%	79.90%
Defined Benefit Plan, Contribution Percentage	5.00%
Defined Benefit Plan, Benefits Paid	$ 238,000
Defined Benefit Plan, Expected Future Benefit Payments, Next Twelve Months	482,000
Defined Benefit Plan, Expected Future Benefit Payments, Year Five	490,000
Defined Benefit Plan, Expected Future Benefit Payments, Year Four	480,000
Defined Benefit Plan, Expected Future Benefit Payments, Year Three	481,000
Defined Benefit Plan, Expected Future Benefit Payments, Year Two	471,000
Defined Benefit Plan, Expected Future Benefit Payments, Five Fiscal Years Thereafter	2,263,000
Defined Benefit Plan, Expected Future Employer Contributions, Current Fiscal Year	0
Change in Projected Benefit Obligation from Change in Projected Discount Rate	117,000
Defined Benefit Plan, Accumulated Benefit Obligation	8,084,000
Defined Benefit Plan, Plan Assets, Target Allocation, Long-term Growth, Percentage	$ 97
Defined Benefit Plan, Plan Assets, Target Allocation, Short-term Growth, Percentage	3.00%
Accumulated Postretirement Benefit Obligation	$ 405,000
Minimum [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	0.00%
Minimum [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	40.00%
Minimum [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	40.00%
Minimum [Member] | Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	0.00%
Maximum [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	20.00%
Maximum [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	60.00%
Maximum [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	60.00%
Maximum [Member] | Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage	5.00%
Supplemental Employee Retirement Plan, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	$ 1,410,000	$ 1,427,000
Pension and Other Postretirement Benefit Expense	121,000	122,000	124,000
Cash Surrender Value of Life Insurance	36,133,000	18,820,000
Defined Benefit Plan, Net Periodic Benefit Cost	26,000	89,000	87,000
Multiemployer Plans, Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Net Periodic Benefit Cost	54,000	48,000	17,000
Defined Benefit Plan, Contributions by Employer	54,000	$ 48,000	$ 17,000
Delaware Bancshares, Inc. [Member] | Supplemental Employee Retirement Plan, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	602,000
Pension and Other Postretirement Benefit Expense	15,000
Delaware Bancshares, Inc. [Member] | Director Fee Deferral and Continuation Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	413,000
Pension and Other Postretirement Benefit Expense	$ 1,000
Delaware Bancshares, Inc. [Member] | Director Fee Deferral and Continuation Plan [Member] | Minimum [Member]
Defined Benefit Plan Disclosure [Line Items]
Benefit Payment Period	5 years
Delaware Bancshares, Inc. [Member] | Director Fee Deferral and Continuation Plan [Member] | Maximum [Member]
Defined Benefit Plan Disclosure [Line Items]
Benefit Payment Period	15 years

XML

Employee Benefit Plans (Schedule Of Changes In Benefit Obligation And Fair Value Of Plan Assets) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Change in benefit obligation:
Projected benefit obligation acquired	$ (8,843)
Service cost	(28)
Interest cost	(113)
Actuarial loss	662
Benefits paid	238
Benefit obligation at end of year	(8,084)
Change in plan assets:
Fair value acquired	6,932
Actual return on plan assets	12
Benefits paid	(242)
Fair value of plan assets at end of year	6,702
Funded status of plan:
Funded status at end of year	$ (1,382)

XML

Employee Benefit Plans (Schedule Of Amounts Recognized On Consolidated Balance Sheets) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Pension Plans And Other Postretirement Benefits [Abstract]
Gain	$ 490
Total	$ 490

XML

Employee Benefit Plans (Components Of Net Periodic Benefit Costs) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Pension Plans And Other Postretirement Benefits [Abstract]
Service cost benefits earned during the period	$ 28
Interest cost on projected benefit obligaion	113
Actual return on assets	(180)
Net periodic pension cost	$ (39)

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Employee Benefit Plans (Schedule Of Assumptions Used) (Details)	12 Months Ended
	Dec. 31, 2016
Pension Plans And Other Postretirement Benefits [Abstract]
Discount rate, benefit obligation	3.90%
Discount rate, net periodic pension cost	3.18%
Expected long-term return on plan assets	6.50%
Rate of compensation increase	0.00%

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Employee Benefit Plans (Schedule Of Asset Allocation and Fair Value Of Plan Assets) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Actual Plan Asset Allocations	100.00%
Total assets	$ 6,702
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,483
Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	4,936
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 283
Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Actual Plan Asset Allocations	6.10%
Foreign Currencies [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 11
Foreign Currencies [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	11
Short-term Investment Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	33
Short-term Investment Funds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 33
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Actual Plan Asset Allocations	47.90%
Common Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 1,430
Common Stock [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,430
Depository Receipts [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	42
Depository Receipts [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	42
Commingled Pension Trust Fund - Equity [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,680
Commingled Pension Trust Fund - Equity [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 1,680
Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Actual Plan Asset Allocations	42.60%
Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 307
Corporate Bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	307
Government Issue [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,112
Government Issue [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,112
Mortgage Backed Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	4
Mortgage Backed Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	4
Collateralized Mortgage Backed Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	68
Collateralized Mortgage Backed Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	68
Commingled Pension Trust Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	1,732
Commingled Pension Trust Fund [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 1,732
Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Actual Plan Asset Allocations	3.40%
Total assets	$ 283
Other Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 283

