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, 2018

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer  ☐	Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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 29, 2018, $36.02 per share, was $213.7 million based on 5,932,414 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, 2019, there were 6,292,643 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, 2018. (Parts I, II, and IV)

2. Portions of the definitive Proxy Statement for the 2019 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.	24
Item 1B.	Unresolved Staff Comments.	33
Item 2.	Properties.	33
Item 3.	Legal Proceedings.	33
Item 4.	Mine Safety Disclosures.	33
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	34
Item 6.	Selected Financial Data.	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	35
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk.	35
Item 8.	Financial Statements and Supplementary Data.	35
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	35
Item 9A.	Controls and Procedures.	35
Item 9B.	Other Information.	35
Part III
Item 10.	Directors, Executive Officers and Corporate Governance.	35
Item 11.	Executive Compensation.	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	36
Item 13.	Certain Relationships and Related Transactions and Director Independence.	37
Item 14.	Principal Accounting Fees and Services.	37
Part IV
Item 15.	Exhibits, Financial Statement Schedules.	37
Item 16.	Form 10-K Summary.	39
SIGNATURES		40

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 hereof, include:

• 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 risks;

• rate sensitivity of municipal deposits;

• availability of capital;

• geographical concentration of business;

• loss of senior officers;

• comparatively low legal lending limits;

• risks of new capital requirements;

• potential impact of Tax Cuts and Jobs Act;

• limited market for the Company’s common 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; and

•   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 “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, 2018, the Company had total consolidated assets of $1.185 billion, consolidated deposits of $946.8 million, and consolidated stockholders’ equity of $122.3 million.

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The Company’s ratio of average equity to average assets was 10.15%, 10.34%, and 11.95%, for fiscal years 2018, 2017 and 2016, 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 26offices 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 two offices in Lackawanna County, Pennsylvania.  As a result of the acquisition of Delaware Bancshares, Inc., Wayne Bank now has six offices in Delaware County, New York, and six offices in Sullivan County, New York.  The Bank has given notice of its intent to close its Lords Valley branch in Pike County, Pennsylvania in March 2019 and received regulatory approval to establish a new branch in Hanover Township, in Luzerne County, Pennsylvania, which is expected to open in the second quarter of 2019.

   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 27automated 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.

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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 North Penn 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 as well as from on-line banks. Based on data compiled by the FDIC as of June 30, 2018 (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 21.9%, the second largest share in Pike County with 19.9%, seventh largest share in Monroe County with 3.8% and tenth largest share in Lackawanna County with 1.2%.  At June 30, 2018, the Bank had the second largest share of FDIC-insured deposits in Delaware County, New York, with 25.5% and the seventh largest share in Sullivan County, New York, with 6.3%.  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, 2018, the Bank had 203 full‑time and 7 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”) or 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 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, 2018, there were $100.9 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, 2018, the approximate outstanding balance of these acquired loans was $70.8 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, 2018, the approximate outstanding balance of these acquired loans was $25.6 million.

Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures.  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.  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, 2018, the Bank had approximately $71.8 million in loans on commercial rentals, as well as $59.7 million of loans outstanding to the hospitality lodging industry, which are its largest lending concentrations.

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.

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

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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.

The Bank’s adjustable-rate loan portfolio includes approximately $2.7 million in loan participations indexed to the London Interbank Offered Rate (“LIBOR”) which is expected to be phased out by the end of 2021.  The Bank anticipates that the terms of LIBOR-based loans, which have not matured prior to the phase-out of LIBOR will be negotiated to incorporate a to-be-determined substitute reference rate.  The Bank must rely on the lead bank to renegotiate the terms of loans in which the Bank has a participation.  There can be no assurance that the lead bank will be able to successfully renegotiate the loans in which the Bank has participations or that the substitute reference rate will perform as satisfactorily as LIBOR.

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

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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.

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 are 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 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.  Under the recently-enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), residential mortgages originated for portfolio by insured depository institutions, like the Bank, with less than $10 billion in total consolidated assets will be treated as qualified mortgages; provided that the mortgage terms do not include interest-only payments or negative amortization, total points and fees do not exceed 3% of the loan amount, prepayment penalties are not in excess of those permitted for qualified mortgages under Regulation Z and the lender has considered and documented the debt, income and financial resources of the borrower.

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 Officer Loan Committee is comprised of the President and Chief Executive Officer, Chief Lending Officer and other Bank officers. The Officer 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 Officer 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.

	As of December 31,
	2018				2017				2016				2015				2014
	$			%	$			%	$			%	$			%	$			%
	(dollars in thousands)
Commercial loans	$	110,542		13.0	$	97,461		12.7	$	85,508		12.0	$	71,090		12.7	$	42,514		8.5
Real Estate-Construction		17,445		2.0		17,228		2.3		19,709		2.8		18,987		3.4		19,221		3.9
Real Estate-Residential		235,523		27.7		235,759		30.8		237,177		33.2		161,820		28.9		158,139		31.5
Real Estate-Commercial		374,790		44.1		342,934		44.9		320,187		44.8		279,123		49.8		261,956		52.2
Consumer loans		112,002		13.2		70,953		9.3		51,524		7.2		29,231		5.2		19,704		3.9
		850,302		100.0		764,335		100.0		714,105		100.0		560,251		100.0		501,534		100.0
Deferred fees, net		(120	)			(243	)			(216	)			(326	)			(399	)
Allowance for loan losses		(8,452	)			(7,634	)			(6,463	)			(7,298	)			(5,875	)
Loans receivable, net	$	841,730			$	756,458			$	707,426			$	552,627			$	495,260

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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, 2018. 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 Yearor Less		After One toFive Years		OverFive Years		Total
	(dollars in thousands)
Commercial loans	$	12,210	$	27,532	$	70,811	$	110,553
Real Estate – Construction		6,710		2,835		7,900		17,445
Total	$	18,920	$	30,367	$	78,711	$	127,998
Loans with fixed rates	$	7,955	$	19,310	$	46,253	$	73,518
Loans with floating rates		14,025		12,321		28,134		54,480
Total	$	21,980	$	31,631	$	74,387	$	127,998

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, 2018, 2017, 2016, 2015, and 2014, the Company also had $1.1 million, $1.1 million, $1.5 million, $6.8 million, and $8.8 million, respectively, in troubled debt restructurings.For the year ended December 31, 2018, interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of such loans was $98,000 of which $19,000 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 2018 was $64,000 of which $59,000 was collected.  Of those loans classified as troubled debt restructurings at December 31, 2018, one loan with a balance of $110,000 is included in non-accrual loans, while one loan relationship with a balance of $977,000 is carried in full accrual status.

	As of December 31,
	2018			2017			2016			2015			2014
	(dollars in thousands)
Non-accrual loans:   Real Estate loans
Residential	$	798		$	1,706		$	1,136		$	440		$	1,675
Commercial		342			277			762			6,649			3,921
Construction		—			—			28			—			—
Commercial		—			—			—			43			—
Consumer loans		—			—			—-			—-			4
Total non-accrual loans*		1,140			1,983			1,926			7,132			5,600
Accruing loans which are contractually past-due 90 days or more		—			496			1			—			—
Total non-performing loans		1,140			2,479			1,927			7,132			5,600
Foreclosed real estate		1,115			1,661			5,302			2,847			3,726
Total non-performing assets	$	2,255		$	4,140		$	7,229		$	9,979		$	9,326
Total non-performing loans to total loans		0.13	%		0.32	%		0.27	%		1.27	%		1.12	%
Total non-performing loans to total assets		0.10	%		0.22	%		0.17	%		0.95	%		0.79	%
Total non-performing assets to total assets		0.19	%		0.37	%		0.65	%		1.33	%		1.31	%

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*Includes non-accrual TDRs of $110,000, $144,000, $477,000, $5.7 million, and $2.2 million as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively.  The Company also had $977,000, $996,000, $1.0 million, $1.1 million, and $6.6 million in accruing TDRs, respectively, on those dates.

The recorded investment in impaired loans, not requiring an allowance for loan losses was $1,319,000 (net of a charge-off against the allocation for loan losses of $428,000) and $1,247,000 (net of a charge-off against the allowance for loan losses of $277,000) at December 31, 2018 and 2017, respectively. There were no impaired loans requiring an allowance on December 31, 2018 or 2017. The specific reserve related to impaired loans was $0 for 2018 and 2017. For the years ended December 31, 2018 and 2017, the average recorded investment in these impaired loans was $1,220,000 and $1,232,000, respectively, and the interest income recognized on these impaired loans was $67,000 and $56,000, respectively.  In connection with the Delaware Bancshares acquisition, the Company acquired loans with deteriorated credit quality with an unpaid balance of $2.6 million, which are being carried at their fair value of $748,000.  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 $307,000.

As of December 31, 2018, 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 2018, 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.

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.

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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,
	2018			2017			2016			2015			2014
	(In thousands)
Special mention		$	8,000		$	9,696		$	6,317		$	1,837		$	1,983
Substandard			6,620			5,536			4,346			9,437			13,344
Doubtful			—			—			—			—			—
Loss			—			—			—			—			—
Total		$	14,620		$	15,232		$	10,663		$	11,274		$	15,327

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,
	2018			2017			2016			2015			2014
	(dollars in thousands)
Total loans receivable net of deferred fees	$	850,182		$	764,092		$	713,889		$	559,925		$	501,135
Average loans receivable		800,957			737,765			626,907			529,989			500,960
Allowance balance at beginning of period	$	7,634		$	6,463		$	7,298		$	5,875		$	5,708
Charge-offs:
Commercial		(246	)		—			(15	)		—			—
Real Estate – residential, commercial and construction		(480	)		(1,013	)		(2,834	)		(3,107	)		(1,466	)
Consumer		(263	)		(207	)		(102	)		(91	)		(80	)
Total		(989	)		(1,220	)		(2,951	)		(3,198	)		(1,546	)
Recoveries:
Commercial		8			—			—			—			—
Real Estate – residential, commercial and construction		42			165			21			20			2
Consumer		32			26			45			21			31
Total		82			191			66			41			33
Net Charge-offs		(907	)		(1,029	)		(2,885	)		(3,157	)		(1,513	)
Provision Expense		1,725			2,200			2,050			4,580			1,680
Allowance balance at end of period	$	8,452		$	7,634		$	6,463		$	7,298		$	5,875
Allowance for loan losses as a percent of total loans outstanding		0.99	%		1.00	%		0.91	%		1.30	%		1.17	%
Net loans charged off as a percent of average loans outstanding		0.11	%		0.14	%		0.46	%		0.60	%		0.30	%

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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,
	2018						2017						2016						2015						2014
				% 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		$	712		13.0	%		$	463		12.7	%		$	307		12.0	%		$	397		12.7	%		$	256		8.5	%
Real estate – construction			93		2.0				90		2.3				78		2.8				90		3.4				222		3.9
Real estate – residential			1,328		27.7				1,272		30.8				1,092		33.2				1,069		28.9				1,323		31.5
Real estate – commercial			5,455		44.1				5,265		44.9				4,623		44.8				5,506		49.8				3,890		52.2
Consumer			864		13.2				544		9.3				363		7.2				236		5.2				184		3.9
Unallocated			—		—				—		—				—		—				—		—				—		—
Total		$	8,452		100.0	%		$	7,634		100.0	%		$	6,463		100.0	%		$	7,298		100.0	%		$	5,708		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. The Company also has corporate debt obligations in the portfolio.  All such securities are classified as available-for-sale and carried at their fair value.  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, all of which are classified as available-for-sale, at the dates indicated are as follows:

	As of December 31,
	2018		2017		2016
	(in thousands)
U.S. Treasury securities	$	—	$	1,998	$	1,997
State and political subdivisions		97,613		120,478		125,101
Corporate obligations		8,640		9,989		10,112
Mortgage-backed securities –    government sponsored entities		137,024		148,656		164,930
Equity securities-financial services		—		—		424
Total Securities	$	243,277	$	281,121	$	302,564
Fair Value of Securities	$	243,277	$	281,121	$	302,564

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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, 2018. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 21%.  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.

							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)
State and political subdivision		$	1,671		3.75	%		$	13,489		2.10	%		$	43,454		2.49	%		$	38,999		3.75	%		$	97,613		2.96	%
Corporate obligations			—		—				8,640		2.35				—		—				—		—				8,640		2.35
Mortgage-backed securities-government sponsored entities			—		—				—		—				—		—				137,024		2.15				137,024		2.15
Total Investment Securities		$	1,671		3.75	%		$	22,129		2.20	%		$	43,454		2.49	%		$	176,023		2.50	%		$	243,277		2.48	%

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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 $9.8 million of brokered deposits through its participation 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 include cash management, direct deposit, Remote Deposit Capture, mobile deposit capture, PopMoney® mobile payments and Automated Clearing House (ACH) activity.  The Bank operates twenty-seven 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,
	2018						2017					2016
	Average						Average					Average
	Balance			Rate Paid			Balance		Rate Paid			Balance		Rate Paid
	(dollars in thousands)
Non-interest bearing demand		$	208,222		—	%	$	200,368		—	%	$	146,578		—	%
Interest-bearing demand			91,782		0.10			89,881		0.07			71,107		0.05
Money Market			142,147		0.26			155,836		0.22			137,266		0.22
Savings			178,203		0.05			189,548		0.05			125,904		0.05
Time			322,768		1.27			293,641		0.98			234,026		0.94
Total		$	943,122				$	929,274				$	714,881

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, 2018.

	Amount
Maturity Period	(in thousands)
Within three months		$	57,382
Over three through six months			27,782
Over six through twelve months			61,158
Over twelve months			53,598
		$	199,920

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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,
	2018				2017			2016
	(dollars in thousands)
Short-term borrowings:
Average balance during the year		$	41,963		$	39,170		$	41,593
Maximum month-end balance during the year		$	53,046		$	54,286		$	52,672
Average interest rate during the year			0.77	%		0.51	%		0.31	%
Total short-term borrowings at end of the year		$	53,046		$	42,530		$	32,811
Weighted average interest rate at the end of the year			1.27	%		0.87	%		0.32	%

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, 2018, the Bank had $151.2 million of assets under management compared to $157.8 million as of December 31, 2017. The decrease 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. Until February 16, 2018, securities were offered through Invest Financial, a registered broker/dealer. Effective February 16, 2018, the broker/dealer relationship transitioned to LPL Financial LLC (“LPL”) as a result of the sale of Invest to LPL in 2017.  LPL is a registered broker/dealer and a member of FINRA and the SIPC.  NIC generated gross revenues for the Company of $185,000 and $146,000 in 2018 and 2017, respectively, 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, 2018 and 2017, the outstanding balance of foreclosed properties on which WTRO held title totaled $1,070,000 and $1,564,000, respectively.  Norwood Settlement Services, LLC, a Pennsylvania limited liability company, was established in 2004 to provide title and settlement services to Bank customers and non-customers.  In June 2017, the Bank adopted a plan of dissolution for Norwood Settlement Services, LLC and its existence was terminated on May 29, 2018.

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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 bank.

Under the BHCA, the Company generally 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.”As directed by EGRRCPA, the Federal Reserve has amended its Small Bank Holding Company Policy Statement to exempt from the regulatory capital requirements bank holding companies with less than $3.0 billion in consolidated assets that are not engaged in significant non-banking or off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC.  As long as their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications.

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

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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.

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.

Effective July 1, 2016, the FDIC amended its assessment regulations for banks with less than $10 billion in assets to replace the previous four risk categories with updated financial ratios that are designed to better predict the risk of failure of insured institutions.  The amended rules will remain in effect until the reserve ratio of the Deposit Insurance Fund 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) is divided by the bank’s total assets to determine the percentage of assets 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.

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

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government established to recapitalize the Federal Savings and Loan Insurance Corporation.  The FICO assessment rates, which are determined quarterly, averaged approximately 0.003% of insured deposits on an annualized basis in fiscal year 2018. These assessments are anticipated to continue until the FICO bonds mature in 2017 through 2019.

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, banks are 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.  Pursuant to EGRRCPA, the federal banking agencies may only apply a heightened risk weight to a higher volatility commercial real estate exposure that constitutes a higher volatility commercial real estate acquisition, development or construction loan as defined in EGRRCPA and which was originated on or after January 1, 2015.

In addition to higher capital requirements, the new capital rules 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.

EGRRCPA directs the federal banking agencies to develop a community bank leverage ratio of tangible capital to average total consolidated assets of between 8% and 10% as an alternative to the current leverage and risk-based capital rules for qualifying community banks and satisfying any other leverage or capital requirements to which they are subject.  Qualifying community banks meeting the community bank

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leverage ratio would also be deemed well-capitalized for purposes of the prompt corrective action rules.   A qualifying community bank is a depository institution or holding company with total consolidated assets of less than $10 billion that is not excluded from qualification by the federal banking regulators based on the institution’s risk profile. Under regulations proposed by the federal banking agencies, a qualifying community bank may opt in to the community bank leverage ratio framework if its community bank leverage ratio exceeds 9%. The proposed regulations would define tangible equity as total bank equity capital less: (i) accumulated other comprehensive income; (ii) intangible assets (other than mortgage servicing assets); and (iii) deferred tax assets (net of related valuation allowances) arising from net operating loss and tax credit carryforwards. Under the proposal, a qualifying community bank must have total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancellable commitments) of 25% of less of total consolidated assets, total trading assets and liabilities of 5% or less of total consolidated assets, mortgage servicing assets of 25% or less of tangible equity and temporary difference deferred tax assets of less than 25% of tangible equity.

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, 2018.

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.

Under the proposed community bank leverage ratio regulations, a qualifying community bank would be deemed: well capitalized if it has a community bank leverage ratio greater than 9%; adequately capitalized if its community bank leverage ratio is 7.5% or greater; undercapitalized if its community bank leverage ratio is less than 7.5% and significantly undercapitalized if its community bank leverage ratio is less than 6%. A qualifying community bank will continue to be treated as critically undercapitalized if it has a ratio of tangible equity to total assets of 2% or less.

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At December 31, 2018, 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 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, 2018, the Bank’s loans-to-one-borrower limitation was $15.6 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, 2018, 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, 2018, 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

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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 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

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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.

EGRRCPA amends the definition of banking entity to exclude banks that do not have, and are not controlled by a company that has, more than $10 billion in total consolidated assets and total trading assets that are more than 5% of total consolidated assets and the federal banking agencies have proposed to amend their implementing regulations to incorporate this exclusion.  Since the Bank qualifies for this exclusion, it will no longer be subject to the restrictions of the Volcker Rule.

Item 1A. Risk Factors

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

Risks Related to Our Business

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, 2018, we had approximately $11.7 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.

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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 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, 2018, our allowance for loan losses was $8,452,000 which represented 0.99% of outstanding loans. At such date, we had 19 nonperforming loans totaling $1.1 million and 6 impaired loans totaling $1.3 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.

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities.  This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.

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.

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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, 2018, approximately 73.8% of our loans had real estate as a primary or secondary component of collateral. In addition, approximately 56.3% 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.

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

As of December 31, 2018, we had approximately $243.3 million in investments, including mortgage-backed securities, on which we had unrealized losses of $7.4 million.  In addition, we had $3.9 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

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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. Our ability to maintain a positive net interest spread will also be impacted by the slope of the yield curve. In the event of a flattening of the yield curve in which short-term rates and long-term rates converge, it will be even more difficult to maintain an acceptable interest rate spread between our asset yields and funding costs. 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.

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.

A significant proportion of our time deposits have been acquired through competitive bidding and may be more sensitive to increases in interest rates than other deposits.

At December 31, 2018, approximately $87.3 million, or 25.3% of our time deposits consisted of deposits from local governments and governmental units which we acquired through competitive bidding.  These time deposits generally consist of short-term certificates of deposit with balances in excess of $250,000 which local governments use in order to obtain a higher return on excess funds. Since these deposits are put out to bid again as each certificate matures, the interest rates on these deposits have the potential to rapidly adjust to market rates. In the event of an increase in market rates, the Bank may need be required to raise the interest rates on these deposits in order to retain them.   In bidding for municipal deposits, the Bank considers its funding needs, its asset/liability management position, rates being paid for comparable funding and anticipated changes in interest rates.  The Bank also considers the amount, if any,

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of collateral that it will be required to post for the deposit, the overall mix of obligations to the municipality and the extent of the Bank’s total relationship with the municipality.  In the event management does not deem it prudent to pay higher rates for these deposits, the Bank may be required to find a replacement for this form of funding.

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 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.

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

At December 31, 2018, our lending limit per borrower was approximately $15.6 million, or 15% of our capital plus the 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 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 will 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.

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.

The Tax Cuts and Jobs Act could have an unintended impact on our business.

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “Act”) into law.  The Act contains the most extensive changes to the Internal Revenue Code in over 30 years.  Among other things, the Tax Act reduces the federal corporate tax rate from a maximum of 35% to a flat 21%, doubles the standard deduction for individuals, limits the deductibility of state and local income, property and sales taxes by individuals to $10,000 per year, eliminates the deductibility of interest on home equity loans, and eliminates the deductibility of interest on new home mortgages in excess of $750,000 (down from $1.0

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million previously).  The Act also eliminates loss carrybacks and limits the deductibility of loss carryforwards to 80% of current-year taxable income.  In addition, the Act phases out the deductibility of FDIC premiums for banks with assets in excess of $10 billion.  The Act allows 100% expensing for all non-real property capital expenditures for five years but limits the deductibility of net interest expense (interest expense minus interest income) to 30% of taxable income for businesses with average annual gross receipts of more than $25 million.

While the Company expects to benefit from the lower federal tax rate in the future, the lower tax rate and other new limits on the recognition of tax loss carryforwards have also reduced the value of existing net operating loss carryforwards and other tax assets which the Company was required to revalue during the 2017 fiscal year. Lower tax rates will also reduce the attractiveness of certain tax-advantaged bank investments such as municipal bonds and bank-owned life insurance.  Various other provisions of the Act could have unanticipated effects on the business of the Company and the Bank.  By reducing the tax advantages of home ownership through its limits on the deductibility of mortgage interest and property taxes and the elimination of the deductibility of interest on home equity loans, the Act could affect demand for housing and residential mortgages in the future.  The higher standard deduction could also impact mortgage financing by reducing the number of taxpayers who itemize deductions and therefore benefit from these deductions.  The lower corporate tax rates and new limits on the deductibility of net interest expense may reduce demand for loans from larger business borrowers and increase competition for lending to smaller business borrowers.

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 controls a substantial percentage of our stock and therefore have the ability to exercise substantial control over our affairs.

As of December 31, 2018, our directors and executive officers beneficially owned approximately 427,097 shares, or approximately 6.6% of our common stock, including options to purchase 87,250 shares, in the aggregate, of our common stock at exercise prices ranging from $16.65 to $32.81 per share (share

30

and per share amounts have been adjusted for the 50% stock dividend declared on August 8, 2017). Because of the large percentage of stock held by our directors and executive officers, 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 6,292,643 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, 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 787,500 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 550,681 were issued as of December 31, 2018. As of December 31, 2018, options to purchase a total of 82,850 shares were exercisable and had exercise prices ranging from $16.65 to $32.81.  Any such issuance will dilute the percentage ownership interest of shareholders and may further dilute the book value per share 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.

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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 Pennsylvania Department of Banking and Securities.  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 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

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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.

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-five additional branch offices in Northeastern Pennsylvania and the Southern Tier of New York. The Bank’s total investment in office property and equipment is $27.8 million with a net book value of $13.8 million as of December 31, 2018. The Bank currently operates automated teller machines at all of its facilities. The Bank leases sixof its locations with minimum lease commitments of $6.5 million through 2037.  Three of the locations have 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.  On July 18, 2018, the parties agreed to a settlement of all claims and a dismissal of the action.

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.

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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, 2018 (the “Annual Report”) and is incorporated herein by reference.

(b) Use of Proceeds.  Not applicable.

(c) Issuer Purchases of Equity Securities.  Set forth below is information regarding the Company’s stock repurchases during the fourth quarter of the fiscal year ended December 31, 2018.

	Issuer Purchases of Equity Securities
	Total Numberof Shares (or Units) purchased		Average Price PaidPer Share (or Unit)			Total Number of Shares (or Units) Purchased as Part of PubliclyAnnounced Plansor Programs *		Maximum Number(or Approximate Dollar Value) of Shares (or Units)that May Yet bePurchased Under thePlans or Programs
October 1 –  31, 2018		-		$	-		-		129,500
November 1 – 30, 2018		-			-		-		129,500
December 1 –  31, 2018		475			30.30		475		129,025
Total		475		$	30.30		475		129,025

*On March 19, 2008, the Registrant announced its intention to repurchase up to 5% of its outstanding common stock (approximately 226,050 split-adjusted shares) in the open market. On November 10, 2011, the Registrant announced that the Company had increased the number of shares which may be repurchased under its open-market program to 5% of its currently outstanding shares, or approximately 270,600 split-adjusted shares.

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.

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

The above-captioned information appears under “Management’s Discussion & 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 & 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 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.

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 2019 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated herein by reference.

35

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 sections captioned “Executive Compensation and "Director 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.

(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 plansapproved by security holders
2006 Stock Option Plan		127,185	$	17.84		-
2014 Equity Incentive Plan		116,130		29.26		230,735
Equity compensation plansnot approved by security holders	_		_		_
TOTAL		243,315	$	23.29		230,735

* Share and per share data adjusted for the 50% stock dividend declared on August 8, 2017.

36

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 Auditors.”

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, 2018 and 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2018, 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.

37

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†	Change in Control Severance Agreement with Robert J. Mancuso (5)
10.4†	Salary Continuation Agreement between the Bank and William W. Davis, Jr. (6)
10.5†	Amended and Restated Salary Continuation Agreement, dated September 1, 2017, between the Bank and Lewis J. Critelli (6)
10.6†	Salary Continuation Agreement between the Bank and John H. Sanders (7)
10.7†	2006 Stock Option Plan (8)
10.8†	First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (9)
10.9†	First and Second Amendments to Salary Continuation Agreement with John H. Sanders (9)
10.10†	Change in Control Severance Agreement with James F. Burke (10)
10.11†	2014 Equity Incentive Plan, as amended (11)
10.12†	Addendum to Change in Control Severance Agreement with William S. Lance (12)
10.13†	Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and William S. Lance (6)
10.14†	Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and Robert J. Mancuso (6)
10.15†	Salary Continuation Agreement, dated September 1, 2017, between Wayne Bank and James F. Burke (6)
10.16†	Change-In-Control Severance Agreement, dated January 16, 2018, by and among Norwood Financial Corp., Wayne Bank, and John F. Carmody(13)
10.17†	Addendum, dated January 16, 2018, to Change-In-Control Severance Agreement, dated March 2, 2010, by and among Norwood Financial Corp., Wayne Bank and William S. Lance(13)
10.18†	Addendum, dated January 16, 2018, to Change-In-Control Severance Agreement, dated January 3, 2013, by and among Norwood Financial Corp., Wayne Bank and Robert J. Mancuso(13)
13	Annual Report to Stockholders for the fiscal year ended December 31, 2018
21	Subsidiaries of Norwood Financial Corp.
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	Interactive Data Files consisting of the following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements

38

†	Management contract or compensatory plan or arrangement.
(1)	Incorporated herein by reference into this document from the identically numbered Exhibits to the Registrant’s Form 10, Registration Statement initially filed in paper 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 by reference into this document from Exhibit 10.4 to the Registrant’s Form 10-K filed with the Commission on March 14, 2013.  File No 0-28364.
(5)	Incorporated herein by reference into this document from Exhibit 10.1 to the Registrant’s Form 10-K filed with the Commission on March 23, 2000, File No. 0-28364.
(6)	Incorporated by reference from the exhibits to the Current Report on Form 8-K filed with the Commission on September 5, 2017.
(7)	Incorporated by reference into this document from Exhibit 10.11 to the Registrant’s Form 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 Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-195643) filed with the Commission on May 4, 2018.
(12)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 18, 2015.
(13)	Incorporated by reference into this document from the exhibits to the Registrant’s Current Report on Form 8-K filed with the Commission on January 16, 2018

Item 16.  Form 10-K Summary

None.

39

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 14, 2019	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 14, 2019 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	/s/ Meg L. Hungerford
William S. Lance Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	Meg L. Hungerford Director

EX-13

2018 CONSOLIDATED FINANCIAL REPORT
	Page
Management's Discussion & Analysis	2
Management's Report On Internal Control Over Financial Reporting	21
Reports of Independent Registered Public Accounting Firm	22
Consolidated Balance Sheets	24
Consolidated Statements Of Income	25
Consolidated Statements Of Comprehensive Income	26
Consolidated Statements Of Stockholders' Equity	27
Consolidated Statements Of Cash Flows	28
Notes To Consolidated Financial Statements	30
Investor Information	76

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NORWOOD FINANCIAL CORP - 2018 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, 2018 and 2017, and for the years ended December 31, 2018 and 2017. 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, the ability to control costs and expenses, demand for real estate, government fiscal and trade 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. Prior to the enactment of the Tax Cuts and Jobs Act (the “Act”) on December 22, 2017, the Company had a net deferred tax asset totaling $7.6 million, based on the pre-Act federal tax rate of 35%.  As a result of the Act’s reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset was recorded as additional income tax expense in 2017.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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, 2018 and 2017 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.

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, 2018 was $13,651,000, which was $5,453,000 higher than the $8,198,000 earned in 2017.  Earnings per share on a fully diluted basis were $2.17 for 2018 compared to $1.31 in 2017, after adjusting for the 50% stock dividend declared in 2017.  The return on average assets for the year was 1.19% with a return on average equity of 11.71% compared to 0.73% and 7.04%, respectively, in 2017.  Core operating results reflected a return on average assets of 1.02% for 2017 and a return on average equity of 10.39%.  Net interest income increased $1,931,000 and other income improved $154,000 to offset the $1,105,000 increase in other expenses.  Income tax expense was reduced $3,998,000 due to the non-recurring expense recognized in 2017 resulting from the enactment of the Tax Cuts and Jobs Act (the “Act”), combined with the impact of the reduction in the marginal tax rate from 35% in 2017 to 21% in 2018.  In 2018, income before income tax improved $1,455,000, or 9.9%.

Net interest income (fully taxable equivalent, or fte) totaled $37,899,000 which was an increase of $809,000 from the 2017 total, despite a lower tax-equivalent adjustment resulting from the Act.  Average loans outstanding increased $63.2 million in 2018, which resulted in an increase in fte interest income of $3,585,000.  Total average securities decreased $31.1 million in 2018 as proceeds were utilized to fund loan growth, resulting in a $1,224,000 decrease in fte interest income on securities.  Average interest-bearing deposits with banks were $4.0 million in 2018 and interest income in this area increased $25,000.  Average interest-bearing deposits increased $6.0 million due primarily to growth in time deposits, and resulted in a $1,267,000 increase in interest expense.  The cost of borrowed funds increased $310,000 compared to the prior year due primarily to an $8.1 million increase in average borrowings and an increase in the cost of borrowings.  The resulting fte net interest spread decreased eight basis points to 3.36% in 2018 as an 11 basis point improvement in the yield earned was offset by a 19 basis point increase in the cost of funds.  The improvement in the yield earned was negatively impacted by the Act through a reduced tax-equivalent adjustment.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

Loans receivable increased $86.1 million from the prior year-end.  Loan growth included a $44.9 million increase in commercial loans due primarily to a $31.9 million increase in commercial real estate loans.  Retail loans increased $41.0 million in 2018 due to a $40.5 million increase in indirect auto and marine financing.  Residential mortgage loans and construction loans decreased $19,000, net.  Total non-performing loans decreased from $2.5 million and 0.32% of total loans at the end of 2017, to $1.1 million, or 0.13% of total loans on December 31, 2018.  Net charge-offs totaled $907,000 in 2018, which was a decrease from the $1,029,000 recorded in 2017.  Based on management’s analysis, the Company determined that it would be appropriate to allocate $1,725,000 to the allowance for loan losses in 2018, which resulted in a decrease in the ratio of the allowance for loan losses to total loans outstanding of 0.99% in 2018 compared to 1.00% on December 31, 2017.  The allowance for loan losses represented 741% of total non-performing loans on December 31, 2018 compared to 308% as of December 31, 2017.

Other income for the year ended December 31, 2018 totaled $7,065,000 compared to $6,911,000 in the prior year, an increase of $154,000.  Gains on the sale of loans and investment securities decreased $187,000 in the aggregate, while all other items of other income increased $341,000, net. Service charges and fees collected from the expanded customer base contributed to this increase.

Other expenses were $25,975,000 in 2018 compared to $24,870,000 for the similar period in 2017, an increase of $1,105,000.  Salaries and benefits costs increased $1,170,000 in 2018, while occupancy and furniture and equipment costs increased $334,000.  Foreclosed real estate expense decreased $992,000 in 2018, while all other operating expenses increased $593,000, net. Income tax expense for the year totaled $2,553,000, which was a decrease of $3,998,000 from the prior year.  The decrease reflects a non-recurring charge of $3,060,000 recorded in 2017 related to the revaluation of deferred tax assets.  The effective tax rate in 2018 was 15.8% compared to 44.4% in 2017.  Excluding the revaluation charge, the effective tax rate in 2017 would have been 23.7%.

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

Net income 2017	$	8,198
Net interest income		1,931
Provision for loan losses		475
Net gains on sales of loans and securities		(187	)
Other income		341
Salaries and employee benefits		(1,170	)
Occupancy, furniture and equipment		(334	)
Foreclosed real estate owned		992
Other expenses		(593	)
Income tax expense - before prior year net deferred tax revaluation		938
Income tax expense - net deferred tax asset revaluation		3,060
Net income 2018	$	13,651

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

FINANCIAL CONDITION

Total Assets

Total assets as of December 31, 2018, were $1.185 billion compared to $1.133 billion as of year-end 2017, an increase of $51.6 million.  The increase in assets was primarily attributable to organic loan growth.

Loans Receivable

As of December 31, 2018, loans receivable totaled $850.2 million compared to $764.1 million as of year-end 2017, an increase of $86.1 million.  Commercial loans, including commercial real estate, grew $44.9 million, while retail loans increased $41.0 million during the year.  The remaining variance can be attributed to deferred loan fees, net.

Residential real estate loans, which include home equity lending, totaled $235.5 million as of December 31, 2018, compared to $235.8 million as of year-end 2017, a decrease of $236,000.  Home equity loans increased $584,000 in 2018 to $52.4 million from $51.8 million at December 31, 2017.  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.  During 2018, the Company sold residential real estate loans totaling $752,000.  In the current interest rate environment, the Company expects to evaluate selling mortgage loans in 2019.

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 $374.8 million as of December 31, 2018, increasing from $342.9 million as of December 31, 2017.  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 and loans to municipalities increased $13.1 million to $110.5 million as of December 31, 2018.

The Company’s indirect lending portfolio (included in consumer loans to individuals) increased $40.5 million to $100.9 million as of December 31, 2018.

Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses totaled $8,452,000 as of December 31, 2018 and represented 0.99% of total loans receivable compared to $7,634,000 and 1.00% of total loans as of year-end 2017. Net charge-offs for 2018 totaled $907,000 and represented 0.11% of average loans compared to $1,029,000 and 0.14% of average loans in 2017.

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, 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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

As of December 31, 2018, non-performing loans totaled $1,140,000 and represented 0.13% of total loans compared to $2,479,000 or 0.32% as of December 31, 2017.  The decrease in the level of non-performing loans reflects the resolution of loan workout efforts on several residential real estate properties.  Based on management’s analysis, the Company added $1,725,000 to the allowance for loan losses for the year ended December 31, 2018 compared to $2,200,000 in 2017.

Foreclosed real estate owned totaled $1,115,000 as of December 31, 2018 and $1,661,000 as of December 31, 2017.  During 2018, seven properties with a carrying value of $654,000 were disposed of through sales.  The Company recorded a net gain of $95,000 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 also 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 conditions, 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 $10,341,000 of junior lien home equity loans. For 2018, there were no charge-offs for this portfolio.

As of December 31, 2018, 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 2018, the Company recognized an increase in its adversely classified loans due primarily to the transfer of two loan relationships with a balance of $2.8 million to substandard during 2018. Based on current analysis, the loans appear to be adequately collateralized, but were classified due to the inability to make timely payments to support the credits.  The Company assesses a loss factor against the classified loans, which is based on prior experience. Classified loans that 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, 2018, the recorded investment in impaired loans, not requiring an allowance for loan losses was $1,319,000 (net of charge-offs against the allowance for loan losses of $428,000).  There were no loans requiring an allowance. The recorded investment in impaired loans not requiring an allowance for loan losses was $1,247,000 (net of charge-offs of $277,000) and there were no loans requiring an allowance as of December 31, 2017.