XML

Employee Benefit Plans (Schedule of Changes in Level 3 Assets) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets at end of year	$ 6,702
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Unrealized gain	283
Fair value of plan assets at end of year	$ 283

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Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current Income Tax Expense (Benefit)	$ 1,138	$ 2,019	$ 2,657
Deferred Tax Assets, Operating Loss Carryforwards	$ 2,147	$ 0
Earliest Tax Year [Member]
Open Tax Year	2013

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Income Taxes (Components of Federal Income Tax Provision) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current Income Tax Expense (Benefit)	$ 1,138	$ 2,019	$ 2,657
Deferred Income Tax Expense (Benefit)	746	(387)	(51)
Current Income Tax Expense (Benefit), Total	1,884	1,632	2,606
Parent Company [Member]
Current Income Tax Expense (Benefit), Total	$ (225)	$ (103)	$ (114)

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Income Taxes (Income Tax Rate Reconciliation) (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Taxes [Abstract]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%	34.00%	34.00%
Effective Income Tax Rate Reconciliation, Tax Exempt Income	(13.10%)	(11.30%)	(7.70%)
Effective Income Tax Reconciliation, Nondeductible Expense, Merger Expenses	2.70%
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Share-based Compensation Cost, Percent	0.30%	0.30%	0.40%
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Life Insurance, Percent	2.80%	1.80%	1.50%
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Life Insurance	(2.80%)	(1.80%)	(1.50%)
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Life Insurance, Percent	2.80%	1.80%	1.50%
Effective Income Tax Rate Reconciliation, Other Adjustments, Percent	(0.20%)	0.40%	0.20%
Effective Income Tax Rate, Continuing Operations, Total	21.90%	21.60%	25.40%

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Income Taxes (Schedule of Deferred Tax Assets and Liabilties) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Income Taxes [Abstract]
Deferred tax assets, Allowance for loan losses	$ 2,197	$ 2,481
Deferred tax assets, Deferred compensation	1,430	485
Deferred Tax Assets, Purchase Price Adjustment	0	884
Deferred Tax Assets, Goodwill and Intangible Assets	485	0
Deferred Tax Assets, Prepaid Expenses	267	0
Deferred Tax Assets: Pension liability	655	0
Deferred Tax Assets, Foreclosed real estate valuance allowance	19	305
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax	260	0
Deferred Tax Assets, Operating Loss Carryforwards	2,147	0
Deferred tax assets, Net unrealized loss on securities	2,286	0
Deferred Tax Assets, Other	310	182
Deferred Tax Assets, Gross, Total	10,056	4,337
Deferred tax liabilities, Premises and equipment	347	245
Deferred tax liablities, Deferred loan fees	192	172
Deferred Tax Liabilities, Unrealized Gains on Trading Securities	0	251
Deferred Tax Liabilities, Deferred Expense, Reserves and Accruals	171	0
Deferred Tax Liabilities, Purchase Price Adjustment	357	0
Deferred Tax Liabilities, Gross, Total	1,067	668
Deferred Tax Assets, Net, Total	$ 8,989	$ 3,669

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Regulatory Matters and Stockholders' Equity (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Regulatory Matters and Stockholders' Equity [Abstract]
Restricted Cash and Cash Equivalents	$ 1,099	$ 437
Statutory Accounting Practices, Statutory Amount Available for Dividend Payments without Regulatory Approval	$ 63,246

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Regulatory Matters and Stockholders' Equity (Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Regulatory Matters and Stockholders' Equity [Abstract]
Total capital (to risk weighted assets), Amount	$ 107,765	$ 97,750
Total capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	61,057	45,751
Total capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 76,321	$ 57,189
Total capital (to risk weighted assets), Ratio	14.12%	17.09%
Total capital (to risk weighted assets) For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Total capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 capital (to risk weighted assets), Amount	$ 101,302	$ 90,681
Tier 1 capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	45,793	34,313
Tier 1 capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 61,057	$ 45,751
Tier 1 capital (to risk weighted assets), Ratio	13.27%	15.86%
Tier 1 capital (to risk weighted assets) For Capital Adequacy Purposes, Ratio	6.00%	6.00%
Tier 1 capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00%	8.00%
Common Equity Tier 1 capital (to risk-weighted assets), amount	$ 101,302	$ 90,681
Common Equity Tier 1 capital (to risk-weighted assets), for Capital Adequacy Purposes, amount	34,344	25,735
Common Equity Tier 1 capital (to risk-weighted assets) to be Well Capitalized under Prompt Corrective Action Provision, amount	$ 49,609	$ 37,173
Common Equity Tier 1 capital (to risk-weighted assets), Ratio	13.27%	15.86%
Common Equity Tier 1 capital (to risk-weighted assets) For Capital Adequacy Purposes, Ratio	4.50%	4.50%
Common Equity Tier 1 capital (to risk-weighted assets) to be Well Capitalized under Prompt Corrective Action Provision	6.50%	6.50%
Tier 1 capital (to average assets), Amount	$ 101,302	$ 90,681
Tier 1 capital (to average assets) For Capital Adequacy Purposes, Amount	44,251	29,252
Tier 1 capital (to average assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 55,314	$ 36,565
Tier 1 capital (to average assets), Ratio	9.16%	12.40%
Tier 1 capital (to average assets) For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 capital (to average assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%	5.00%
Risk weight assigned to exposures	150.00%
Capital conservation buffer	2.50%

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Stock Based Compensation (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Apr. 22, 2014	Apr. 26, 2006
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	16,000	14,500	12,500
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 89,000	$ 55,000	$ 0
Compensation expense related to stock options	$ 71,000	$ 66,000	$ 154,000
Share price	$ 33.14	$ 28.75	$ 29.05
Allocated Share-based Compensation Expense	$ 71,000	$ 66,000	$ 154,000
Future compensation expense of non-vested restricted stock outstanding	579,000	398,000
Compensation expense related to restricted stock	89,000	55,000
Unrecognized Salaries And Employee Benefits Expense	93,000	71,000	66,000
Net Income Reduction	$ 130,000	92,000	146,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share price	$ 24.44
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share price	$ 33.56
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 89,000	$ 55,000	$ 0
Norwood Financial Corp 2006 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						275,000
Options, Granted	0	7,423	12,500	28,600
Norwood Financial Corp 2006 Stock Option Plan [Member] | Outside Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						44,000
Options, Granted				4,000
Shares available for awards	4,058
Norwood Financial Corp 2014 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					250,000
Options, Granted	24,450	13,727
Shares available for awards	202,523
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	16,000	7,077
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					42,000
Stock Issued During Period, Value, Restricted Stock Award, Gross			$ 9,300
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for awards	170,173
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for awards	25,250
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 6,000	$ 4,250
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Outside Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					40,000
Shares available for awards	32,350
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Outside Directors [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					8,000
Shares available for awards	350
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 2,450	$ 2,400	$ 2,800

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Stock Based Compensation (Summary of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Stock-Based Compensation [Abstract]
Options, Outstanding, beginning of period	194,521	206,463	219,540
Options, Granted	16,000	14,500	12,500
Options, Exercised	(30,823)	(16,859)	(25,577)
Options, Forfeited	(19,269)	(9,583)
Options, Outstanding, end of period	160,429	194,521	206,463
Options, Exercisable, end of period	144,429	180,021	193,963
Weighted Average Exercise Price Per Share, Outstanding, beginning of period	$ 26.91	$ 26.74	$ 26.64
Weighted Average Exercise Price Per Share, Granted	33.56	28.55	29.08
Weighted Average Exercise Price Per Share, Exercised	27.34	26.19	27.05
Weighted Average Exercise Price Per Share, Forfeited	27.86	27.02
Weighted Average Exercise Price Per Share, Outstanding, end of period	27.37	26.91	26.74
Weighted Average Exercise Price Per Share, Exercisable, end of period	$ 26.39	$ 26.78	$ 26.59
Weighted Average Remaining Contractual Term, Outstanding	5 years 7 months 6 days
Aggregate Intrinsic Value, Outstanding, beginning of period	$ 362,754	$ 477,640
Aggregate Intrinsic Value, Outstanding, end of period	931,963	362,754	$ 477,640
Aggregate Intrinsic Value, Exercisable at end of period	$ 931,963	$ 359,854	$ 477,640

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Stock Based Compensation (Restricted Stock Rollforward) (Details) - Restricted Stock [Member] - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Restricted stock outstanding, beginning balance	13,810	9,300
Restricted stock, granted	8,450	6,650
Restricted stock, vested	(3,120)	(1,860)
Restricted stock, forfeited	(450)	(280)
Restricted stock outstanding, ending balance	18,690	13,810
Restricted stock outstanding, weighted-average grant date fair value, beginning balance	$ 28.82	$ 29.08
Restricted stock, granted, weighted-average grant date fair value	33.56	28.55
Restricted stock, vested, weighted-average grant date fair value	28.85	29.08
Restricted stock, forfeited, weighted-average grant date fair value	28.80	29.08
Restricted stock outstanding, weighted-average grant date fair value, ending balance	$ 30.96	$ 28.82

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Stock Based Compensation (Schedule of Fair Value Assumptions) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Stock-Based Compensation [Abstract]
Dividend yield	3.93%	3.77%	3.57%
Expected life	10 years	10 years	10 years
Expected volatility	24.84%	24.35%	24.97%
Risk-free interest rate	2.44%	2.28%	2.17%
Weighted average fair value of options granted	$ 5.79	$ 4.89	$ 5.30