As a result of its analysis, after applying these factors, management considers the allowance as of December 31, 2018, 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 - 2018 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)
	2018			2017			2016			2015			2014
Allowance balance at beginning of period	$	7,634		$	6,463		$	7,298		$	5,875		$	5,708
Charge-offs:
Real Estate loans
Residential		(197	)		(83	)		(123	)		(224	)		(270	)
Commercial		(283	)		(902	)		(2,711	)		(2,883	)		(1,196	)
Construction		-			(28	)		-			-			-
Commercial loans		(246	)		-			(15	)		-			-
Consumer loans		(263	)		(207	)		(102	)		(91	)		(80	)
Total		(989	)		(1,220	)		(2,951	)		(3,198	)		(1,546	)
Recoveries:
Real Estate loans
Residential		9			6			6			20			-
Commercial		33			159			15			-			2
Construction		-			-			-			-			-
Commercial loans		8			-			-			-			-
Consumer loans		32			26			45			21			31
Total		82			191			66			41			33
Provision expense		1,725			2,200			2,050			4,580			1,680
Allowance balance at end of period	$	8,452		$	7,634		$	6,463		$	7,298		$	5,875
Allowance for loan losses as a percent
of total loans outstanding		0.99	%		1.00	%		0.91	%		1.30	%		1.17	%
Net loans charged off as a percent of
average loans outstanding		0.11	%		0.14	%		0.46	%		0.60	%		0.30	%
Allowance coverage of non-performing loans		7.4	x		3.1	x		3.4	x		1.0	x		1.1	x

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

	December 31,
	(dollars in thousands)
	2018			2017			2016			2015			2014
Non-accrual loans:
Real Estate loans
Residential	$	798		$	1,706		$	1,136		$	440		$	1,675
Commercial		342			277			762			6,649			3,921
Construction		—			—			28			—			—
Commercial loans		—			—			—			43			—
Consumer loans		—			—			—			—			4
Total		1,140			1,983			1,926			7,132			5,600
Accruing loans which are contractually
past due 90 days or more		—			496			1			—			—
Total non-performing loans		1,140			2,479			1,927			7,132			5,600
Foreclosed real estate		1,115			1,661			5,302			2,847			3,726
Total non-performing assets	$	2,255		$	4,140		$	7,229		$	9,979		$	9,326
Non-performing loans to total loans		0.13	%		0.32	%		0.27	%		1.27	%		1.12	%
Non-performing loans to total assets		0.10	%		0.22	%		0.17	%		0.95	%		0.79	%
Non-performing assets to total assets		0.19	%		0.37	%		0.65	%		1.33	%		1.31	%

Securities

The securities portfolio consists of mortgage-backed securities issued by government sponsored entities, 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, 2018, 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, 2018, $243.3 million of securities were so classified and carried at their fair value, with unrealized losses, net of tax, of $5.6 million included in accumulated other comprehensive loss as a component of stockholders’ equity.

As of December 31, 2018, the average life of the portfolio was 5.3 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.  Purchases for the year totaled $15.5 million, while maturities and cash flow totaled $30.9 million and proceeds from sales were $17.7 million. The purchases were funded principally by cash flow generated from the portfolio and excess overnight liquidity.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

	2018						2017
	(dollars in thousands)
	Carrying			% of			Carrying			% of
	Value			portfolio			Value			portfolio
U.S. Treasury securities		$	—		—	%		$	1,998		0.7	%
States and political subdivisions			97,613		40.1	%			120,478		42.9	%
Corporate obligations			8,640		3.6	%			9,989		3.5	%
Mortgage-backed securities – government sponsored entities			137,024		56.3	%			148,656		52.9	%
Total		$	243,277		100.0	%		$	281,121		100.0	%

The portfolio had no adjustable-rate instruments as of December 31, 2018 and 2017. 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, 2018, the portfolio did not contain any step-up bonds.  The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO’s) issued by 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, 2018, the Company held 231 investment securities in a loss position, which had a combined unrealized loss of $7.4 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 not that it will not have to sell the securities before recovery of their cost basis. No impairment charges were recognized in 2018 or 2017.

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 $243.3 million, which represents 20.5% of total assets at December 31, 2018,  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, 2018 and 2017.

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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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, 2018 and 2017 was $220,000 and $223,000, 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 $9.8 million of brokered deposits through its participation in the Certificate of Deposit Account Registry Service (CDARS).

Total deposits as of December 31, 2018, totaled $946.8 million, increasing $17.4 million from year-end 2017. Deposit growth included a $24.9 million increase in certificates of deposit and a $7.5 million increase in savings deposits.  The large increase in certificates of deposit includes deposits of local municipalities and school districts as well as a $9.8 million increase in CDARS deposits.  Non-interest-bearing demand deposits decreased $3.7 million during 2018, while all other interest-bearing deposits decreased $11.3 million.

Time deposits over $250,000, 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 $112.7 million as of December 31, 2018, compared to $92.5 million at year-end 2017.  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.

As of December 31, 2018, non-interest bearing demand deposits totaled $201.5 million compared to $205.1 million at year-end 2017. Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $37.5 million at year end 2018 compared to $24.3 million as of December 31, 2017. 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, 2018, 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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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, 2018, the Bank had a negative 90-day interest sensitivity gap of $18.7 million or 1.6% of total assets.  A negative gap indicates that the balance sheet has a higher level of rate-sensitive liabilities (RSL) than rate-sensitive assets (RSA) at the specific time interval. This would indicate that in an increasing rate environment, the cost of interest-bearing liabilities would increase faster than the yield on interest-earning assets in the 90-day period. 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 - 2018 CONSOLIDATED FINANCIAL REPORT

The following table displays interest-sensitivity as of December 31, 2018 (dollars in thousands):

	3 Months			3-12						Over
	Or Less			Months			1-3 Years			3 Years			Total
Federal funds sold and
interest-bearing deposits	$	309		$	—		$	—		$	—		$	309
Securities		6,783			16,782			53,209			166,503			243,277
Loans Receivable		135,274			155,243			256,479			303,186			850,182
Total Rate Sensitive Assets (RSA)	$	142,366		$	172,025		$	309,688		$	469,689		$	1,093,768
Non-maturity interest-bearing deposits	$	59,548		$	59,173		$	156,683		$	124,741		$	400,145
Time Deposits		73,679			139,107			98,699			33,692			345,177
Borrowings		27,888			34,536			35,454			7,452			105,330
Total Rate Sensitive Liabilities (RSL)	$	161,115		$	232,816		$	290,836		$	165,885		$	850,652
Interest sensitivity gap	$	(18,749	)	$	(60,791	)	$	18,852		$	303,804		$	243,116
Cumulative gap		(18,749	)		(79,540	)		(60,688	)		243,116
RSA/RSL-cumulative		88.4	%		79.8	%		91.1	%		128.6	%
As of December 31, 2017
Interest sensitivity gap	$	20,327		$	(34,969	)	$	(6,925	)	$	264,544		$	242,977
Cumulative gap		20,327			(14,642	)		(21,567	)		242,977
RSA/RSL-cumulative		115.9	%		95.8	%		96.6	%		130.3	%

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.  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, 2018, the Company had cash and cash equivalents of $18.3 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 $243.3 million, which could be used for liquidity needs. This totals $261.6 million and represents 22.1% of total assets compared to $297.8 million and 26.3% of total assets as of December 31, 2017. The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of December 31, 2018. Based upon these measures, the Company believes its liquidity position is adequate.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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 $190.0 million, with $15.6 million outstanding at December 31, 2018 and $18.2 million outstanding at December 31, 2017. The maximum borrowing capacity from FHLB was $398.9 million. As of December 31, 2018, the Company had $52.3 million in term borrowings from the FHLB, compared to $35.9 million at December 31, 2017.

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, 2018 totaled $121.4 million. They consisted of $45.3 million of commitments for residential and commercial real estate, construction and land development loans, $26.4 million in unused home equity lines of credit, $4.3 million in performance and standby letters of credit and $45.4 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, management believes 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.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the most significant source of revenue for the Company and represented 83.9% of total revenue for the year ended December 31, 2018.  Net interest income (fte) totaled $37,899,000 for the year ended December 31, 2018 compared to $37,090,000 for 2017, an increase of $809,000.  The resulting fte net interest spread and net interest margin were 3.36% and 3.53%, respectively, in 2018 compared to 3.44% and 3.56%, respectively, in 2017.  The reduction in the net interest spread and net interest margin reflect the lower tax-equivalent adjustment due to the reduced corporate tax rate resulting from the enactment of the Tax Cuts and Jobs Act.

Interest income (fte) for the year ended December 31, 2018 totaled $43,556,000 compared to $41,170,000 in 2017.  The fte yield on average earning assets was 4.06%, increasing 11 basis points from the 3.95% reported last year.  The tax-equivalent yield on total loans improved 10 basis points to 4.60% in 2018, while average loans outstanding increased $63.2 million, resulting in an increase in interest income (fte) from loans of $3.6 million.  The yield on securities decreased 15 basis points in 2018 due primarily to the reduced tax-equivalent adjustment on municipal securities.  Average securities outstanding decreased $31.1 million as cash flow from the portfolio was utilized to fund loan growth, and interest income (fte) from the portfolio decreased $1.2 million.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

Interest expense was $5,657,000 in 2018 which resulted in an average cost of interest-bearing liabilities of 0.70% compared to total interest expense of $4,080,000 in 2017 with an average cost of 0.51%.  Total interest-bearing deposits cost 0.63% in 2018, which was an increase of 17 basis points over the prior year.  Non-maturity deposit rates increased slightly, but time certificates of deposit repriced to current market rates upon maturity and new growth was added, resulting in an increase in the rate paid from 0.98% in 2017 to 1.27%.  Long-term borrowings also repriced upward in 2018 reflecting the impact from higher cost borrowings added in 2018.

OTHER INCOME

Other income totaled $7,065,000 for the year ended December 31, 2018 compared to $6,911,000 in 2017, an increase of $154,000.  Gains from the sales of loans and securities decreased $187,000 from the prior year, while all other items of other income increased $341,000, net.  The increase reflects a higher level of service charges and fees on deposits.

Other Income (dollars in thousands)

For the year ended December 31

	2018		2017
Service charges on deposit accounts	$	263	$	255
ATM Fees		398		362
Overdraft Fees		1,505		1,639
Safe deposit box rental		96		100
Loan related service fees		563		445
Debit card		1,330		1,186
Fiduciary activities		589		510
Commissions on mutual funds & annuities		185		146
Gain on sales of loans		15		67
Earnings on and proceeds from bank-owned life insurance		1,126		1,133
Other income		782		720
		6,852		6,563
Net realized gains on sales of securities		213		348
Total	$	7,065	$	6,911

OTHER EXPENSES

Other expenses totaled $25,975,000 for the year ended December 31, 2018 compared to $24,870,000 in the prior year.  The $1,105,000 increase in costs reflects a higher level of salaries and employee benefits costs, which increased $1,170,000 in 2018, and increased occupancy expenses, which increased $227,000.  All other operating expenses decreased $292,000, net, which includes a $992,000 decrease in foreclosed real estate costs.  The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 57.8% in 2018 compared to 56.5% in 2017.  The increase is due to the lower tax-equivalent adjustment related to the reduced corporate tax rate.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

Other Expenses (dollars in thousands)

For the year ended December 31

	2018		2017
Salaries	$	8,695	$	8,317
Employee benefits		5,325		4,533
Occupancy		2,889		2,662
Furniture and equipment		806		699
Data processing and related operations		1,427		1,353
Federal Deposit Insurance Corporation insurance assessment		347		377
Advertising		257		268
Professional fees		993		949
Postage and telephone		705		664
Office supplies		413		426
Taxes, other than income		572		661
Foreclosed real estate		172		1,164
Amortization of intangible assets		126		150
Other		3,248		2,647
Total	$	25,975	$	24,870

INCOME TAXES

Income tax expense for the year ended December 31, 2018 totaled $2,553,000, which resulted in an effective tax rate of 15.8% compared to $6,551,000 and 44.4% for 2017.  On December 22, 2017, the President signed the Tax Cut and Jobs Act (the “Act”) into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  Prior to December 22, 2017, the Company had a net deferred tax asset totaling $7.6 million, based on the pre-Act federal tax rate of 35%.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset was recorded as additional income tax expense in 2017.  Excluding this one-time adjustment, the effective tax rate for 2017 would have been 23.7%.

CAPITAL AND DIVIDENDS

Total stockholders’ equity as of December 31, 2018, was $122.3 million, compared to $115.7 million as of year-end 2017.  The increase was due primarily to earnings retention net of a $5.6 million reduction resulting from cash dividends declared.  As of  December 31, 2018 the Company had a leverage capital ratio of 9.82%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 13.04% and a total risk-based capital ratio of 14.00%, compared to 9.36%,  13.16% and 14.11%, respectively, at December 31, 2017.

The Company’s common stock is traded on the Nasdaq Global Market under the symbol, NWFL. As of December 31, 2018, there were approximately 2,600 shareholders based on transfer agent mailings.

15

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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 2018
First Quarter	$	33.00	$	28.85	$	0.220
Second Quarter		38.86		29.02		0.220
Third Quarter		40.41		34.51		0.220
Fourth Quarter		39.06		30.30		0.240
Year 2017
First Quarter	$	27.93	$	21.24	$	0.213
Second Quarter		28.34		24.65		0.213
Third Quarter		29.52		26.71		0.220
Fourth Quarter		34.91		28.00		0.220

The book value of the common stock was $19.43 per share as of December 31, 2018 compared to $18.61 per share as of December 31, 2017.  As of year-end 2018, the closing stock price was $33.00 per share, compared to $33.00 as of December 31, 2017.  All per share information has been adjusted to reflect the 50% stock dividend declared in 2017.

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 a marginal tax rate of 21% for 2018 and 34% for 2017. 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. This annual report also references core operating results, core operating results per diluted share, core operating results return on average assets and core operating results return on average equity which are also a non-GAAP financial measure.  Core operating results excludes the $3,060,000 of non-recurring additional income tax expense recorded in 2017 resulting from the revaluation of our net deferred tax asset as required by the Tax Cuts and Jobs Act.  We believe this presentation provides the reader with a more concise understanding of the impact from the required revaluation of deferred tax assets and facilitates period-to-period comparisons.  Tax-equivalent net interest income is reconciled to GAAP net interest income on page 19. A reconcilement of core operating results is located below.  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.

The following table reconciles net income to core operating results:

(dollars in thousands)	Year ended December 31,
	2018		2017
Net income	$	13,651	$	8,198
Add: net deferred tax asset revaluation charge		-		3,060
Core operating results	$	13,651	$	11,258

16

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

The following table reconciles diluted earnings per share to core operating results per diluted share:

	Year ended December 31,
	2018		2017
Diluted earnings per share	$	2.17	$	1.31
Add: net deferred tax asset revaluation charge		-		0.49
Core operating results pr diluted share	$	2.17	$	1.80

The following table reconciles return on average assets to core operating results return on average assets:

	Year ended December 31,
	2018			2017
Return on average assets		1.19	%		0.73	%
Add: net deferred tax asset revaluation charge		-			0.29
Core operating results on average assets		1.19	%		1.02	%

The following table reconciles return on average equity to core operating results return on average equity:

	Year ended December 31,
	2018			2017
Return on average equity		11.71	%		7.04	%
Add: net deferred tax asset revaluation charge		-			3.35
Core operating results return on average equity		11.71	%		10.39	%

17

NORWOOD FINANCIAL CORP - 2018 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, 2013 and the reinvestment of dividends paid. The graph provides comparison at December 31, 2013 and each fiscal year through December 31, 2018.

______________________________________________________________________________________________________________________________________________________________________________________

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

8
Symbol	CRSP Total Returns Index for:	12/31/13	12/31/14	12/31/15	12/31/16	12/31/17	12/31/18
♦	Norwood Financial Corp	$100.00	$112.61	$116.31	$140.10	$216.30	$222.05
■	CRSP Nasdaq U.S. Index	100.00	115.31	124.20	136.36	145.76	143.37
▲	Nasdaq Bank Index	100.00	105.08	114.45	154.96	165.09	137.08

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 1980-2019.

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 2019.  Used with permission.  All rights reserved.

18

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES

(Tax-Equivalent Basis, dollars in thousands)

Year Ended December 31	2018									2017
	Average						Average			Average						Average
	Balance(2)			Interest(1)			Rate			Balance(2)			Interest(1)			Rate
ASSETS
Interest-earning assets:
Interest-bearing deposits with banks	$	3,978		$	73			1.84	%	$	4,742		$	48			1.01	%
Securities available for sale:
Taxable		167,443			3,573			2.13			180,087			3,548			1.97
Tax-exempt		101,525			3,096			3.05			119,991			4,345			3.62
Total securities available for sale		268,968			6,669			2.48			300,078			7,893			2.63
Loans receivable (3)(4)		800,957			36,814			4.60			737,765			33,229			4.50
Total interest-earning assets		1,073,903			43,556			4.06			1,042,585			41,170			3.95
Noninterest-earning assets:
Cash and due from banks		14,583									14,193
Allowance for loan losses		(8,259	)								(7,416	)
Other assets		67,441									76,427
Total noninterest-earning assets		73,765									83,204
TOTAL ASSETS	$	1,147,668								$	1,125,789
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand and money market	$	233,929			466			0.20		$	245,717			406			0.17
Savings		178,203			90			0.05			189,548			95			0.05
Time		322,768			4,088			1.27			293,641			2,876			0.98
Total interest-bearing deposits		734,900			4,644			0.63			728,906			3,377			0.46
Short-term borrowings		41,963			323			0.77			39,170			199			0.51
Other borrowings		36,606			690			1.88			31,276			504			1.61
Total interest-bearing liabilities		813,469			5,657			0.70			799,352			4,080			0.51
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		208,222									200,368
Other liabilities		9,439									9,662
Total noninterest-bearing liabilities		217,661									210,030
Stockholders’ equity		116,538									116,407
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,147,668								$	1,125,789
Net Interest Income/spread
(tax equivalent basis)					37,899			3.36	%					37,090			3.44	%
Tax-equivalent basis adjustment					(1,060	)								(2,182	)
Net Interest Income				$	36,839								$	34,908
Net interest margin
(tax equivalent basis)								3.53	%								3.56	%

(1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21% for 2018 and 34% for 2017.

(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.

19

NORWOOD FINANCIAL CORP - 2018 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)	2018 compared to 2017									2017 compared to 2016
	Variance due to									Variance due to
	Volume			Rate			Net			Volume			Rate			Net
INTEREST-EARNING ASSETS:
Interest-bearing deposits	$	(12	)	$	37		$	25		$	(25	)	$	31		$	6
Securities available for sale:
Taxable		(256	)		281			25			1,102			71			1,173
Tax-exempt securities		(616	)		(633	)		(1,249	)		1,346			(359	)		987
Total securities available for sale		(872	)		(352	)		(1,224	)		2,448			(288	)		2,160
Loans receivable		2,811			774			3,585			5,011			-			5,011
Total interest-earning assets		1,927			459			2,386			7,434			(257	)		7,177
INTEREST-BEARING LIABILITIES
Interest-bearing demand and money market		(21	)		81			60			50			20			70
Savings		(5	)		-			(5	)		29			-			29
Time		343			869			1,212			563			112			675
Total interest-bearing deposits		317			950			1,267			642			132			774
Short-term borrowings		21			103			124			(11	)		36			25
Other borrowings		93			93			186			(95	)		(278	)		(373	)
Total interest-bearing liabilities		431			1,146			1,577			536			(110	)		426
Net interest income (tax-equivalent basis)	$	1,496		$	(687	)	$	809		$	6,898		$	(147	)	$	6,751

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.

20

NORWOOD FINANCIAL CORP - 2018 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, 2018. 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, 2018, 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 23.

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

21

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Norwood Financial Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Norwood Financial Corp. and subsidiaries (the “Company”) as of December 31, 2018 and 2017; the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for years then ended in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, 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 13, 2019, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2009.

Cranberry Township, Pennsylvania

March 13, 2019

22

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholdersandthe Board of Directors of Norwood Financial Corp.

Opinion on Internal Control over Financial Reporting

We have audited Norwood Financial Corp. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsof the Company as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, of the Company, and our report dated March 13, 2019, expressed an unqualified opinion.

Basis for Opinion

The Company’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 in the accompanying Report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (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 receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) 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.