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Stock Based Compensation (Schedule of Outstanding Stock Options) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	160,429	194,521	206,463	219,540
Average Exercise Price	$ 27.37	$ 26.91	$ 26.74	$ 26.64
Remaining Life, Years	5 years 7 months 6 days
Options Exercisable	144,429	180,021	193,963
Average Exercise Price	$ 26.39	$ 26.78	$ 26.59
Average Exercise Price - $27.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	12,650
Average Exercise Price	$ 28.41
Remaining Life, Years	1 year
Options Exercisable	12,650
Average Exercise Price	$ 28.41
Average Exercise Price - $28.64 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	13,200
Average Exercise Price	$ 25.00
Remaining Life, Years	2 years
Options Exercisable	13,200
Average Exercise Price	$ 25.00
Average Exercise Price - $28.41 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	12,650
Average Exercise Price	$ 25.99
Remaining Life, Years	3 years
Options Exercisable	12,650
Average Exercise Price	$ 25.99
Average Exercise Price - $25.00 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	1,100
Average Exercise Price	$ 24.44
Remaining Life, Years	3 years 2 months 12 days
Options Exercisable	1,100
Average Exercise Price	$ 24.44
Average Exercise Price - $25.99 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	15,229
Average Exercise Price	$ 25.25
Remaining Life, Years	4 years
Options Exercisable	15,229
Average Exercise Price	$ 25.25
Average Exercise Price - $24.44 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	19,800
Average Exercise Price	$ 24.97
Remaining Life, Years	5 years
Options Exercisable	19,800
Average Exercise Price	$ 24.97
Average Exercise Price - $25.25 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	21,450
Average Exercise Price	$ 27.05
Remaining Life, Years	6 years
Options Exercisable	21,450
Average Exercise Price	$ 27.05
Average Exercise Price - $24.97 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	1,100
Average Exercise Price	$ 27.55
Remaining Life, Years	6 years
Options Exercisable	1,100
Average Exercise Price	$ 27.55
Average Exercise Price - $27.05 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	2,000
Average Exercise Price	$ 28.95
Remaining Life, Years	6 years 8 months 12 days
Options Exercisable	2,000
Average Exercise Price	$ 28.95
Average Exercise Price - $27.55 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	21,250
Average Exercise Price	$ 26.90
Remaining Life, Years	7 years
Options Exercisable	21,250
Average Exercise Price	$ 26.90
Average Exercise Price - $28.95 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	10,000
Average Exercise Price	$ 29.08
Remaining Life, Years	8 years
Options Exercisable	10,000
Average Exercise Price	$ 29.08
Average Exercise Price - $26.90 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	14,000
Average Exercise Price	$ 28.55
Remaining Life, Years	9 years
Options Exercisable	14,000
Average Exercise Price	$ 28.55
Average Exercise Price 29.08 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	16,000
Average Exercise Price	$ 33.56
Remaining Life, Years	10 years
Options Exercisable	0
Average Exercise Price	$ 0.00
Average Exercise Price - $28.55 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Exercisable	0
Average Exercise Price	$ 0.00

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Earnings Per Share (Narrative) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Earnings Per Share [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	16,000	14,000	12,500
Share price	$ 33.14	$ 28.75	$ 29.05

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Earnings Per Share (Basic and Diluted Earnings Per Share) (Details) - $ / shares shares in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Earnings Per Share [Abstract]
Weighted average shares outstanding	3,877	3,682	3,645
Less: Weighted average unvested restricted shares	(14)	(9)	0
Denominator: Basic earnings per share	3,863	3,673	3,645
Weighted average shares outstanding	3,863	3,682	3,645
Add: Dilutive effect of stock options	22	9	12
Diluted EPS weighted average shares outstanding	3,885	3,691	3,657
Basic earnings per common share	$ 1.74	$ 1.60	$ 2.10
Diluted earnings per common share	$ 1.73	$ 1.60	$ 2.10

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Off-Balance Sheet Financial Instruments (Table) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Loss Contingencies [Line Items]
Financial instrument commitments	$ 82,641	$ 73,631
Commitments to grant loans [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	22,210	19,704
Unfunded commitments under lines of credit [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	54,789	48,641
Standby letters of credit [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	$ 5,642	$ 5,286

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Fair Values of Financial Instruments (Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 302,564	$ 138,851
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	424	384
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	302,140	138,467
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	1,997	9,169
U.S. Government Agencies [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agencies [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	1,997	9,169
U.S. Government Agencies [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	125,101	60,755
States and political subdivisions [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States and political subdivisions [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	125,101	60,755
States and political subdivisions [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	10,112	4,974
Corporate obligations [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	10,112	4,974
Corporate obligations [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Mortgage-backed securities-government sponsored entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	164,930	63,569
Mortgage-backed securities-government sponsored entities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Mortgage-backed securities-government sponsored entities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	164,930	63,569
Mortgage-backed securities-government sponsored entities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Equity securities-financial services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	424	384
Equity securities-financial services [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	424	384
Equity securities-financial services [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Equity securities-financial services [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 0	$ 0

XML

Fair Values of Financial Instruments (Fair Value, Assets and Liabilities Measured on Nonrecurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 2,624	$ 7,615
Impaired Loans [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Impaired Loans [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Impaired Loans [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	2,624	7,615
Foreclosed Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	5,302	2,847
Foreclosed Real Estate Owned [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Foreclosed Real Estate Owned [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Foreclosed Real Estate Owned [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 5,302	$ 2,847

XML

Fair Values of Financial Instruments (Additional Qualitative Information about Level 3 Assets) (Details) $ in Thousands		12 Months Ended
		Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment		$ 2,624	$ 9,228
Impaired Financing Receivable, with Related Allowance, Recorded Investment			6,373
Impaired Financing Receivable, Related Allowance			1,613
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		2,624	2,855
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		2,624	$ 7,615
Fair Value Disclosure, Unobservable Input Range			Probability of default
Fair Value Inputs, Probability of Default			0.00%
Number of impaired loans requiring a valuation allowance | loan			3
Impaired Financing Receivable, Recorded Investment		2,624	$ 9,228
Impaired Financing Receivable, with Related Allowance, Recorded Investment			6,373
Impaired Financing Receivable, Related Allowance		$ 0	$ 1,613
Number of impaired loans not requiring a valuation allowance | loan		7	20
Impaired Financing Receivable, with No Related Allowance, Recorded Investment			$ 2,855
Impaired Loans, Cumulative Charge-Offs		$ 831	2,044
Impaired Loans [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 1,473	$ 2,574
Fair Value Measurements, Valuation Techniques	[1]	Appraisal of collateral(1)	Appraisal of collateral(1)
Fair Value Disclosure, Unobservable Input Range	[2]	Appraisal adjustments(2)	Appraisal adjustments(2)
Fair Value Inputs, Comparability Adjustments		10.00%	10.00%
Impaired Loans [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 1,151	$ 5,041
Fair Value Measurements, Valuation Techniques		Present value of future cash flows	Present value of future cash flows
Fair Value Disclosure, Unobservable Input Range		Loan discount rate	Loan discount rate
Impaired Loans [Member] | Minimum [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		4.00%	4.00%
Impaired Loans [Member] | Maximum [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		5.25%	7.00%
Impaired Loans [Member] | Weighted Average [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments		10.00%	10.00%
Impaired Loans [Member] | Weighted Average [Member] | Present value of future cash flows [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		5.11%	5.61%
Foreclosed Real Estate Owned [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 5,302	$ 2,847
Fair Value Measurements, Valuation Techniques	[1]	Appraisal of collateral(1)	Appraisal of collateral(1)
Fair Value Disclosure, Unobservable Input Range	[2]	Liquidation Expenses(2)	Liquidation Expenses(2)
Fair Value Inputs, Discount Rate		10.00%	10.00%

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable, less any associated allowance.

[2] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

XML

Fair Values of Financial Instruments (Fair Value, by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and cash equivalents, Fair Value Disclosure	$ 17,174	$ 10,010
Financial assets: Securities, Fair Value Disclosure	302,564	138,851
Financial assets: Loans receivable, net, Fair Value Disclosure	716,661	559,416
Financial assets: Mortgage servicing rights, Fair Value Disclosure	250	291
Financial assets: Regulatory stock, Fair Value Disclosure	2,119	3,412
Financial assets: Bank owned life insurance, Fair Value Disclosure	36,133	18,820
Financial assets: Accrued interest receivable, Fair Value Disclosure	3,643	2,363
Financial liabilities: Deposits, Fair Value Disclosure	925,561	551,175
Financial liabilities: Short-term borrowings, Fair Value Disclosure	32,811	53,235
Financial liabilities: Other borrowings, Fair Value Disclosure	31,863	41,260
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,069	957
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Financial assets: Cash and cash equivalents	17,174	10,010	$ 12,376	$ 7,863
Financial assets: Securities	302,564	138,851
Financial assets: Loans receivable, net	707,426	552,627
Financial assets: Mortgage servicing rights	232	261
Financial assets: Regulatory stock	2,119	3,412
Financial assets: Bank owned life insurance	36,133	18,820
Financial assets: Accrued interest receivable	3,643	2,363
Financial liabilities: Deposits	925,385	550,909
Financial liabilities: Short-term borrowings	32,811	53,235
Financial liabilities: Other borrowings	32,001	41,126
Financial liabilities: Accrued interest payable	1,069	957
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and cash equivalents, Fair Value Disclosure	17,174	10,010
Financial assets: Securities, Fair Value Disclosure	424	384
Financial assets: Loans receivable, net, Fair Value Disclosure	0	0
Financial assets: Mortgage servicing rights, Fair Value Disclosure	0	0
Financial assets: Regulatory stock, Fair Value Disclosure	2,119	3,412
Financial assets: Bank owned life insurance, Fair Value Disclosure	36,133	18,820
Financial assets: Accrued interest receivable, Fair Value Disclosure	3,643	2,363
Financial liabilities: Deposits, Fair Value Disclosure	629,829	354,162
Financial liabilities: Short-term borrowings, Fair Value Disclosure	32,811	53,235
Financial liabilities: Other borrowings, Fair Value Disclosure	0	0
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,069	957
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and cash equivalents, Fair Value Disclosure	0	0
Financial assets: Securities, Fair Value Disclosure	302,140	138,467
Financial assets: Loans receivable, net, Fair Value Disclosure	0	0
Financial assets: Mortgage servicing rights, Fair Value Disclosure	0	0
Financial assets: Regulatory stock, Fair Value Disclosure	0	0
Financial assets: Bank owned life insurance, Fair Value Disclosure	0	0
Financial assets: Accrued interest receivable, Fair Value Disclosure	0	0
Financial liabilities: Deposits, Fair Value Disclosure	0	0
Financial liabilities: Short-term borrowings, Fair Value Disclosure	0	0
Financial liabilities: Other borrowings, Fair Value Disclosure	0	0
Financial liabilities: Accrued interest payable, Fair Value Disclosure	0	0
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and cash equivalents, Fair Value Disclosure	0	0
Financial assets: Securities, Fair Value Disclosure	0	0
Financial assets: Loans receivable, net, Fair Value Disclosure	716,661	559,416
Financial assets: Mortgage servicing rights, Fair Value Disclosure	250	291
Financial assets: Regulatory stock, Fair Value Disclosure	0	0
Financial assets: Bank owned life insurance, Fair Value Disclosure	0	0
Financial assets: Accrued interest receivable, Fair Value Disclosure	0	0
Financial liabilities: Deposits, Fair Value Disclosure	295,732	197,013
Financial liabilities: Short-term borrowings, Fair Value Disclosure	0	0
Financial liabilities: Other borrowings, Fair Value Disclosure	31,863	41,260
Financial liabilities: Accrued interest payable, Fair Value Disclosure	0	0
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure	$ 0	$ 0