Cranberry Township, Pennsylvania

March 13, 2019

23

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED BALANCE SHEETS

	December 31,
	2018			2017
	(In Thousands, Except Share and Per Share Data)
ASSETS
Cash and due from banks	$	18,039		$	16,212
Interest bearing deposits with banks		309			485
Cash and cash equivalents		18,348			16,697
Securities available for sale		243,277			281,121
Loans receivable (net of allowance for loan losses 2018: $8,452; 2017: $7,634)		841,730			756,458
Regulatory stock, at cost		3,926			3,505
Premises and equipment, net		13,846			13,864
Bank owned life insurance		37,932			37,060
Accrued interest receivable		3,776			3,716
Foreclosed real estate owned		1,115			1,661
Goodwill		11,331			11,331
Other intangibles		336			462
Other assets		8,942			7,041
Total Assets	$	1,184,559		$	1,132,916
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand	$	201,457		$	205,138
Interest-bearing demand		88,917			91,479
Money market deposit accounts		137,636			146,362
Savings		173,593			166,111
Time		345,177			320,294
Total Deposits		946,780			929,384
Short-term borrowings		53,046			42,530
Other borrowings		52,284			35,945
Accrued interest payable		1,806			1,434
Other liabilities		8,358			7,884
Total Liabilities		1,062,274			1,017,177
STOCKHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares,
issued: 2018: 6,295,113 shares; 2017: 6,256,063 shares		630			626
Surplus		48,322			47,431
Retained earnings		78,434			70,426
Treasury stock at cost: 2018: 2,470 shares; 2017: 2,608 shares		(81	)		(77	)
Accumulated other comprehensive loss		(5,020	)		(2,667	)
Total Stockholders' Equity		122,285			115,739
Total Liabilities and Stockholders' Equity	$	1,184,559		$	1,132,916

See notes to consolidated financial statements.

24

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2018		2017
	(In Thousands, Except Share and Per Share Data)
INTEREST INCOME
Loans receivable, including fees	$	36,404	$	32,524
Securities
Taxable		3,573		3,548
Tax exempt		2,446		2,868
Other		73		48
Total Interest Income		42,496		38,988
INTEREST EXPENSE
Deposits		4,644		3,377
Short-term borrowings		323		199
Other borrowings		690		504
Total Interest Expense		5,657		4,080
Net Interest Income		36,839		34,908
PROVISION FOR LOAN LOSSES		1,725		2,200
Net Interest Income After
Provision for Loan Losses		35,114		32,708
OTHER INCOME
Service charges and fees		4,295		4,079
Income from fiduciary activities		589		510
Net realized gains on sales of securities		213		348
Net gain on sale of loans		15		67
Earnings and proceeds on life insurance policies		1,126		1,133
Other		827		774
Total Other Income		7,065		6,911
OTHER EXPENSES
Salaries and employee benefits		14,020		12,850
Occupancy		2,889		2,662
Furniture and equipment		806		699
Data processing and related operations		1,427		1,353
Federal Deposit Insurance Corporation insurance assessment		347		377
Advertising		257		268
Professional fees		993		949
Postage and telephone		705		664
Taxes, other than income		572		661
Foreclosed real estate		172		1,164
Amortization of intangible assets		126		150
Other		3,661		3,073
Total Other Expenses		25,975		24,870
Income before Income Taxes		16,204		14,749
INCOME TAX EXPENSE		2,553		6,551
Net income	$	13,651	$	8,198
EARNINGS PER SHARE
BASIC	$	2.19	$	1.32
DILUTED	$	2.17	$	1.31

See notes to consolidated financial statements.

25

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)	Years Ended December 31,
	2018			2017
NET INCOME	$	13,651		$	8,198
Other comprehensive (loss) income:
Unrealized gain (loss) on pension liability		207			(17	)
Tax Effect		(43	)		6
Investment securities available for sale:
Unrealized holding (losses) gains		(2,973	)		3,224
Tax Effect		624			(1,097	)
Reclassification of gains from sale of securities		(213	)		(348	)
Tax Effect		45			118
Other comprehensive (loss) income		(2,353	)		1,886
COMPREHENSIVE INCOME	$	11,298		$	10,084

See notes to consolidated financial statements.

26

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Years Ended December 31, 2018 and 2017
																		Accumulated
																		Other
	Common Stock								Retained			Treasury Stock						Comprehensive
	Shares			Amount		Surplus			Earnings			Shares			Amount			Loss			Total
	(Dollars in Thousands, Except Per Share Data)
BALANCE - DECEMBER 31, 2016		4,164,723		$	416	$	47,682		$	67,225			4,509		$	(125	)	$	(4,119	)	$	111,079
Net Income		-			-		-			8,198			-			-			-			8,198
Other comprehensive income		-			-		-			-			-			-			1,886			1,886
Reclassification of certain income tax
effects from accumulated other
comprehensive income										434									(434	)		-
Cash dividends declared ($0.87
per share)		-			-		-			(5,412 )			-			-			-			5.412 )
Acquisition of treasury  stock		-			-		-			-			42,257			(1,587	)		-			(1,587	)
Stock options exercised		-			-		(291	)		-			(44,219	)		1,522			-			1,231
Sale of treasury stock for ESOP		-			-		14			-			(3,847	)		113			-			127
Compensation expense related to
stock options		-			-		93			-			-			-			-			93
Restricted stock awards		9,400			1		142			-			-			-			-			143
50% stock dividend		2,082,362			209		(209	)					3,908
Cash-in-lieu stock dividend adjustment		(422	)		-		-			(19	)		-			-						(19	)
BALANCE - DECEMBER 31, 2017		6,256,063			626		47,431			70,426			2,608			(77	)		(2,667	)		115,739
Net Income		-			-		-			13,651			-			-			-			13,651
Other comprehensive loss		-			-		-			-			-			-			(2,353	)		(2,353	)
Cash dividends declared ($0.90
per share)		-			-		-			(5,643	)		-			-			-			(5,643	)
Acquisition of treasury  stock		-			-		-			-			5,921			(194	)		-			(194	)
Stock options exercised		25,950			3		449			-			(2,325	)		68			-			520
Sale of treasury stock for ESOP		-			-		1			-			(3,734	)		122			-			123
Compensation expense related to
stock options		-			-		237			-			-			-			-			237
Restricted stock awards		13,100			1		204			-			-			-			-			205
BALANCE - DECEMBER 31, 2018		6,295,113		$	630	$	48,322		$	78,434			2,470		$	(81	)	$	(5,020	)	$	122,285

See notes to consolidated financial statements.

27

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2018			2017
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	13,651		$	8,198
Adjustments to reconcile net income to net cash provided by operating  activities:
Provision for loan losses		1,725			2,200
Depreciation		895			922
Amortization of intangible assets		126			150
Deferred income taxes		24			(331	)
Revaluation of deferred tax assets, net		-			3,060
Net amortization of securities premiums and discounts		1,711			2,115
Net realized gains on sales of securities		(213	)		(348	)
Gain on sales of deposits		-			(209	)
Earnings and proceeds on life insurance policies		(1,126	)		(1,133	)
Loss on sales of fixed assets and foreclosed real estate owned		26			774
Net gain on sale of loans		(15	)		(67	)
Mortgage loans originated for sale		(752	)		-
Proceeds from sale of loans originated for sale		767			-
Compensation expense related to stock options		237			93
Compensation expense related to restricted stock		205			142
Increase in accrued interest receivable		(60	)		(73	)
Increase in accrued interest payable		372			365
Other, net		(275	)		193
Net Cash Provided by Operating Activities		17,298			16,051
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales		17,745			15,612
Proceeds from maturities and principal reductions on mortgage-backed securities		30,873			26,893
Purchases		(15,458	)		(19,955	)
Purchase of regulatory stock		(6,155	)		(5,842	)
Redemption of  regulatory stock		5,734			4,456
Net increase in loans		(87,480	)		(51,980	)
Purchase of premises and equipment		(873	)		(1,633	)
Proceeds from sales of foreclosed real estate owned		776			3,341
Proceeds from sales of bank premises and fixed assets		-			515
Net Cash Used for Investing Activities		(54,838	)		(28,593	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		17,396			17,867
Deposits sold		-			(13,659	)
Net increase in short-term borrowings		10,516			9,719
Repayments of other borrowings		(13,661	)		(24,056	)
Proceeds from other borrowings		30,000			28,000
Stock options exercised		520			1,040
Sale of treasury stock for ESOP		123			127
Acquisition of treasury stock		(194	)		(1,587	)
Cash dividends paid		(5,509	)		(5,386	)
Net Cash Provided by Financing Activities		39,191			12,065
Net Increase (Decrease) in Cash and Cash Equivalents		1,651			(477	)
CASH AND CASH EQUIVALENTS - BEGINNING		16,697			17,174
CASH AND CASH EQUIVALENTS - ENDING	$	18,348		$	16,697

See notes to consolidated financial statements.

28

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Years Ended December 31,
		2018		2017
	(In Thousands)
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid	$	5,285	$	3,715
Income taxes paid, net of refunds	$	2,239	$	3,040
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate owned and repossession of other assets	$	553	$	750
Dividends payable	$	1,510	$	1,375

See notes to consolidated financial statements.

29

NORWOOD FINANCIAL CORP - 2018 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 headquartered 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.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASCs that modified ASC 606.  The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts as the date of adoption.  The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods.

Management determined that the primary sources of revenue emanating from interest income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, and fees from financial guarantees are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year ended December 31, 2018 (in thousands):

	2018
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts	$	263
ATM Fees		398
Overdraft Fees		1,505
Safe deposit box rental		96
Loan related service fees		515
Debit card		1,330
Fiduciary activities		589
Commissions on mutual funds & annuities		185
Other income		782
Noninterest Income (in-scope of Topic 606)		5,663
Out-of-scope of Topic 606:
Net realized gains on sales of securities		213
Loan servicing fees		48
Gain on sales of loans		15
Earnings on and proceeds from bank-owned life insurance		1,126
Noninterest Income (out-of-scope of Topic 606)		1,402
Total Noninterest Income	$	7,065

30

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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. In June 2017, the Bank adopted a plan of dissolution for Norwood Settlement Services, LLC.  Effective May 29, 2018, the existence of Norwood Settlement Services, LLC, was terminated.  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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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, 2018.

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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, 2018 and 2017, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2018 and 2017, were $178,000 and $200,000, 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.

33

NORWOOD FINANCIAL CORP - 2018 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.

34

NORWOOD FINANCIAL CORP - 2018 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, 2018 and 2017.

Other Intangible Assets

At December 31, 2018, the Company had other intangible assets of $336,000, which is net of accumulated amortization of $1,008,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2017, the Company had other intangible assets of $462,000 which was net of accumulated amortization of $883,000.  Amortization expense related to other intangible assets was $126,000 and $150,000 for the years ended December 31, 2018 and 2017, respectively.

As of December 31, 2018, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2019	$	101
2020		77
2021		52
2022		38
2023		29
Thereafter		39
	$	336

35

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. On December 22, 2017, the President signed the Tax Cut and Jobs Act (the “Act”) into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset was recorded as additional income tax expense in the fourth quarter of 2017.

 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, 2018 or 2017, 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 participants.

36

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company provides pension benefits to eligible employees.  The Company’s funding policy is to contribute at least 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.

37

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 Community Office 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.

Reclassification of Comparative Amounts

Certain comparative amounts for the prior year have been reclassified to conform to current-year classifications. Such reclassifications had no material effect on net income or stockholders’ equity.

New and Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 1.

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

38

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 14.

New Accounting Pronouncements Not Yet Adopted

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 the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on 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 one percent increase in assets and liabilities. The Company also anticipates additional disclosures will be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, 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.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update, should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20).The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning ofthe period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.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 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU 2018-04, Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, ASU 2018-04 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending, which supersedes outdated guidance related to the Office of the Comptroller of the Currency (OCC)’s Banking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202), because that guidance has been rescinded by the OCC and no longer is relevant.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting: (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. 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 July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases.  In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s financial statements.

In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities (non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years.  The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

arising from operating leases should be accounted for in accordance with Topic 842, Leases.  The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19.  This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases.  Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components.  The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities).  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

NOTE 3 - SECURITIES

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

	December 31, 2018
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
	(In Thousands)
AVAILABLE FOR SALE:
States and political subdivisions		$	99,218	$	385	$	(1,990	)	$	97,613
Corporate obligations			8,896		-		(256	)		8,640
Mortgage-backed securities-
government sponsored entities			142,197		25		(5,198	)		137,024
Total debt securities		$	250,311	$	410	$	(7,444	)	$	243,277

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,001	$	-	$	(3	)	$	1,998
States and political subdivisions		120,000		1,535		(1,057	)		120,478
Corporate obligations		10,068		16		(95	)		9,989
Mortgage-backed securities-
government sponsored entities		152,901		17		(4,262	)		148,656
Total debt securities	$	284,970	$	1,568	$	(5,417	)	$	281,121

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NORWOOD FINANCIAL CORP - 2018 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, 2018
	Less than 12 Months							12 Months or More							Total
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses
States and political subdivisions		$	19,140		$	(390	)		$	56,740		$	(1,600	)		$	75,880		$	(1,990	)
Corporate obligations			2,045			(21	)			6,595			(235	)			8,640			(256	)
Mortgage-backed securities-government sponsored entities			8,444			(22	)			122,950			(5,176	)			131,394			(5,198	)
		$	29,629		$	(433	)		$	186,285		$	(7,011	)		$	215,914		$	(7,444	)

	December 31, 2017
	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		$	-		$	-			$	1,998		$	(3	)		$	1,998		$	(3	)
States and political subdivisions			17,310			(228	)			44,948			(829	)			62,258			(1,057	)
Corporate obligations			-			-				6,859			(95	)			6,859			(95	)
Mortgage-backed securities-government sponsored entities			22,250			(320	)			125,846			(3,942	)			148,096			(4,262	)
		$	39,560		$	(548	)		$	179,651		$	(4,869	)		$	219,211		$	(5,417	)

The Company has 43 debt securities in the less than twelve month category and 188 debt securities in the twelve months or more category as of December 31, 2018.  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 2018.  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, 2018 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	$	1,666	$	1,671
Due after one year through five years		22,532		22,130
Due after five years through ten years		44,638		43,454
Due after ten years		39,278		38,998
		108,114		106,253
Mortgage-backed securities - government sponsored entities		142,197		137,024
	$	250,311	$	243,277

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 3 - SECURITIES (CONTINUED)

Gross realized gains and gross realized losses on sales of securities available for sale were $213,000 and $0, respectively, in 2018, compared to $354,000 and $6,000, respectively, in 2017. The proceeds from the sales of securities totaled $17,745,000 and $15,612,000 for the years ended December 31, 2018 and 2017, respectively.

Securities with a carrying value of $193,918,000 and $213,065,000 at December 31, 2018 and 2017, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

	December 31, 2018					December 31, 2017
Real Estate:
Residential	$	235,523		27.7	%	$	235,759		30.8	%
Commercial		374,790		44.1			342,934		44.9
Construction		17,445		2.0			17,228		2.3
Commercial, financial and agricultural		110,542		13.0			97,461		12.7
Consumer loans to individuals		112,002		13.2			70,953		9.3
Total loans		850,302		100.0	%		764,335		100.0	%
Deferred fees, net		(120	)				(243	)
Total loans receivable		850,182					764,092
Allowance for loan losses		(8,452	)				(7,634	)
Net loans receivable	$	841,730				$	756,458

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

(In thousands)

	2018			2017
Balance at beginning of period	$	108		$	208
Additions		-			-
Accretion		(56	)		(73	)
Reclassification and other		(23	)		(27	)
Balance at end of period	$	29		$	108

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

	December 31, 2018		December 31, 2017
Outstanding Balance	$	1,055	$	1,444
Carrying Amount	$	886	$	1,174

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

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, 2018, for loans that were acquired prior to 2018 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.

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, 2018
Individually evaluated for  impairment		$	-	$	1,319	$	-	$	-	$	-	$	1,319
Loans acquired with deteriorated credit quality			630		256		-		-		-		886
Collectively evaluated for impairment			234,893		373,215		17,445		110,542		112,002		848,097
Total Loans		$	235,523	$	374,790	$	17,445	$	110,542	$	112,002	$	850,302

	Real Estate Loans							Commercial		Consumer
	Residential			Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2017
Individually evaluated for  impairment		$	23	$	1,224	$	-	$	-	$	-	$	1,247
Loans acquired with deteriorated credit quality			833		341		-		-		-		1,174
Collectively evaluated for impairment			234,903		341,369		17,228		97,461		70,953		761,914
Total Loans		$	235,759	$	342,934	$	17,228	$	97,461	$	70,953	$	764,335

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NORWOOD FINANCIAL CORP - 2018 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, 2018	(In thousands)
With no related allowance recorded:
Real Estate Loans
Commercial	$	1,319	$	1,747	$	-
Subtotal		1,319		1,747		-
Total:
Real Estate Loans
Commercial		1,319		1,747		-
Total Impaired Loans	$	1,319	$	1,747	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2017	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		1,224		1,496		-
Subtotal		1,247		1,524		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		1,224		1,496		-
Total Impaired Loans	$	1,247	$	1,524	$	-

The following information for impaired loans is presented for the years ended December 31, 2018 and 2017:

		Average Recorded				Interest Income
		Investment				Recognized
	2018			2017		2018		2017
	(In thousands)
Total:
Real Estate Loans
Residential		$	-	$	23	$	-	$	-
Commercial			1,220		1,209		67		56
Total Loans		$	1,220	$	1,232	$	67	$	56

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, 2018, troubled debt restructured loans totaled $1.1 million and resulted in specific reserves of $0.  During 2018, there were no new loan relationships identified as troubled debt restructurings, while one loan identified as a troubled debt restructuring with a balance of $23,000 as of December 31, 2017 was paid in full during 2018.  During 2018, there were no charge-offs on loans classified as troubled debt restructurings.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

As of December 31, 2017, troubled debt restructured loans totaled $1.1 million and resulted in specific reserves of $0.  During 2017, there were no new loan relationships identified as troubled debt restructurings, while one loan identified as a troubled debt restructuring with a balance of $322,000 as of December 31, 2016 was paid in full during 2017.  During 2017, the Company recognized charge-offs totaling $55,000 on loans classified as troubled debt restructurings.

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, 2018 and 2017, foreclosed real estate owned totaled $1,115,000 and $1,661,000, respectively.  As of December 31, 2018, included within foreclosed real estate owned is $36,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to year-end.  As of December 31, 2018, the Company has initiated formal foreclosure proceedings on three consumer residential mortgage loans with an outstanding balance of $298,000.