XML

Accumulated Other Comprehensive Income (Components of Accumulated Other Comprehensive Income and Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016		Dec. 31, 2015	Dec. 31, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	[1]	$ 488
Other comprehensive income (loss) before reclassification	[1]	(4,422)
Amount reclassified from accumulated other comprehensive income	[1]	(185)
Net of tax amount		(4,607)	[1]	$ 26	$ 3,064
Ending balance	[1]	(4,119)		488
Unrealized gains on available for sale securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	[1]	488		462
Other comprehensive income (loss) before reclassification	[1]	(4,740)		439
Amount reclassified from accumulated other comprehensive income	[1]	(185)		(413)
Net of tax amount	[1]	(4,925)		26
Ending balance	[1]	(4,437)		$ 488	$ 462
Unrealized gain on pension liability [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive income (loss) before reclassification	[1]	318
Net of tax amount	[1]	318
Ending balance	[1]	$ 318

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

XML

Accumulated Other Comprehensive Income (Items Reclassified Out of Each Component of OCI) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities		$ 284	$ 626	$ 1,170
Income tax expense		(1,884)	(1,632)	(2,606)
Net income		6,711	5,908	$ 7,657
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	[1]	(99)	(213)
Net income	[1]	185	413
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized gains on available for sale securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	[1]	$ 284	$ 626

[1] Amounts in parentheses indicate debits to net income.

XML

Acquisition of Delaware Bancshares, Inc. (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands			12 Months Ended
	Jul. 31, 2016	Oct. 31, 2007	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Business Acquisition [Line Items]
Certain Loans Acquired in Transfer, Nonaccretable Difference	$ 1,014
Loans and Leases Receivable, Net Reported Amount			$ 707,426	$ 552,627
Loans Receivable, Fair Value Disclosure			716,661	559,416
Goodwill			11,331	9,715
Goodwill, Impairment Loss			0	0	$ 0
Finite-Lived Intangible Assets, Accumulated Amortization			732	$ 610
Delaware Bancshares, Inc. Acquisition [Member]
Business Acquisition [Line Items]
Business Acquisition, Share Price	$ 16.68
Business Acquisition, shares exchanged	0.6221
Payments to Acquire Businesses, Gross	$ 3,860
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	431,605
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Outstanding Balance	$ 1,410
Certain Loans Acquired in Transfer, Nonaccretable Difference	260
Loans and Leases Receivable, Net Reported Amount	111,307
Loans Receivable, Fair Value Disclosure	109,693
Goodwill	$ 1,616		1,616
Goodwill, Impairment Loss			$ 0
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			10 years
Finite-Lived Intangible Assets, Gross			$ 449
Finite-Lived Intangible Assets, Accumulated Amortization			$ 14
Delaware Bancshares, Inc. Acquisition [Member] | Delaware Bancshares, Inc. [Member]
Business Acquisition [Line Items]
Proceeds from Issuance of Trust Preferred Securities		$ 8,000
Delaware Bancshares, Inc. Acquisition [Member] | Delaware Bancshares, Inc. [Member] | London Interbank Offered Rate (LIBOR) [Member]
Business Acquisition [Line Items]
Debt Instrument, Basis Spread on Variable Rate		2.40%