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.  Loans greater than 90 days past due are considered Substandard unless full payment is expected.  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 $1,500,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

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NORWOOD FINANCIAL CORP - 2018 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, 2018 and December 31, 2017 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2018
Commercial real estate loans	$	360,838	$	7,918	$	6,034	$	-	$	-	$	374,790
Commercial		109,966		82		494		-		-		110,542
Total	$	470,804	$	8,000	$	6,528	$	-	$	-	$	485,332

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2017
Commercial real estate loans	$	329,617	$	9,680	$	3,637	$	-	$	-	$	342,934
Commercial		97,389		16		56		-		-		97,461
Total	$	427,006	$	9,696	$	3,693	$	-	$	-	$	440,395

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, 2018 and December 31, 2017 (in thousands):

	Performing		Nonperforming		Total
December 31, 2018
Residential real estate loans	$	234,725	$	798	$	235,523
Construction		17,445		-		17,445
Consumer loans to individuals		112,002		-		112,002
Total	$	364,172	$	798	$	364,970

	Performing		Nonperforming		Total
December 31, 2017
Residential real estate loans	$	233,966	$	1,793	$	235,759
Construction		17,228		-		17,228
Consumer loans to individuals		70,953		-		70,953
Total	$	322,147	$	1,793	$	323,940

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NORWOOD FINANCIAL CORP - 2018 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, 2018 and December 31, 2017 (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, 2018
Real Estate loans
Residential	$	234,201	$	373	$	151	$	-	$	798	$	1,322	$	235,523
Commercial		372,617		1,043		788		-		342		2,173		374,790
Construction		17,445		-		-		-		-		-		17,445
Commercial  loans		110,191		320		31		-		-		351		110,542
Consumer  loans		111,796		171		35		-		-		206		112,002
Total	$	846,250	$	1,907	$	1,005	$	-	$	1,140	$	4,052	$	850,302

	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, 2017
Real Estate loans
Residential	$	233,291	$	594	$	81	$	87	$	1,706	$	2,468	$	235,759
Commercial		341,602		646		-		409		277		1,332		342,934
Construction		17,228		-		-		-		-		-		17,228
Commercial  loans		97,424		10		27		-		-		37		97,461
Consumer  loans		70,869		60		24		-		-		84		70,953
Total	$	760,414	$	1,310	$	132	$	496	$	1,983	$	3,921	$	764,335

50

NORWOOD FINANCIAL CORP - 2018 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, 2017	$	1,272		$	5,265		$	90	$	463		$	544		$	7,634
Charge Offs		(197	)		(283	)		-		(246	)		(263	)		(989	)
Recoveries		9			33			-		8			32			82
Provision for loan losses		244			440			3		487			551			1,725
Ending balance, December 31, 2018	$	1,328		$	5,455		$	93	$	712		$	864		$	8,452
Ending balance individually evaluatedfor impairment	$	-		$	-		$	-	$	-		$	-		$	-
Ending balance collectively evaluatedfor impairment	$	1,328		$	5,455		$	93	$	712		$	864		$	8,452

(In thousands)	Residential Real Estate			Commercial Real Estate			Construction			Commercial		Consumer			Total
Beginning balance, December 31, 2016	$	1,092		$	4,623		$	78		$	307	$	363		$	6,463
Charge Offs		(83	)		(902	)		(28	)		-		(207	)		(1,220	)
Recoveries		6			159			-			-		26			191
Provision for loan losses		257			1,385			40			156		362			2,200
Ending balance, December 31, 2017	$	1,272		$	5,265		$	90		$	463	$	544		$	7,634
Ending balance individually evaluatedfor impairment	$	-		$	-		$	-		$	-	$	-		$	-
Ending balance collectively evaluatedfor impairment	$	1,272		$	5,265		$	90		$	463	$	544		$	7,634

The recorded investment in impaired loans, not requiring an allowance for loan losses was $1,319,000 (net of charge-offs against the allowance for loan losses of $428,000) and $1,247,000 (net of charge-offs against the allowance for loan losses of $277,000) at December 31, 2018 and 2017, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $0 at December 31, 2018 and 2017, respectively. The specific reserve related to impaired loans was $0 for 2018 and 2017. For the years ended December 31, 2018 and 2017, the average recorded investment in these impaired loans was $1,220,000, and $1,232,000, respectively, and the interest income recognized on these impaired loans was $67,000 and $56,000, respectively.

During the period ended December 31, 2018, the allowance for loan losses increased from $7,634,000 to $8,452,000.  This $818,000 increase in the required allowance was due primarily to an $86.1 million increase in loan balances and an additional qualitative factor to allocate reserves for potential risk in large balance loans.  This increase was partially offset by a reduction in the historical loss factor from 0.41% at December 31, 2017 to 0.26% on December 31, 2018.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

During the period ended December 31, 2017, the allowance for commercial real estate loans increased from $4,623,000 to $5,265,000.  This $642,000 increase in the required allowance was due primarily to a $22,747,000 increase in loan balances and an increase in the amount of reserve required for classified loans.  This increase was partially offset by a reduction in the historical loss factor from 0.80% at December 31, 2016 to 0.74% on December 31, 2017.

  Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $98,000 and $163,000 for 2018 and 2017, respectively.

As of December 31, 2018 and 2017, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2018, the highest concentrations are in commercial rentals and the hospitality lodging industry, with loans outstanding of $71.8 million, or 68.9% of bank capital, to commercial rentals, and $59.7 million, or 57.3% of bank capital to the hospitality lodging industry.  Charge-offs on loans within these concentrations were $0 and $762,000 for the years ended December 31, 2018 and 2017, respectively.

During 2018, the Company sold residential mortgage loans totaling $752,000.  During 2017, the Company did not sell any residential mortgage loans.  Gross realized gains and gross realized losses on sales of residential mortgage loans were $15,000 and $0, respectively, in 2018 and $0 and $0, respectively, in 2017.  The proceeds from the sales of residential mortgage loans totaled $767,000 and $0 for the years ended December 31, 2018 and 2017, respectively.  As of December 31, 2018 and 2017, the outstanding value of loans serviced for others totaled $26.8 million and $29.0 million, respectively.

NOTE 5 - PREMISES AND EQUIPMENT

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

	2018			2017
	(In Thousands)
Land and improvements	$	2,832		$	2,771
Buildings and improvements		17,788			17,613
Furniture and equipment		7,171			6,636
		27,791			27,020
Accumulated depreciation		(13,945	)		(13,156	)
	$	13,846		$	13,864

Depreciation expense totaled $895,000 and $922,000 for the years ended December 31, 2018 and 2017, respectively.

Certain facilities are leased under various operating leases. Rental expense for these leases was $470,000 and $405,000, respectively, for the years ended December 31, 2018 and 2017. Future minimum rental commitments under noncancellable leases as of December 31, 2018 were as follows (in thousands):

2019	$	454
2020		452
2021		452
2022		452
2023		452
Thereafter		4,202
	$	6,464

52

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of more than $250,000 were $112,665,000 and $92,527,000 at December 31, 2018 and 2017, respectively.

At December 31, 2018, the scheduled maturities of time deposits are as follows (in thousands):

2019	$	212,786
2020		81,453
2021		17,246
2022		17,374
2023		16,318
	$	345,177

NOTE 7 – BORROWINGS

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

	2018			2017
	(In Thousands)
Securities sold under agreements to repurchase		$	37,457	$	24,286
Federal Home Loan Bank short-term borrowings			15,589		18,244
		$	53,046	$	42,530

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

	Years Ended December 31,
	2018				2017
	(Dollars In Thousands)
Average balance during the year		$	41,963		$	39,170
Average interest rate during the year			0.77	%		0.51	%
Maximum month-end balance during the year		$	53,046		$	54,286
Weighted average interest rate at the end of the year			1.27	%		0.87	%

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 $41,587,000 and $40,161,000 at December 31, 2018 and $27,255,000 and $26,626,000 at December 31, 2017, 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, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous		Up to 30 days		30-90 days		Greater than 90 days		Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$	40,161	$	-	$	-	$	-	$	40,161
Total liability recognized for repurchase agreements									$	37,457

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 7 – BORROWINGS (CONTINUED)

	As of December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous		Up to 30 days		30-90 days		Greater than 90 days		Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$	26,626	$	-	$	-	$	-	$	26,626
Total liability recognized for repurchase agreements									$	24,286

The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $150,000,000, which renews annually in May.  At December 31, 2018, there were $15,589,000 of borrowings outstanding on this line.  There were $18,244,000 of borrowings outstanding on this line of credit at December 31, 2017.    The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000, which expires on June 30, 2019.  There were no borrowings under this line of credit at December 31, 2018 and 2017. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2018. There were no borrowings under this line of credit at December 31, 2018 and December 31, 2017.  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, 2018 and December 31, 2017.

Other borrowings consisted of the following at December 31, 2018 and 2017:

	2018		2017
	(In Thousands)
Amortizing fixed rate borrowing due January 2018 at 0.91%	$	-	$	51
Amortizing fixed rate borrowing due December 2018 at 1.42%		-		823
Amortizing fixed rate borrowing due January 2019 at 1.39%		423		5,451
Fixed rate term borrowing due August 2019 at 1.61%		10,000		10,000
Amortizing fixed rate borrowing due June 2020 at 1.49%		3,079		5,093
Amortizing fixed rate borrowing due July 2020 at 2.77%		7,962		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		3,051
Amortizing fixed rate borrowing due December 2020 at 3.06%		2,051		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		2,877		3,730
Amortizing fixed rate borrowing due October 2022 at 1.88%		6,200		7,746
Amortizing fixed rate borrowing due October 2023 at 3.24%		9,692		-
Amortizing fixed rate borrowing due December 2023 at 3.22%		5,000		-
	$	52,284	$	35,945

54

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 7 – BORROWINGS (CONTINUED)

Contractual maturities and scheduled cash flows of other borrowings at December 31, 2018 are as follows (in thousands):

2019	$	26,234
2020		13,018
2021		5,581
2022		4,760
2023		2,691
	$	52,284

The Bank’s maximum borrowing capacity with the FHLB was $398,936,000 of which $67,873,000 was outstanding in the form of advances and $45,000,000 was outstanding in the form of letters of credit at December 31, 2018. 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 $738,000 and $605,000 for the years ended December 31, 2018 and 2017, respectively.

     The Company has several non-qualified supplemental executive retirement plans for the benefit of certain executive officers and former officers. At December 31, 2018 and 2017, other liabilities include $3,362,000 and $3,360,000 accrued under the Plan. Compensation expense includes approximately $434,000 and $301,000 relating to the supplemental executive retirement plan for 2018 and 2017, 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, 2018 and 2017, the cash value of these policies was $37,932,000 and $37,060,000, respectively.

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 $149,000 and $168,000 for the years ended December 31, 2018 and 2017, respectively.

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

55

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

expense for 2018 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 $1,291,000 and $1,142,000 at December 31, 2018 and 2017, respectively.

Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans.  These plans allowed directors to defer director fees and provide a benefit payment for a period of five to fifteen years.  The Company expensed $6,000 and $9,000 under these plans in 2018 and 2017, respectively.  At December 31, 2018 and 2017, the liability under these plans was $249,000 and $331,000, respectively.

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, 2018 and 2017, the Company’s Plan was 91.4% and 89.0% 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 $46,000 in 2018 and 2017.  During the plan years ending December 31, 2018 and 2017, the Company made a contribution of $46,000 for each year.

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 at least the minimum required contribution annually.  Pension cost is computed using the projected unit credit actuarial cost method.  Effective December 31, 2012, the Delaware 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 Delaware Plan at December 31:

(in Thousands of Dollars)	2018			2017
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	(8,465	)	$	(8,084	)
Service cost		(64	)		(68	)
Interest cost		(279	)		(303	)
Actuarial gain (loss)		1,040			(587	)
Benefits paid		582			577
Benefit obligation at end of year	$	(7,186	)	$	(8,465	)
Change in plan assets:
Fair value of plan assets at beginning of year	$	7,110		$	6,702
Actual return on plan assets		(401	)		981
Benefits paid		(573	)		(573	)
Fair value of assets at end of year		6,136			7,110
Funded status at end of year	$	(1,050	)	$	(1,355	)

56

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

The Delaware Plan paid $582,000 and $577,000 in benefit payments in 2018 and 2017, respectively.  Estimated benefit payments under the Delaware Plan are expected to be approximately $510,000, $498,000, $486,000, $487,000 and $472,000 for the next five years.  Payments are expected to be approximately $2,233,000 in total for the five-year period ending December 31, 2028.  The Company was not required to make any contributions to the Delaware Plan in 2018 or 2017.  The increase in the projected discount rate contributed approximately $900,000 to the overall increase in the projected benefit obligation for the year ended December 31, 2018.

The accumulated benefit obligation for the Delaware Plan was $7,186,000 and $8,465,000 at December 31, 2018 and 2017, respectively.

The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended December 31 (in thousands):

	2018		2017
Transition asset	$	-	$	-
Prior service credit		-		-
Gain		207		473
Total	$	207	$	473

          Net pension cost (income) included the following components (in thousands):

	2018			2017
Service cost benefits earned during the period	$	64		$	68
Interest cost on projected benefit obligation		279			303
Actual return on assets		(441	)		(416	)
Net amortization and deferral		-			-
NET PERIODIC PENSION COST	$	(98	)	$	(45	)

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

	2018			2017
Discount rate		4.54	%		3.43	%

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

	2018			2017
Discount rate		3.43	%		3.90	%
Expected long-term return on plan assets		6.50	%		6.50	%
Rate of compensation increase		0.00	%		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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

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

	2018			2017
Cash equivalents		4.2	%		6.4	%
Equity securities		46.1	%		50.2	%
Fixed income securities		45.8	%		40.2	%
Other		3.9	%		3.2	%
		100.0	%		100.0	%

The Delaware 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 the Delaware Plan 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, mortgage-backed securities, municipals, and other asset backed securities.

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

	December 31, 2018
			Quoted Market		Other
			Price in		Observable		Unobservable
			Active Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)	$	6	$	6	$	-	$	-
Equity securities:
Common stock		2,475		2,475		-		-
Depository receipts		42		42		-		-
Preferred stock		20		20		-		-
Fixed income securities:
Corporate bonds		608		-		608		-
Government issue		2,228		-		2,228		-
Collateralized mortgage obligations		156		-		156		-
Other		601		-		-		601
Total	$	6,136	$	2,543	$	2,992	$	601

58

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 8 – EMPLOYEE BENEFIT PLANS (CONTINUED)

	December 31, 2017
			Quoted Market		Other
			Price in		Observable		Unobservable
			Active Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)	$	70	$	70	$	-	$	-
Short-term investment funds		19		-		19		-
Equity securities:
Common stock		1,401		1,401		-		-
Depository receipts		35		35		-		-
Commingled Pension Trust Fund		2,203		-		2,203		-
Preferred stock		31		31		-		-
Fixed income securities:
Corporate bonds		296		-		296		-
Government issue		992		-		992		-
Mortgage-backed securities		6		-		6		-
Collateralized mortgage obligations		56		-		56		-
Commingled Pension Trust Fund		1,746		-		1,746		-
Other		255		-		-		255
Total	$	7,110	$	1,537	$	5,318	$	255

The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31, 2018 and 2017 (in thousands of dollars):

	2018		2017
Balance, January 1	$	255	$	283
Purchase		-		-
Unrealized gain (loss)		346		(28	)
Balance, December 31	$	601	$	255

NOTE 9 - INCOME TAXES

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

	Years Ended December 31,
	2018			2017
	(In Thousands)
Current		$	2,529	$	3,822
Change in corporate tax rate			-		3,060
Deferred			24		(331	)
		$	2,553	$	6,551

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 9 - INCOME TAXES (CONTINUED)

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. As of December 31, 2018, the Company has a $4,970,000 net operating loss carryforward that will begin to expire in 2035.  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,
	2018			2017
Tax at statutory rates		21.0	%		35.0	%
Tax exempt interest income, net of interest expense disallowance		(4.9	)		(9.6	)
Incentive stock options		0.2			0.2
Earnings and proceeds on life insurance		(1.1	)		(2.7	)
Change in corporate tax rate		-			20.8
Other		0.6			0.7
		15.8	%		44.4	%

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NORWOOD FINANCIAL CORP - 2018 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:

	2018		2017
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,775	$	1,603
Deferred compensation		766		775
Core deposit intangible		278		232
Prepaid expenses		90		125
Pension liability		263		384
Foreclosed real estate valuation allowance		20		7
AMT tax credit carryforward		260		260
Net operating loss carryforward		1,173		1,249
Net unrealized loss on securities		1,477		808
Other		95		92
Total Deferred Tax Assets		6,197		5,535
Deferred tax liabilities:
Premises and equipment		223		210
Deferred loan fees		186		142
Net unrealized gain on pension liability		43		99
Purchase price adjustment		321		303
Total Deferred Tax Liabilities		773		754
Net Deferred Tax Asset	$	5,424	$	4,781

The Company’s federal and state income tax returns for taxable years through 2015 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, 2018 and 2017, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

As of December 31, 2018, 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 following 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, 2018:
Total capital (to risk-weighted assets)	$	122,917	14.00	%	≥$70,248	≥8.00	%	≥$87,810	≥10.00	%
Tier 1 capital (to risk-weighted assets)		114,465	13.04		≥52,686	≥6.00		≥70,248	≥8.00
Common Equity Tier 1 capital (to risk-weighted assets)		114,465	13.04		≥39,515	≥4.50		≥57,077	≥6.50
Tier 1 capital (to average assets)		114,465	9.82		≥46,619	≥4.00		≥58,273	≥5.00
As of December 31, 2017:
Total capital (to risk-weighted assets)	$	113,091	14.11	%	≥$64,126	≥8.00	%	≥$80,158	≥10.00	%
Tier 1 capital (to risk-weighted assets)		105,457	13.16		≥48,095	≥6.00		≥64,126	≥8.00
Common Equity Tier 1 capital (to risk-weighted assets)		105,457	13.16		≥36,071	≥4.50		≥52,103	≥6.50
Tier 1 capital (to average assets)		105,457	9.36		≥45,075	≥4.00		≥56,343	≥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, 2018.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

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

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, 2018 and 2017 was approximately $1,018,000 and $1,111,000, 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, 2018, $64,886,000 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 412,500 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 66,000 shares for awards to outside directors. Under this plan, the Company granted 11,135 options to employees in 2015, 18,750 options to employees in 2014, and 42,900 options, which included 6,000 options granted to outside directors in 2013.  No options were granted under this plan in 2018 or 2017.  As of December 31, 2018, there were no shares available for future awards under this plan. All share information has been restated to reflect the 50% stock dividend declared in 2017.

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 375,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 60,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 63,000 shares of restricted stock awards for officers and 12,000 shares of restricted stock awards for outside directors. At the Annual Meeting held on April 24, 2018, the Company’s shareholders approved an amendment to the 2014 Equity Incentive Plan to ease certain restrictions on restricted stock awards to outside directors.  As a result of this amendment, the number of shares available for restricted stock awards to officers was reduced by 300 shares to 62,700, while the number of shares available for restricted stock awards to outside directors was increased by 20,300 to 32,300 shares.  Under this plan, the Company granted 42,000 shares in 2018 which included 26,500 options to employees, 7,500 shares of restricted stock to officers, 2,400 options to directors and 5,600 shares of restricted stock to directors.  In 2017, the Company granted 44,150 shares which included 26,750 options to employees, 9,000 shares of restricted stock to officers, 8,000 options to directors and 400 shares of restricted stock to directors.  In 2016, the Company granted 36,675 shares which included 24,000 options to employees, 9,000 shares of restricted stock to officers and 3,675 shares of restricted stock to directors.  In 2015, the Company granted 20,591 shares which included 10,616 options to employees, 6,375 shares of restricted stock to officers and 3,600 shares of restricted stock to directors.  In 2014, the Company granted 13,950 shares, which included 9,750 shares of restricted stock to officers and 4,200 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, 2018, there were 217,635 shares available for future awards under this plan, which includes

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)

185,510 shares available for officer awards and 32,125 shares available for awards to outside directors.  Included in these totals are 21,075 shares available for restricted stock awards to officers and 14,825 shares available for restricted stock awards to outside directors.  All share information has been restated to reflect the 50% stock dividend declared in 2017.