XML

Acquisition of Delaware Bancshares, Inc. (Tables) (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
	Jul. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Business Acquisition [Line Items]
Stock Issued During Period, Value, Acquisitions		$ 12,150
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest		111,079	$ 100,998	$ 99,041	$ 91,864
Goodwill resulting from Delaware Bancshares, Inc. Merger		11,331	$ 9,715
Delaware Bancshares, Inc. Acquisition [Member]
Business Acquisition [Line Items]
Acquiree shares settled for stock	694,114
Business Acquisition, shares exchanged	0.6221
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	431,605
Value assigned to acquirer common share, per share	$ 28.15
Stock Issued During Period, Value, Acquisitions	$ 12,150
Acquiree shares settled for cash	231,385
Business Acquisition, Share Price	$ 16.68
Purchase price assigned to acquiree shares	$ 3,860
Cash in lieu of fractional shares	6
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	19,357
Goodwill and intangible assets	(7,640)
Tangible equity	11,717
Adjustments to investments acquired to fair value	219
Adjustments to interest rates on loans acquired to fair value	1,486
Adjustments to general credit on loans acquired to fair value	(1,614)
Adjustments to specific credit - non-amortizing on loans acquired to fair value	(260)
Adjustments to specific credit - amortizing on loans acquired to fair value	(239)
Adjustments to core deposit intangibles acquired to fair value	449
Adjustments to deferred loan fees acquired to fair value	(296)
Adjustments to premises and equipment acquired to fair value	3,053
Adjustments to allowance for loan and lease losses acquired to fair value	1,651
Adjustments to deferred tax assets acquired to fair value	(1,417)
Adjustments to other assets acquired to fair value	(97)
Adjustments to time deposits acquired to fair value	(252)
Total purchase price	16,016
Net Assets Acquired: Cash	14,977
Net Assets Acquired: Securities available for sale	208,488
Net Assets Acquired: Loans	116,674
Net Assets Acquired: Premises & equipment, net	7,292
Net assets acquired: Regulatory stock	279
Net Assets Acquired: Accrued interest receivable	1,626
Net assets acquired: Bank-owned life insurance	14,762
Net Assets Acquired: Core deposit intangible	449
Net Assets Acquired: Deferred tax assets	3,034
Net Assets Acquired: Other assets	3,282
Net Assets Acquired: Time deposits	(71,342)
Net Assets Acquired: Deposits other than time deposits	(255,921)
Net Assets Acquired: Borrowings	(21,232)
Net Assets Acquired: Accrued interest payable	(95)
Net Assets Acquired: Other liabilities	(7,873)
Net Assets Acquired	14,400
Goodwill resulting from Delaware Bancshares, Inc. Merger	$ 1,616	$ 1,616

XML

Acquisition of Delaware Bancshares, Inc. (Future Amortization Expense) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Business Acquisition [Line Items]
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	$ 150
Finite-Lived Intangible Assets, Amortization Expense, Year Two	126
Finite-Lived Intangible Assets, Amortization Expense, Year Three	101
Finite-Lived Intangible Assets, Amortization Expense, Year Four	77
Finite-Lived Intangible Assets, Amortization Expense, Year Five	52
Finite-Lived Intangible Assets, Amortization Expense, after Year Five	106
Amortization Expense for the Core Deposit Intangible, Total	612
Delaware Bancshares, Inc. Acquisition [Member]
Business Acquisition [Line Items]
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	30
Finite-Lived Intangible Assets, Amortization Expense, Year Two	30
Finite-Lived Intangible Assets, Amortization Expense, Year Three	30
Finite-Lived Intangible Assets, Amortization Expense, Year Four	30
Finite-Lived Intangible Assets, Amortization Expense, Year Five	30
Finite-Lived Intangible Assets, Amortization Expense, after Year Five	299
Amortization Expense for the Core Deposit Intangible, Total	$ 449

XML

Acquisition of Delaware Bancshares, Inc. (Proforma) (Details) - USD ($) $ / shares in Units, $ in Thousands	5 Months Ended	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Business Acquisition [Line Items]
Net interest income		$ 28,590	$ 24,521	$ 24,560
Noninterest Income		5,179	4,699	5,110
Net Income (Loss) Attributable to Parent		$ 6,711	$ 5,908	$ 7,657
Earnings Per Share, Basic		$ 1.74	$ 1.60	$ 2.10
Earnings Per Share, Diluted		$ 1.73	$ 1.60	$ 2.10
Parent Company [Member]
Business Acquisition [Line Items]
Net Income (Loss) Attributable to Parent		$ 6,711	$ 5,908	$ 7,657
Delaware Bancshares, Inc. [Member]
Business Acquisition [Line Items]
Net interest income	$ 3,900
Noninterest Income	893
Net Income (Loss) Attributable to Parent	$ 750
Earnings Per Share, Basic	$ 0.18
Earnings Per Share, Diluted	$ 0.18
Delaware Bancshares, Inc. [Member] | Pro Forma [Member]
Business Acquisition [Line Items]
Net interest income		37,199	33,787
Noninterest Income		6,487	7,939
Net Income (Loss) Attributable to Parent		$ 3,588	$ 6,944
Earnings Per Share, Basic		$ 0.87	$ 1.69
Earnings Per Share, Diluted		$ 0.87	$ 1.68