Total unrecognized compensation cost related to stock options was $207,000 as of December 31, 2018 and $237,000 as of December 31, 2017.  Salaries and employee benefits expense includes $237,000and $93,000 of compensation costs related to options for the years ended December 31, 2018 and 2017, respectively.   Compensation costs related to restricted stock amounted to $205,000 and $143,000 for the years ended December 31, 2018 and 2017, respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2018 and 2017 was $963,000 and $744,000, respectively.  Net income was reduced by $388,000 and $187,000 for the years ended December 31, 2018 and 2017, respectively.

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

	2018									2017
				Weighted									Weighted
				Average			Average						Average			Average
				Exercise			Intrinsic						Exercise			Intrinsic
	Options			Price			Value			Options			Price			Value
Outstanding, beginning of year		212,725			$	20.76					225,669			$	19.46
Granted		28,900				32.34					34,750				32.81
Exercised		(28,275	)			18.39					(44,219	)			23.53
Forfeited		(4,650	)			27.08					(3,475	)			21.71
Outstanding, end of year		208,700			$	22.54		$	2,182,537		212,725			$	20.76		$	2,604,097
Exercisable, end of year		179,800			$	20.97		$	2,163,463		177,975			$	18.41		$	2,597,494

Exercise prices for options outstanding as of December 31, 2018 ranged from $16.65 to $32.81 per share. The weighted average remaining contractual life is 5.9 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,
	2018			2017
Dividend yield		3.72	%		3.89	%
Expected life	10 years			10 years
Expected volatility		29.10	%		29.11	%
Risk-free interest rate		2.68	%		2.41	%
Weighted average fair value of options granted	$	7.18		$	6.83

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)

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 $520,000 in 2018. Shares issued in connection with stock option exercises are issued from available treasury shares or from available authorized shares. During 2018, for the shares issued in connection with stock option exercises, 28,275 shares in total, 25,950 shares were issued from available authorized shares, while the remaining 2,325 shares were issued from available treasury shares.  All share information has been adjusted to reflect the 50% stock dividend declared in 2017.

As of December 31, 2018, outstanding stock options consist of the following:

			Average						Average
	Options		Exercise		Remaining		Options		Exercise
	Outstanding		Price		Life, Years		Exercisable		Price
		14,775	$	17.33		1.0		14,775	$	17.33
		14,025		16.83		2.0		14,025		16.83
		18,825		16.65		3.0		18,825		16.65
		26,400		18.03		4.0		26,400		18.03
		1,650		18.36		4.0		1,650		18.36
		3,000		19.30		4.8		3,000		19.30
		25,375		17.93		5.0		25,375		17.93
		12,000		19.39		5.9		12,000		19.39
		13,500		19.03		6.9		13,500		19.03
		18,500		22.37		8.0		18,500		22.37
		31,750		32.81		9.0		31,750		32.81
		28,900		32.34		10.0		-		-
Total		208,700						179,800

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

	2018					2017
				Weighted-Average					Weighted-Average
	Number of			Grant Date		Number of			Grant Date
	Shares			Fair Value		Shares			Fair Value
Non-vested, beginning of year		30,415		$	24.46		28,035		$	20.64
Granted		13,100			32.34		9,400			32.81
Vested		(8,900	)		23.00		(7,020	)		20.37
Forfeited		-			-		-			-
Non-vested at December 31		34,615		$	27.82		30,415		$	24.46

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 12 - EARNINGS PER SHARE

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

	Years Ended December 31,
	2018			2017
	(In Thousands, Except Per Share Data)
Numerator, net income	$	13,651		$	8,198
Denominator:
Weighted average shares outstanding		6,263			6,238
Less:  Weighted average unvested restricted shares		(31	)		(28	)
Denominator:  Basic earnings per share		6,232			6,210
Weighted average shares outstanding, basic		6,232			6,210
Add:  Dilutive effect of stock options		58			61
Denominator:  Diluted earnings per share		6,290			6,271
Basic earnings per common share	$	2.19		$	1.32
Diluted earnings per common share	$	2.17		$	1.31

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 zero for both years ended December 31, 2018 and 2017, based on the closing price of the Company’s common stock which was $33.00 as of December 31, 2018 and 2017.  All share and per share information has been restated to reflect the 50% stock dividend declared in 2017.

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,
	2018			2017
	(In Thousands)
Commitments to grant loans		$	45,246	$	44,970
Unfunded commitments under lines of credit			71,906		62,228
Standby letters of credit			4,269		5,919
		$	121,421	$	113,117

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)

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

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Financial Statements.  Those assets and liabilities are presented in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis”.  There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 of the Company’s 2017 Form 10-K, except for the valuation of loans which was impacted by the adoption of ASU 2016-01.  In accordance with ASU 2016-01, the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses.  The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk.  Loans are considered a Level 3 classification.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

ASSETS AND LIABILITIES REQUIRED TO BE MEASURED AND REPORTED

AT FAIR VALUE ON A RECURRING BASIS

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, 2018 and 2017 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Available for Sale:
States and political subdivisions	$	97,613	$	-	$	97,613	$	-
Corporate obligations		8,640		-		8,640		-
Mortgage-backed securities-government
sponsored entities		137,024		-		137,024		-
Total available for sale	$	243,277	$	-	$	243,277	$	-
December 31, 2017
Available for Sale:
U.S. Treasury securities	$	1,998	$	-	$	1,998	$	-
States and political subdivisions		120,478		-		120,478		-
Corporate obligations		9,989		-		9,989		-
Mortgage-backed securities-government
sponsored entities		148,656		-		148,656		-
Total available for sale	$	281,121	$	-	$	281,121	$	-

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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

ASSETS AND LIABILITIES REQUIRED TO BE MEASURED AND REPORTED

AT FAIR VALUE ON A RECURRING BASIS

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, 2018 and 2017 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Impaired Loans	$	1,319	$	-	$	-	$	1,319
Foreclosed real estate		1,115		-		-		1,115
December 31, 2017
Impaired Loans	$	1,247	$	-	$	-	$	1,247
Foreclosed real estate		1,661		-		-		1,661

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, 2018, the fair value investment in impaired loans totaled $1,319,000 which included six loan relationships that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan.  As of December 31, 2018, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $428,000 over the life of the loans.

As of December 31, 2017, the fair value investment in impaired loans totaled $1,247,000 which included five 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, 2017, the Company had recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $277,000 over the life of the loans.

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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

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, 2018
Impaired loans	$	232	Appraisal of collateral(1)	Appraisal adjustments(2)	10.00-81.54% (56.06%)
Impaired loans	$	1,087	Present value of future cash flows	Loan discount rate	4.00-6.00% (5.80%)
				Probability of default	0%
Foreclosed real estate owned	$	1,115	Appraisal of collateral(1)	Liquidation Expenses(2)	7.00-85.71% (7.80%)

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	131	Appraisal of collateral(1)	Appraisal adjustments(2)	10% (10%)
Impaired loans	$	1,116	Present value of future cash flows	Loan discount rate	4-5.25% (5.11%)
				Probability of default	0%
Foreclosed real estate owned	$	1,661	Appraisal of collateral(1)	Liquidation Expenses(2)	0-42.60% (14.68%)

(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 - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

ASSETS AND LIABILITIES NOT REQUIRED TO BE MEASURED AND REPORTED AT FAIR VALUE

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, 2018 and 2017.

Cash and cash equivalents (carried at cost):

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

Loans receivable (carried at cost):

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

Mortgage servicing rights (generally carried at cost)

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

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

The Bank, 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):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, 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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

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 fair 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.

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NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at December 31, 2018 and December 31, 2017. (In thousands):

	Fair Value Measurements at December 31, 2018
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	18,348	$	18,348	$	18,348	$	-	$	-
Loans receivable, net		841,730		840,134		-		-		840,134
Mortgage servicing rights		178		220		-		-		220
Regulatory stock (1)		3,926		3,926		3,926		-		-
Bank owned life insurance (1)		37,932		37,932		37,932		-		-
Accrued interest receivable (1)		3,776		3,776		3,776		-		-
Financial liabilities:
Deposits		946,780		945,773		601,604		-		344,169
Short-term borrowings (1)		53,046		53,046		53,046		-		-
Other borrowings		52,284		52,043		-		-		52,043
Accrued interest payable (1)		1,806		1,806		1,806		-		-
Off-balance sheet financial instruments:
Commitments to extend credit andoutstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2017
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	16,697	$	16,697	$	16,697	$	-	$	-
Loans receivable, net		756,458		756,092		-		-		756,092
Mortgage servicing rights		200		223		-		-		223
Regulatory stock (1)		3,505		3,505		3,505		-		-
Bank owned life insurance (1)		37,060		37,060		37,060		-		-
Accrued interest receivable (1)		3,716		3,716		3,716		-		-
Financial liabilities:
Deposits		929,384		929,709		609,090		-		320,619
Short-term borrowings (1)		42,530		42,530		42,530		-		-
Other borrowings		35,945		35,514		-		-		35,514
Accrued interest payable (1)		1,434		1,434		1,434		-		-
Off-balance sheet financial instruments:
Commitments to extend credit andoutstanding letters of credit		-		-		-		-		-

(1)  This financial instrument is carried at cost, which approximates the fair value of the instrument.

73

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE LOSS

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, 2018 and 2017:

	Unrealized gains(losses) on available for sale securities (a)			Unrealized gain (loss) on pension liability (a)		Total (a)
Balance as of December 31, 2017	$	(3,041	)	$	374	$	(2,667	)
Other comprehensive income (loss) before reclassification		(2,349	)		164		(2,185	)
Amount reclassified from accumulated other comprehensive loss		(168	)		-		(168	)
Total other comprehensive loss		(2,517	)		164		(2,353	)
Balance as of December 31, 2018	$	(5,558	)	$	538	$	(5,020	)

	Unrealized gains (losses) on available for sale securities (a)			Unrealized gain (loss) on pension liability (a)			Total (a)
Balance as of December 31, 2016	$	(4,437	)	$	318		$	(4,119	)
Other comprehensive income (loss) before reclassification		2,127			(11	)		2,116
Amount reclassified from accumulated other comprehensive loss		(230	)		-			(230	)
Total other comprehensive income		1,897			(11	)		1,886
Reclassification of certain income tax effects from accumulated
other comprehensive loss		(501	)		67			(434	)
Balance as of December 31, 2017	$	(3,041	)	$	374		$	(2,667	)

(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, 2018 and 2017:

	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,
		2018		2017
Unrealized gains on available for sale securities	$	213	$	348	Net realized gains on sales of securities
		(45)		(118)	Income tax expense
	$	168	$	230

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

74

NORWOOD FINANCIAL CORP - 2018 CONSOLIDATED FINANCIAL REPORT

NOTE 16 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2018		2017
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,509	$	4,782
Investment in bank subsidiary		120,511		110,218
Other assets		1,739		2,858
Total assets	$	124,759	$	117,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	2,474	$	2,119
Stockholders’ equity		122,285		115,739
Total liabilities and stockholders' equity	$	124,759	$	117,858

STATEMENTS OF INCOME

	Years Ended December 31,
	2018			2017
Income:	(In Thousands)
Dividends from bank subsidiary	$	5,643		$	5,412
Net realized gain on sales of securities		-			130
Other interest income		-			8
		5,643			5,550
Expenses		618			511
		5,025			5,039
Income tax benefit		(217	)		(127	)
		5,242			5,166
Equity in undistributed earnings of subsidiary		8,409			3,032
Net Income	$	13,651		$	8,198
Comprehensive Income	$	11,298		$	10,084

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2018			2017
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	13,651		$	8,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(8,409	)		(3,032	)
Net gains on sales of securities		-			(130	)
Decrease in deferred income tax		1,158			1,736
Other, net		387			389
Net Cash Provided by Operating Activities		6,787			7,161
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in bank subsidiary		(4,000	)		-
Proceeds from sales of securities		-			422
Net Cash (Used in) Provided by Investing Activities		(4,000	)		422
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		520			1,040
Sale of treasury stock for ESOP		123			127
Acquisition of treasury stock		(194	)		(1,587	)
Cash dividends paid		(5,509	)		(5,386	)
Net Cash Used in Financing Activities		(5,060	)		(5,806	)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,273	)		1,777
CASH AND CASH EQUIVALENTS - BEGINNING		4,782			3,005
CASH AND CASH EQUIVALENTS - ENDING	$	2,509		$	4,782

75

NORWOOD FINANCIAL CORP - 2018 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  19428800-883-1212	RBC Capital Markets Philadelphia, PA  19103 888-848-4677
Janney Montgomery Scott, LLCScranton, PA  18503 800-638-4417	Stifel Nicolaus St,. Louis, MO 63102 314-342-2000

TRANSFER AGENT

Computershare provides Transfer Agent services for the Company.  Stockholders who may have questions regarding their stock ownership should contact the Transfer Agent at 800-662-7232, by regular mail at P.O. Box 50500, Louisville, KY  40233-5000, or by overnight delivery at 462 South 4^th Street Suite 1600, Louisville, KY  40202.

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, 2018 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.

76

EX-21

Exhibit 21

Subsidiaries of the Registrant

Parent

Norwood Financial Corp.

Subsidiaries	State or Other Jurisdiction of Incorporation	Legal Entity Identifier	Percentage Ownership
Wayne Bank	Pennsylvania	549300XZGHPTWOJPDI31	100%
Subsidiaries of Wayne Bank
Norwood Investment Corp.	Pennsylvania	NONE	100%
WCB Realty Corp.	Pennsylvania	NONE	100%
WTRO Properties, Inc.	Pennsylvania	NONE	100%

EX-23

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-15(e) and 15d-15(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 14, 2019	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-15(e) and 15d-15(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 14, 2019	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, 2018 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 14, 2019

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Mar. 01, 2019	Jun. 29, 2018
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Entity Registrant Name	NORWOOD FINANCIAL CORP
Entity Central Index Key	0001013272
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Entity Current Reporting Status	Yes
Entity Public Float			$ 213.7
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Shell Company	false
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		6,296,753

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 18,039	$ 16,212
Interest bearing deposits with banks	309	485
Cash and cash equivalents	18,348	16,697
Securities available for sale	243,277	281,121
Loans receivable (net of allowance for loan losses 2018: $8,452; 2017: $7,634	841,730	756,458
Regulatory stock, at cost	3,926	3,505
Premises and equipment, net	13,846	13,864
Bank owned life insurance	37,932	37,060
Accrued interest receivable	3,776	3,716
Foreclosed real estate owned	1,115	1,661
Goodwill	11,331	11,331
Other intangibles	336	462
Other assets	8,942	7,041
Total Assets	1,184,559	1,132,916
LIABILITIES
Deposits: Noninterest bearing demand	201,457	205,138
Deposits: Interest-bearing demand	88,917	91,479
Deposits: Money market deposit accounts	137,636	146,362
Deposits: Savings	173,593	166,111
Deposits: Time	345,177	320,294
Total Deposits	946,780	929,384
Short-term borrowings	53,046	42,530
Other borrowings	52,284	35,945
Accrued interest payable	1,806	1,434
Other liabilities	8,358	7,884
Total Liabilities	1,062,274	1,017,177
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares, issued: 2018: 6,295,113 shares; 2017: 6,256,063 shares	630	626
Surplus	48,322	47,431
Retained earnings	78,434	70,426
Treasury stock at cost: 2018: 2,470 shares, 2017: 2,608 shares	(81)	(77)
Accumulated other comprehensive loss	(5,020)	(2,667)
Total Stockholders' Equity	122,285	115,739
Total Liabilities and Stockholders' Equity	$ 1,184,559	$ 1,132,916

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Consolidated Balance Sheets [Abstract]
Allowance for loan losses	$ 8,452	$ 7,634
Common Stock, Par Value Per Share	$ 0.10	$ 0.10
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	6,295,113	6,256,063
Treasury Stock, Shares	2,470	2,608

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
INTEREST INCOME
Loans receivable, including fees	$ 36,404	$ 32,524
Securities: Taxable	3,573	3,548
Securities: Tax exempt	2,446	2,868
Other	73	48
Total Interest Income	42,496	38,988
INTEREST EXPENSE
Deposits	4,644	3,377
Short-term borrowings	323	199
Other borrowings	690	504
Total Interest Expense	5,657	4,080
Net Interest Income	36,839	34,908
PROVISION FOR LOAN LOSSES	1,725	2,200
Net Interest Income After Provision for Loan Losses	35,114	32,708
OTHER INCOME
Other Income	5,663
Net realized gains on sales of securities	213	348
Net gain on sale of loans	15	67
Earnings and proceeds on life insurance policies	1,126	1,133
Other	827	774
Total Other Income	7,065	6,911
OTHER EXPENSES
Salaries and employee benefits	14,020	12,850
Occupancy	2,889	2,662
Furniture and equipment	806	699
Data processing and related operations	1,427	1,353
Federal Deposit Insurance Corporation insurance assessment	347	377
Advertising	257	268
Professional fees	993	949
Postage and telephone	705	664
Taxes, other than income	572	661
Foreclosed real estate	172	1,164
Amortization of intangible assets	126	150
Other	3,661	3,073
Total Other Expenses	25,975	24,870
Income before Income Taxes	16,204	14,749
INCOME TAX EXPENSE	2,553	6,551
Net income	$ 13,651	$ 8,198
EARNINGS PER SHARE
BASIC	$ 2.19	$ 1.32
DILUTED	$ 2.17	$ 1.31
Service Charges And Fees [Member]
OTHER INCOME
Other Income	$ 4,295	$ 4,079
Income From Fiduciary Activities [Member]
OTHER INCOME
Other Income	$ 589	$ 510

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Comprehensive Income [Abstract]
NET INCOME	$ 13,651	$ 8,198
Other comprehensive (loss) income:
Unrealized gain (loss) on pension liability	207	(17)
Unrealized gain (loss) on pension liability: Tax effect	(43)	6
Investment securities available for sale:
Unrealized holding (losses) gain	(2,973)	3,224
Unrealized holding (losses) gains : Tax effect	624	(1,097)
Reclassification of gains on from sale of securities	(213)	(348)
Reclassification of gains from sales of securities: Tax effect	45	118
Other comprehensive (loss) income	(2,353)	1,886
COMPREHENSIVE INCOME	$ 11,298	$ 10,084

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Beginning balance at Dec. 31, 2016	$ 416	$ 47,682	$ 67,225	$ (125)	$ (4,119)	$ 111,079
Beginning balance, shares at Dec. 31, 2016	4,164,723			4,509
Net income			8,198			8,198
Other comprehensive income (loss)					1,886	1,886
Reclassification of certain income tax effects from other comprehensive loss			434		(434)
Cash dividends declared			(5,412)			(5,412)
Acquisition of treasury stock				$ (1,587)		(1,587)
Acquisition of treasury stock, shares				42,257
Stock options exercised		(291)		$ 1,522		$ 1,231
Stock options exercised, shares				44,219		44,219
Sale of treasury stock for ESOP		14		$ 113		$ 127
Sale of treasury stock for ESOP, shares				(3,847)
Compensation expense related to stock options		93				93
Restricted stock awards	$ 1	142				143
Restricted stock awards, shares	9,400
50% stock dividend	$ 209	(209)
50% stock dividend, shares	2,082,362			3,908
Cash-in-lieu stock dividend adjustment			(19)			(19)
Cash-in-lieu stock dividend adjustment, shares	(422)
Ending balance, shares at Dec. 31, 2017	6,256,063			2,608
Ending balance at Dec. 31, 2017	$ 626	47,431	70,426	$ (77)	(2,667)	115,739
Net income			13,651			13,651
Other comprehensive income (loss)					(2,353)	(2,353)
Cash dividends declared			(5,643)			(5,643)
Acquisition of treasury stock				$ (194)		(194)
Acquisition of treasury stock, shares				5,921
Stock options exercised	$ 3	449		$ 68		$ 520
Stock options exercised, shares	25,950			2,325		28,275
Sale of treasury stock for ESOP		1		$ 122		$ 123
Sale of treasury stock for ESOP, shares				(3,734)
Compensation expense related to stock options		237				237
Restricted stock awards	$ 1	204				205
Restricted stock awards, shares	13,100
Ending balance, shares at Dec. 31, 2018	6,295,113			2,470
Ending balance at Dec. 31, 2018	$ 630	$ 48,322	$ 78,434	$ (81)	$ (5,020)	$ 122,285

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Stockholders' Equity [Abstract]
Cash dividends declared	$ 0.90	$ 0.87

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 13,651,000	$ 8,198,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,725,000	2,200,000
Depreciation	895,000	922,000
Amortization of intangible assets	126,000	150,000
Deferred income taxes	24,000	(331,000)
Revaluation of deferred tax assets, net		3,060,000
Net amortization of securities premiums and discounts	1,711,000	2,115,000
Net realized gain on sales of securities	(213,000)	(348,000)
Gain on sale of deposits		(209,000)
Earnings and proceeds on life insurance policies	(1,126,000)	(1,133,000)
Loss on sales of fixed assets and foreclosed real estate owned	26,000	774,000
Net gain on sale of loans	(15,000)	(67,000)
Mortgage loans originated for sale	(752,000)	0
Proceeds from sale of loans originated for sale	767,000
Compensation expense related to stock options	237,000	93,000
Compensation expense related to restricted stock	205,000	142,000
Increase in accrued interest receivable	(60,000)	(73,000)
Increase in accrued interest payable	372,000	365,000
Other, net	(275,000)	193,000
Net Cash Provided by Operating Activities	17,298,000	16,051,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales	17,745,000	15,612,000
Proceeds from maturities and principal reductions on mortgage-backed securities	30,873,000	26,893,000
Purchases	(15,458,000)	(19,955,000)
Purchase of regulatory stock	(6,155,000)	(5,842,000)
Redemption of regulatory stock	5,734,000	4,456,000
Net increase in loans	(87,480,000)	(51,980,000)
Purchase of premises and equipment	(873,000)	(1,633,000)
Proceeds from sales of foreclosed real estate owned	776,000	3,341,000
Proceeds from sales of bank premises and fixed assets		515,000
Net Cash Used for Investing Activities	(54,838,000)	(28,593,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	17,396,000	17,867,000
Deposits sold		(13,659,000)
Net increase in short-term borrowings	10,516,000	9,719,000
Repayments of other borrowings	(13,661,000)	(24,056,000)
Proceeds from other borrowings	30,000,000	28,000,000
Stock options exercised	520,000	1,040,000
Sale of treasury stock for ESOP	123,000	127,000
Acquisition of treasury stock	(194,000)	(1,587,000)
Cash dividends paid	(5,509,000)	(5,386,000)
Net Cash Provided by Financing Activities	39,191,000	12,065,000
Net Increase (Decrease) in Cash and Cash Equivalents	1,651,000	(477,000)
CASH AND CASH EQUIVALENTS, BEGINNING	16,697,000	17,174,000
CASH AND CASH EQUIVALENTS, END	18,348,000	16,697,000
Supplemental Disclosures of Cash Flow Information
Interest paid	5,285,000	3,715,000
Income taxes paid, net of refunds	2,239,000	3,040,000
Supplemental Schedule of Noncash Investing Activities
Transfers of loans to foreclosed real estate owned and repossession of other assets	553,000	750,000
Dividends payable	$ 1,510,000	$ 1,375,000

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Nature of Operations

12 Months Ended

Dec. 31, 2018

Nature of Operations [Abstract]

Nature of Operations

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 headquartered 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.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers– Topic 606 and all subsequent ASCs that modified ASC 606.  The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts as the date of adoption.  The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods.

Management determined that the primary sources of revenue emanating from interest income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, and fees from financial guarantees are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year ended December 31, 2018:

(dollars in thousands)		2018
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts	$	263
ATM Fees		398
Overdraft Fees		1,505
Safe deposit box rental		96
Loan related service fees		515
Debit card		1,330
Fiduciary activities		589
Commissions on mutual funds & annuities		185
Other income		782
Noninterest Income (in-scope of Topic 606)		5,663
Out-of-scope of Topic 606:
Net realized gains on sales of securities		213
Loan servicing fees		48
Gain on sales of loans		15
Earnings on and proceeds from bank-owned life insurance		1,126
Noninterest Income (out-of-scope of Topic 606)		1,402
Total Noninterest Income	$	7,065

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

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. In June 2017, the Bank adopted a plan of dissolution for Norwood Settlement Services, LLC.  Effective May 29, 2018, the existence of Norwood Settlement Services, LLC, was terminated.  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 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, 2018.

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, 2018 and 2017, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2018 and 2017, were $178,000 and $200,000, 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, 2018 and 2017.

Other Intangible Assets

At December 31, 2018, the Company had other intangible assets of $336,000, which is net of accumulated amortization of $1,008,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2017, the Company had other intangible assets of $462,000 which was net of accumulated amortization of $883,000.  Amortization expense related to other intangible assets was $126,000 and$150,000 for the years ended December 31, 2018 and 2017, respectively. 

As of December 31, 2018, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2019	$	101
2020		77
2021		52
2022		38
2023		29
Thereafter		39
	$	336

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. On December 22, 2017, the President signed the Tax Cut and Jobs Act (the “Act”) into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset was recorded as additional income tax expense in the fourth quarter of 2017.

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, 2018 or 2017, 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 participants.

The Company provides pension benefits to eligible employees.  The Company’s funding policy is to contribute at least 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 Community Office 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.

Reclassification of Comparative Amounts

Certain comparative amounts for the prior year have been reclassified to conform to current-year classifications. Such reclassifications had no material effect on net income or stockholders’ equity.

New and Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 1.

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 14.

New Accounting Pronouncements Not Yet Adopted

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 the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on 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 one percent increase in assets and liabilities. The Company also anticipates additional disclosures will be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, 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.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update, should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20).The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning ofthe period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.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 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU 2018-04, Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, ASU 2018-04 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117.

In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending, which supersedes outdated guidance related to the Office of the Comptroller of the Currency (OCC)’s Banking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202), because that guidance has been rescinded by the OCC and no longer is relevant.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting: (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. 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 July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases.  In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s financial statements.

In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities (non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years.  The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.  The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19.  This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases.  Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components.  The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities).  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Securities

12 Months Ended

Dec. 31, 2018

Securities [Abstract]

Securities

NOTE 3 - SECURITIES

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

	December 31, 2018
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
States and political subdivisions	$	99,218	$	385	$	(1,990)	$	97,613
Corporate obligations		8,896		-		(256)		8,640
Mortgage-backed securities-
government sponsored entities		142,197		25		(5,198)		137,024
Total debt securities	$	250,311	$	410	$	(7,444)	$	243,277

	December 31, 2017
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,001	$	-	$	(3)	$	1,998
States and political subdivisions		120,000		1,535		(1,057)		120,478
Corporate obligations		10,068		16		(95)		9,989
Mortgage-backed securities-
government sponsored entities		152,901		17		(4,262)		148,656
Total debt securities	$	284,970	$	1,568	$	(5,417)	$	281,121

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, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
States and political subdivisions	$	19,140	$	(390)	$	56,740	$	(1,600)	$	75,880	$	(1,990)
Corporate obligations		2,045		(21)		6,595		(235)		8,640		(256)
Mortgage-backed securities-government sponsored entities		8,444		(22)		122,950		(5,176)		131,394		(5,198)
	$	29,629	$	(433)	$	186,285	$	(7,011)	$	215,914	$	(7,444)

	December 31, 2017
	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	$	-	$	-	$	1,998	$	(3)	$	1,998	$	(3)
States and political subdivisions		17,310		(228)		44,948		(829)		62,258		(1,057)
Corporate obligations		-		-		6,859		(95)		6,859		(95)
Mortgage-backed securities-government sponsored entities		22,250		(320)		125,846		(3,942)		148,096		(4,262)
	$	39,560	$	(548)	$	179,651	$	(4,869)	$	219,211	$	(5,417)

The Company has 43 debt securities in the less than twelve month category and 188 debt securities in the twelve months or more category as of December 31, 2018.  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 2018.  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, 2018 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	$	1,666	$	1,671
Due after one year through five years		22,532		22,130
Due after five years through ten years		44,638		43,454
Due after ten years		39,278		38,998
		108,114		106,253
Mortgage-backed securities - government sponsored entities		142,197		137,024
	$	250,311	$	243,277

Gross realized gains and gross realized losses on sales of securities available for sale were $213,000 and $0, respectively, in 2018, compared to $354,000 and $6,000, respectively, in 2017. The proceeds from the sales of securities totaled $17,745,000 and$15,612,000 for the years ended December 31, 2018 and 2017, respectively.

Securities with a carrying value of $193,918,000 and $213,065,000 at December 31, 2018 and 2017, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

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Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2018

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 (in thousands):

	December 31, 2018				December 31, 2017
Real Estate:
Residential	$	235,523	27.7	%	$	235,759	30.8	%
Commercial		374,790	44.1			342,934	44.9
Construction		17,445	2.0			17,228	2.3
Commercial, financial and agricultural		110,542	13.0			97,461	12.7
Consumer loans to individuals		112,002	13.2			70,953	9.3
Total loans		850,302	100.0	%		764,335	100.0	%
Deferred fees, net		(120)				(243)
Total loans receivable		850,182				764,092
Allowance for loan losses		(8,452)				(7,634)
Net loans receivable	$	841,730			$	756,458

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

(In thousands)

	2018		2017
Balance at beginning of period	$	108	$	208
Additions		-		-
Accretion		(56)		(73)
Reclassification and other		(23)		(27)
Balance at end of period	$	29	$	108

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

	December 31, 2018		December 31, 2017
Outstanding Balance	$	1,055	$	1,444
Carrying Amount	$	886	$	1,174

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, 2018, for loans that were acquired prior to 2018 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.

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, 2018
Individually evaluated for  impairment	$	-	$	1,319	$	-	$	-	$	-	$	1,319
Loans acquired with deteriorated credit quality		630		256		-		-		-		886
Collectively evaluated for impairment		234,893		373,215		17,445		110,542		112,002		848,097
Total Loans	$	235,523	$	374,790	$	17,445	$	110,542	$	112,002	$	850,302

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2017
Individually evaluated for  impairment	$	23	$	1,224	$	-	$	-	$	-	$	1,247
Loans acquired with deteriorated credit quality		833		341		-		-		-		1,174
Collectively evaluated for impairment		234,903		341,369		17,228		97,461		70,953		761,914
Total Loans	$	235,759	$	342,934	$	17,228	$	97,461	$	70,953	$	764,335

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, 2018	(In thousands)
With no related allowance recorded:
Real Estate Loans
Commercial	$	1,319	$	1,747	$	-
Subtotal		1,319		1,747		-
Total:
Real Estate Loans
Commercial		1,319		1,747		-
Total Impaired Loans	$	1,319	$	1,747	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2017	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		1,224		1,496		-
Subtotal		1,247		1,524		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		1,224		1,496		-
Total Impaired Loans	$	1,247	$	1,524	$	-

The following information for impaired loans is presented for the years ended December 31, 2018 and 2017:

	Average Recorded	Average Recorded			Interest Income
		Investment			Recognized
	2018		2017		2018		2017
	(In thousands)
Total:
Real Estate Loans
Residential	$	-	$	23	$	-	$	-
Commercial		1,220		1,209		67		56
Total Loans	$	1,220	$	1,232	$	67	$	56

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, 2018, troubled debt restructured loans totaled $1.1 million and resulted in specific reserves of $0.  During 2018, there were no new loan relationships identified as troubled debt restructurings, while one loan identified as a troubled debt restructuring with a balance of $23,000 as of December 31, 2017 was paid in full during 2018.  During 2018, there were no charge-offs on loans classified as troubled debt restructurings. 

As of December 31, 2017, troubled debt restructured loans totaled $1.1 million and resulted in specific reserves of $0.  During 2017, there were no new loan relationships identified as troubled debt restructurings, while one loan identified as a troubled debt restructuring with a balance of $322,000 as of December 31, 2016 was paid in full during 2017.  During 2017, the Company recognized charge-offs totaling $55,000 on loans classified as troubled debt restructurings. 

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, 2018 and 2017, foreclosed real estate owned totaled $1,115,000 and $1,661,000, respectively.  As of December 31, 2018, included within foreclosed real estate owned is $36,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to year-end.  As of December 31, 2018, the Company has initiated formal foreclosure proceedings on three consumer residential mortgage loans with an outstanding balance of $298,000.

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.  Loans greater than 90 days past due are considered Substandard unless full payment is expected.  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 $1,500,000 and over to assign or re-affirm risk ratings. Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of  December 31, 2018 and December 31, 2017 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2018
Commercial real estate loans	$	360,838	$	7,918	$	6,034	$	-	$	-	$	374,790
Commercial		109,966		82		494		-		-		110,542
Total	$	470,804	$	8,000	$	6,528	$	-	$	-	$	485,332

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2017
Commercial real estate loans	$	329,617	$	9,680	$	3,637	$	-	$	-	$	342,934
Commercial		97,389		16		56		-		-		97,461
Total	$	427,006	$	9,696	$	3,693	$	-	$	-	$	440,395

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, 2018 and December 31, 2017 (in thousands):

	Performing		Nonperforming		Total
December 31, 2018
Residential real estate loans	$	234,725	$	798	$	235,523
Construction		17,445		-		17,445
Consumer loans to individuals		112,002		-		112,002
Total	$	364,172	$	798	$	364,970

	Performing		Nonperforming		Total
December 31, 2017
Residential real estate loans	$	233,966	$	1,793	$	235,759
Construction		17,228		-		17,228
Consumer loans to individuals		70,953		-		70,953
Total	$	322,147	$	1,793	$	323,940

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, 2018 and December 31, 2017 (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, 2018
Real Estate loans
Residential	$	234,201	$	373	$	151	$	-	$	798	$	1,322	$	235,523
Commercial		372,617		1,043		788		-		342		2,173		374,790
Construction		17,445		-		-		-		-		-		17,445
Commercial  loans		110,191		320		31		-		-		351		110,542
Consumer  loans		111,796		171		35		-		-		206		112,002
Total	$	846,250	$	1,907	$	1,005	$	-	$	1,140	$	4,052	$	850,302

	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, 2017
Real Estate loans
Residential	$	233,291	$	594	$	81	$	87	$	1,706	$	2,468	$	235,759
Commercial		341,602		646		-		409		277		1,332		342,934
Construction		17,228		-		-		-		-		-		17,228
Commercial  loans		97,424		10		27		-		-		37		97,461
Consumer  loans		70,869		60		24		-		-		84		70,953
Total	$	760,414	$	1,310	$	132	$	496	$	1,983	$	3,921	$	764,335

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, 2017	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634
Charge Offs		(197)		(283)		-		(246)		(263)		(989)
Recoveries		9		33		-		8		32		82
Provision for loan losses		244		440		3		487		551		1,725
Ending balance, December 31, 2018	$	1,328	$	5,455	$	93	$	712	$	864	$	8,452
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,328	$	5,455	$	93	$	712	$	864	$	8,452

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2016	$	1,092	$	4,623	$	78	$	307	$	363	$	6,463
Charge Offs		(83)		(902)		(28)		-		(207)		(1,220)
Recoveries		6		159		-		-		26		191
Provision for loan losses		257		1,385		40		156		362		2,200
Ending balance, December 31, 2017	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634

The recorded investment in impaired loans, not requiring an allowance for loan losses was $1,319,000 (net of charge-offs against the allowance for loan losses of $428,000) and $1,247,000 (net of charge-offs against the allowance for loan losses of $277,000) at December 31, 2018 and 2017, respectively. The recorded investment in impaired loans requiring an allowance for loan losses was $0 at December 31, 2018 and 2017, respectively. The specific reserve related to impaired loans was $0 for 2018 and 2017. For the years ended December 31, 2018 and 2017, the average recorded investment in these impaired loans was $1,220,000, and $1,232,000, respectively, and the interest income recognized on these impaired loans was $67,000 and $56,000, respectively.

During the period ended December 31, 2018, the allowance for loan losses increased from $7,634,000 to $8,452,000.  This $818,000 increase in the required allowance was due primarily to an $86.1 million increase in loan balances and an additional qualitative factor to allocate reserves for potential risk in large balance loans.  This increase was partially offset by a reduction in the historical loss factor from 0.41% at December 31, 2017 to 0.26% on December 31, 2018.

During the period ended December 31, 2017, the allowance for commercial real estate loans increased from $4,623,000 to $5,265,000.  This $642,000 increase in the required allowance was due primarily to a $22,747,000 increase in loan balances and an increase in the amount of reserve required for classified loans.  This increase was partially offset by a reduction in the historical loss factor from 0.80% at December 31, 2016 to 0.74% on December 31, 2017.

 Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of the loans was $98,000 and$163,000 for 2018 and 2017, respectively.

As of December 31, 2018 and 2017, the Company considered its concentration of credit risk to be acceptable.  As of December 31, 2018, the highest concentrations are in commercial rentals and the hospitality lodging industry, with loans outstanding of $71.8 million, or 68.9% of bank capital, to commercial rentals, and $59.7 million, or 57.3% of bank capital to the hospitality lodging industry.  Charge-offs on loans within these concentrations were $0 and$762,000 for the years ended December 31, 2018 and 2017, respectively.