XML

Acquistion of Delaware Bancshares, Inc. (Nonrecurring Adjustments) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Professional Fees [Member]
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Business Combination, Acquisition Related Costs	$ 1,602	$ 80
Data Processing Related [Member]
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Business Combination, Acquisition Related Costs	638
Other Acquisition-Related Costs [Member]
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Business Combination, Acquisition Related Costs	$ 810

XML

Norwood Financial Corp (Parent Company Only) Financial Information (Balance Sheets) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	$ 14,900	$ 9,744
Securities available for sale	302,564	138,851
Other assets	2,359	1,434
Total Assets	1,111,183	750,505
Liabilities	1,000,104	649,507
Stockholders' equity	111,079	100,998	$ 99,041	$ 91,864
Total Liabilities and Stockholders' Equity	1,111,183	750,505
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	3,005	2,151
Securities available for sale	397	384
Investment in bank subsidiary	105,138	95,895
Other assets	4,539	4,113
Total Assets	113,079	102,543
Liabilities	2,000	1,545
Stockholders' equity	111,079	100,998
Total Liabilities and Stockholders' Equity	$ 113,079	$ 102,543

XML

Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Income) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Financial Statements, Captions [Line Items]
Net realized gain (loss) on sales of securities	$ 284	$ 626	$ 1,170
Income before taxes and equity in undistributed earnings	8,595	7,540	10,263
INCOME TAX EXPENSE	1,884	1,632	2,606
Net Income	6,711	5,908	7,657
Comprehensive Income, Net of Tax	2,104	5,934	10,721
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Dividends from bank subsidiary	28,598	4,574	4,377
Other interest income	12	11	10
Total Revenues	28,610	4,585	4,387
Expenses	1,347	313	346
Income before taxes and equity in undistributed earnings	27,263	4,272	4,041
INCOME TAX EXPENSE	(225)	(103)	(114)
Income before equity in undistributed earnings	27,488	4,375	4,155
Equity in undistributed earnings of subsidiary	(20,777)	1,533	3,502
Net Income	6,711	5,908	7,657
Comprehensive Income, Net of Tax	$ 2,104	$ 5,934	$ 10,721

XML

Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Cash Flows) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Financial Statements, Captions [Line Items]
Net Income	$ 6,711	$ 5,908	$ 7,657
Net (gains) losses on sales of securities	284	626	1,170
Other, net	27	419	(447)
Net Cash Provided by Operating Activities	11,338	10,498	10,531
Proceeds from sale of securities	110,748	44,976	66,263
Securities available for sale: Purchases	(100,982)	(50,565)	(74,426)
Net Cash Provided by (Used in) Investing Activities	3,543	(46,244)	4,691
Proceeds from Stock Options Exercised	843	441	691
Excess Tax Benefit from Share-based Compensation, Financing Activities	38	16	17
ESOP purchase of shares from treasury stock	131	146	150
Acquisition of treasury stock	(447)	(127)	(179)
Cash dividends paid	(4,714)	(4,527)	(4,370)
Net Cash (Used in) Provided by Financing Activities	(7,717)	33,380	(10,709)
Net Increase (Decrease) in Cash and Cash Equivalents	7,164	(2,366)	4,513
CASH AND CASH EQUIVALENTS - BEGINNING	10,010	12,376	7,863
CASH AND CASH EQUIVALENTS - ENDING	17,174	10,010	12,376
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Net Income	6,711	5,908	7,657
Undistributed earnings of bank subsidiary	20,777	(1,533)	(3,502)
Other, net	305	19	(177)
Net Cash Provided by Operating Activities	27,183	4,356	4,332
Outlays for business acquisitions	(2,324)	0	0
Net Cash Provided by (Used in) Investing Activities	(2,324)	0	0
Repayment of borrowings	(19,856)	0	0
Proceeds from Stock Options Exercised	843	441	691
Outlays for business acquisitions	2,324	0	0
Excess Tax Benefit from Share-based Compensation, Financing Activities	38	16	17
ESOP purchase of shares from treasury stock	131	146	150
Acquisition of treasury stock	(447)	(127)	(179)
Cash dividends paid	(4,714)	(4,527)	(4,370)
Net Cash (Used in) Provided by Financing Activities	(24,005)	(4,051)	(3,691)
Net Increase (Decrease) in Cash and Cash Equivalents	854	305	641
CASH AND CASH EQUIVALENTS - BEGINNING	2,151	1,846	1,205
CASH AND CASH EQUIVALENTS - ENDING	$ 3,005	$ 2,151	$ 1,846