During 2018, the Company sold residential mortgage loans totaling $752,000.  During 2017, the Company did not sell any residential mortgage loans.  Gross realized gains and gross realized losses on sales of residential mortgage loans were $15,000 and $0, respectively, in 2018 and $0 and $0, respectively, in 2017.  The proceeds from the sales of residential mortgage loans totaled $767,000 and $0for the years ended December 31, 2018 and 2017, respectively.  As of December 31, 2018 and 2017, the outstanding value of loans serviced for others totaled $26.8 million and $29.0 million, respectively.

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Premises and Equipment

12 Months Ended

Dec. 31, 2018

Premises and Equipment [Abstract]

Premises and Equipment

NOTE 5 - PREMISES AND EQUIPMENT

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

	2018		2017
	(In Thousands)
Land and improvements	$	2,832	$	2,771
Buildings and improvements		17,788		17,613
Furniture and equipment		7,171		6,636
		27,791		27,020
Accumulated depreciation		(13,945)		(13,156)
	$	13,846	$	13,864

Depreciation expense totaled $895,000 and$922,000 for the years ended December 31, 2018 and 2017, respectively.

Certain facilities are leased under various operating leases. Rental expense for these leases was $470,000 and$405,000, respectively, for the years ended December 31, 2018 and 2017. Future minimum rental commitments under noncancellable leases as of December 31, 2018 were as follows (in thousands):

2019	$	454
2020		452
2021		452
2022		452
2023		452
Thereafter		4,202
	$	6,464

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Deposits

12 Months Ended

Dec. 31, 2018

Deposits [Abstract]

Deposits

NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of more than $250,000 were $112,665,000 and $92,527,000 at December 31, 2018 and 2017, respectively.

At December 31, 2018, the scheduled maturities of time deposits are as follows (in thousands):

2019	$	212,786
2020		81,453
2021		17,246
2022		17,374
2023		16,318
	$	345,177

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Borrowings

12 Months Ended

Dec. 31, 2018

Borrowings [Abstract]

Borrowings

NOTE 7 – BORROWINGS

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

	2018		2017
	(In Thousands)
Securities sold under agreements to repurchase	$	37,457	$	24,286
Federal Home Loan Bank short-term borrowings		15,589		18,244
	$	53,046	$	42,530

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

	Years Ended December 31,
	2018			2017
	(Dollars In Thousands)
Average balance during the year	$	41,963		$	39,170
Average interest rate during the year		0.77	%		0.51	%
Maximum month-end balance during the year	$	53,046		$	54,286
Weighted average interest rate at the end of the year		1.27	%		0.87	%

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 $41,587,000 and $40,161,000 at December 31, 2018 and $27,255,000 and $26,626,000 at December 31, 2017, 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, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$40,161	$            -	$              -	$            -	$40,161
Total liability recognized for repurchase agreements					$37,457

	As of December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$26,626	$            -	$              -	$            -	$26,626
Total liability recognized for repurchase agreements					$24,286

The Company has a line of credit commitment available from the FHLB of Pittsburgh for borrowings of up to $150,000,000, which renews annually in May.  At December 31, 2018, there were$15,589,000 of borrowings outstanding on this line.  There were $18,244,000 of borrowings outstanding on this line of credit at December 31, 2017.    The Company has a line of credit commitment available from Atlantic Community Bankers Bank for $7,000,000, which expires on June 30, 2019.  There were no borrowings under this line of credit at December 31, 2018 and 2017. The Company has a line of credit commitment available from PNC Bank for $16,000,000 at December 31, 2018. There were no borrowings under this line of credit at December 31, 2018 and December 31, 2017.  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, 2018 and December 31, 2017.

Other borrowings consisted of the following at December 31, 2018 and 2017:

	2018		2017
	(In Thousands)
Amortizing fixed rate borrowing due January 2018 at 0.91%	$	-	$	51
Amortizing fixed rate borrowing due December 2018 at 1.42%		-		823
Amortizing fixed rate borrowing due January 2019 at 1.39%		423		5,451
Fixed rate term borrowing due August 2019 at 1.61%		10,000		10,000
Amortizing fixed rate borrowing due June 2020 at 1.49%		3,079		5,093
Amortizing fixed rate borrowing due July 2020 at 2.77%		7,962		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		3,051
Amortizing fixed rate borrowing due December 2020 at 3.06%		2,051		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		2,877		3,730
Amortizing fixed rate borrowing due October 2022 at 1.88%		6,200		7,746
Amortizing fixed rate borrowing due October 2023 at 3.24%		9,692		-
Amortizing fixed rate borrowing due December 2023 at 3.22%		5,000		-
	$	52,284	$	35,945

Contractual maturities and scheduled cash flows of other borrowings at December 31, 2018 are as follows (in thousands):

2019	$	26,234
2020		13,018
2021		5,581
2022		4,760
2023		2,691
	$	52,284

The Bank’s maximum borrowing capacity with the FHLB was $398,936,000 of which $67,873,000 was outstanding in the form of advances and $45,000,000 was outstanding in the form of letters of credit at December 31, 2018. Advances from the FHLB are secured by qualifying assets of the Bank.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2018

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 $738,000 and$605,000 for the years ended December 31, 2018 and 2017, respectively. 

    The Company has several non-qualified supplemental executive retirement plans for the benefit of certain executive officers and former officers. At December 31, 2018 and 2017, other liabilities include $3,362,000 and $3,360,000 accrued under the Plan. Compensation expense includes approximately $434,000 and$301,000 relating to the supplemental executive retirement plan for 2018 and 2017, 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, 2018 and 2017, the cash value of these policies was $37,932,000 and $37,060,000, respectively. 

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 $149,000 and$168,000 for the years ended December 31, 2018 and 2017, respectively.

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 2018 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 $1,291,000 and $1,142,000 at December 31, 2018 and 2017, respectively.

Through its acquisition of Delaware, the Company also has certain director fee deferral and continuation plans.  These plans allowed directors to defer director fees and provide a benefit payment for a period of five to fifteen years.  The Company expensed $6,000 and $9,000 under these plans in 2018 and 2017, respectively.  At December 31, 2018 and 2017, the liability under these plans was $249,000 and $331,000, respectively.

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, 2018 and 2017, the Company’s Plan was 91.4% and 89.0% 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 $46,000 in 2018 and 2017.  During the plan years ending December 31, 2018 and 2017, the Company made a contribution of$46,000 for each year.

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 at least the minimum required contribution annually.  Pension cost is computed using the projected unit credit actuarial cost method.  Effective December 31, 2012, the Delaware 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 Delaware Plan at December 31:

(in Thousands of Dollars)		2018		2017
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	(8,465)	$	(8,084)
Service cost		(64)		(68)
Interest cost		(279)		(303)
Actuarial gain (loss)		1,040		(587)
Benefits paid		582		577
Benefit obligation at end of year	$	(7,186)	$	(8,465)
Change in plan assets:
Fair value of plan assets at beginning of year	$	7,110	$	6,702
Actual return on plan assets		(401)		981
Benefits paid		(573)		(573)
Fair value of assets at end of year		6,136		7,110
Funded status at end of year	$	(1,050)	$	(1,355)

The Delaware Plan paid $582,000 and $577,000 in benefit payments in 2018 and 2017, respectively.  Estimated benefit payments under the Delaware Plan are expected to be approximately $510,000,  $498,000,  $486,000,  $487,000 and $472,000 for the next five years.  Payments are expected to be approximately $2,233,000 in total for the five-year period ending December 31, 2028.  The Company was not required to make any contributions to the Delaware Plan in 2018 or 2017.  The increase in the projected discount rate contributed approximately $900,000 to the overall increase in the projected benefit obligation for the year ended December 31, 2018. 

The accumulated benefit obligation for the Delaware Plan was $7,186,000 and $8,465,000 at December 31, 2018 and 2017, respectively.

The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended December 31 (in thousands):

		2018		2017
Transition asset	$	-	$	-
Prior service credit		-		-
Gain		207		473
Total	$	207	$	473

         Net pension cost (income) included the following components (in thousands):

		2018		2017
Service cost benefits earned during the period	$	64	$	68
Interest cost on projected benefit obligation		279		303
Actual return on assets		(441)		(416)
Net amortization and deferral		-		-
NET PERIODIC PENSION COST	$	(98)	$	(45)

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

	2018		2017
Discount rate	4.54	%	3.43	%

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

	2018		2017
Discount rate	3.43	%	3.90	%
Expected long-term return on plan assets	6.50	%	6.50	%
Rate of compensation increase	0.00	%	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 Delaware Plan’s weighted-average asset allocations at December 31, by asset category, are as follows:

	2018		2017
Cash equivalents	4.2	%	6.4	%
Equity securities	46.1	%	50.2	%
Fixed income securities	45.8	%	40.2	%
Other	3.9	%	3.2	%
	100.0	%	100.0	%

The Delaware 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 the Delaware Plan 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, mortgage-backed securities, municipals, and other asset backed securities.

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

		December 31, 2018
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)		$	6	$	6	$	-	$	-
Equity securities:
Common stock			2,475		2,475		-		-
Depository receipts			42		42		-		-
Preferred stock			20		20		-		-
Fixed income securities:
Corporate bonds			608		-		608		-
Government issue			2,228		-		2,228		-
Collateralized mortgage obligations			156		-		156		-
Other			601		-		-		601
Total		$	6,136	$	2,543	$	2,992	$	601
		December 31, 2017
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)		$	70	$	70	$	-	$	-
Short-term investment funds			19		-		19		-
Equity securities:
Common stock			1,401		1,401		-		-
Depository receipts			35		35		-		-
Commingled Pension Trust Fund			2,203		-		2,203		-
Preferred stock			31		31		-		-
Fixed income securities:
Corporate bonds			296		-		296		-
Government issue			992		-		992		-
Mortgage-backed securities			6		-		6		-
Collateralized mortgage obligations			56		-		56		-
Commingled Pension Trust Fund			1,746		-		1,746		-
Other			255		-		-		255
Total		$	7,110	$	1,537	$	5,318	$	255

The following table sets forth a summary of the changes in the Level 3 assets for the year ended December 31, 2018 and 2017 (in thousands of dollars):

		2018		2017
Balance, January 1	$	255	$	283
Purchase		-		-
Unrealized gain (loss)		346		(28)
Balance, December 31	$	601	$	255

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Income Taxes

12 Months Ended

Dec. 31, 2018

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,
	2018		2017
	(In Thousands)
Current	$	2,529	$	3,822
Change in corporate tax rate		-		3,060
Deferred		24		(331)
	$	2,553	$	6,551

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. As of December 31, 2018, the Company has a $4,970,000 net operating loss carryforward that will begin to expire in 2035.  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,
	2018		2017
Tax at statutory rates	21.0	%	35.0	%
Tax exempt interest income, net of interest expense disallowance	(4.9)		(9.6)
Incentive stock options	0.2		0.2
Earnings and proceeds on life insurance	(1.1)		(2.7)
Change in corporate tax rate	-		20.8
Other	0.6		0.7
	15.8	%	44.4	%

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:

	2018		2017
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,775	$	1,603
Deferred compensation		766		775
Core deposit intangible		278		232
Prepaid expenses		90		125
Pension liability		263		384
Foreclosed real estate valuation allowance		20		7
AMT tax credit carryforward		260		260
Net operating loss carryforward		1,173		1,249
Net unrealized loss on securities		1,477		808
Other		95		92
Total Deferred Tax Assets		6,197		5,535
Deferred tax liabilities:
Premises and equipment		223		210
Deferred loan fees		186		142
Net unrealized gain on pension liability		43		99
Purchase price adjustment		321		303
Total Deferred Tax Liabilities		773		754
Net Deferred Tax Asset	$	5,424	$	4,781

The Company’s federal and state income tax returns for taxable years through 2015 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, 2018

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, 2018 and 2017, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2018, 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 following 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, 2018:
Total capital (to risk-weighted assets)	$	122,917	14.00	%	≥$70,248	≥8.00	%	≥$87,810	≥10.00	%
Tier 1 capital (to risk-weighted assets)		114,465	13.04		≥52,686	≥6.00		≥70,248	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		114,465	13.04		≥39,515	≥4.50		≥57,077	≥6.50
Tier 1 capital (to average assets)		114,465	9.82		≥46,619	≥4.00		≥58,273	≥5.00
As of December 31, 2017:
Total capital (to risk-weighted assets)	$	113,091	14.11	%	≥$64,126	≥8.00	%	≥$80,158	≥10.00	%
Tier 1 capital (to risk-weighted assets)		105,457	13.16		≥48,095	≥6.00		≥64,126	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		105,457	13.16		≥36,071	≥4.50		≥52,103	≥6.50
Tier 1 capital (to average assets)		105,457	9.36		≥45,075	≥4.00		≥56,343	≥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, 2018.

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, 2018 and 2017 was approximately $1,018,000 and $1,111,000, 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, 2018, $64,886,000 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, 2018

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 412,500 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 66,000 shares for awards to outside directors. Under this plan, the Company granted 11,135 options to employees in 2015, 18,750 options to employees in 2014, and 42,900 options, which included 6,000 options granted to outside directors in 2013.  No options were granted under this plan in 2018 or 2017.  As of December 31, 2018, there were no shares available for future awards under this plan. All share information has been restated to reflect the 50% stock dividend declared in 2017.

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 375,000 shares of authorized but unissued Common Stock of the Company were reserved for future issuance under the Plan. This includes up to 60,000 shares for awards to outside directors. The Plan also authorized the Company to award restricted stock to officers and outside directors, limited to 63,000 shares of restricted stock awards for officers and 12,000 shares of restricted stock awards for outside directors. At the Annual Meeting held on April 24, 2018, the Company’s shareholders approved an amendment to the 2014 Equity Incentive Plan to ease certain restrictions on restricted stock awards to outside directors.  As a result of this amendment, the number of shares available for restricted stock awards to officers was reduced by 300 shares to 62,700, while the number of shares available for restricted stock awards to outside directors was increased by 20,300 to 32,300 shares.  Under this plan, the Company granted 42,000 shares in 2018 which included 26,500 options to employees, 7,500 shares of restricted stock to officers, 2,400 options to directors and 5,600 shares of restricted stock to directors.  In 2017, the Company granted 44,150 shares which included 26,750 options to employees, 9,000 shares of restricted stock to officers, 8,000 options to directors and 400 shares of restricted stock to directors.  In 2016, the Company granted 36,675 shares which included 24,000 options to employees, 9,000 shares of restricted stock to officers and 3,675 shares of restricted stock to directors.  In 2015, the Company granted 20,591 shares which included 10,616 options to employees, 6,375 shares of restricted stock to officers and 3,600 shares of restricted stock to directors.  In 2014, the Company granted 13,950 shares, which included 9,750 shares of restricted stock to officers and 4,200 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, 2018, there were 217,635 shares available for future awards under this plan, which includes 185,510 shares available for officer awards and 32,125 shares available for awards to outside directors.  Included in these totals are 21,075 shares available for restricted stock awards to officers and 14,825 shares available for restricted stock awards to outside directors.  All share information has been restated to reflect the 50% stock dividend declared in 2017.

Total unrecognized compensation cost related to stock options was $207,000 as of December 31, 2018 and $237,000 as of December 31, 2017.  Salaries and employee benefits expense includes $237,000and $93,000of compensation costs related to options for the years ended December 31, 2018 and 2017, respectively.   Compensation costs related to restricted stock amounted to $205,000 and$143,000 for the years ended December 31, 2018 and 2017, respectively.  The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2018 and 2017 was $963,000 and $744,000, respectively.  Net income was reduced by $388,000 and$187,000 for the years ended December 31, 2018 and 2017, respectively.

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

	2018					2017
		Weighted					Weighted
		Average		Average			Average		Average
		Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	212,725	$	20.76			225,669	$	19.46
Granted	28,900		32.34			34,750		32.81
Exercised	(28,275)		18.39			(44,219)		23.53
Forfeited	(4,650)		27.08			(3,475)		21.71
Outstanding, end of year	208,700	$	22.54	$	2,182,537	212,725	$	20.76	$	2,604,097
Exercisable, end of year	179,800	$	20.97	$	2,163,463	177,975	$	18.41	$	2,597,494

Exercise prices for options outstanding as of December 31, 2018 ranged from $16.65 to $32.81 per share. The weighted average remaining contractual life is 5.9 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,
	2018		2017
Dividend yield		3.72%		3.89%
Expected life		10 years		10 years
Expected volatility		29.10%		29.11%
Risk-free interest rate		2.68%		2.41%
Weighted average fair value of options granted	$	7.18	$	6.83

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 $520,000 in 2018. Shares issued in connection with stock option exercises are issued from available treasury shares or from available authorized shares. During 2018, for the shares issued in connection with stock option exercises, 28,275 shares in total, 25,950 shares were issued from available authorized shares, while the remaining 2,325 shares were issued from available treasury shares.  All share information has been adjusted to reflect the 50% stock dividend declared in 2017.

As of December 31, 2018, outstanding stock options consist of the following:

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	14,775	$	17.33	1.0	14,775	$	17.33
	14,025		16.83	2.0	14,025		16.83
	18,825		16.65	3.0	18,825		16.65
	26,400		18.03	4.0	26,400		18.03
	1,650		18.36	4.0	1,650		18.36
	3,000		19.30	4.8	3,000		19.30
	25,375		17.93	5.0	25,375		17.93
	12,000		19.39	5.9	12,000		19.39
	13,500		19.03	6.9	13,500		19.03
	18,500		22.37	8.0	18,500		22.37
	31,750		32.81	9.0	31,750		32.81
	28,900		32.34	10.0	-		-
Total	208,700				179,800

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

	2018		2017
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	30,415	$24.46	28,035	$20.64
Granted	13,100	32.34	9,400	32.81
Vested	(8,900)	23.00	(7,020)	20.37
Forfeited	-	-	-	-
Non-vested at December 31	34,615	$27.82	30,415	$24.46

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Earnings Per Share

12 Months Ended

Dec. 31, 2018

EARNINGS PER SHARE

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,
	2018		2017
	(In Thousands, Except Per Share Data)
Numerator, net income	$	13,651	$	8,198
Denominator:
Weighted average shares outstanding		6,263		6,238
Less:  Weighted average unvested restricted shares		(31)		(28)
Denominator:  Basic earnings per share		6,232		6,210
Weighted average shares outstanding, basic		6,232		6,210
Add:  Dilutive effect of stock options		58		61
Denominator:  Diluted earnings per share		6,290		6,271
Basic earnings per common share	$	2.19	$	1.32
Diluted earnings per common share	$	2.17	$	1.31

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 zero for both years ended December 31, 2018 and 2017, based on the closing price of the Company’s common stock which was $33.00 as of December 31, 2018 and 2017.  All share and per share information has been restated to reflect the 50% stock dividend declared in 2017.

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Off-Balance Sheet Financial Instrument

12 Months Ended

Dec. 31, 2018

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,
	2018		2017
	(In Thousands)
Commitments to grant loans	$	45,246	$	44,970
Unfunded commitments under lines of credit		71,906		62,228
Standby letters of credit		4,269		5,919
	$	121,421	$	113,117

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 Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

NOTE 14 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the Consolidated Financial Statements.  Those assets and liabilities are presented in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis”.  There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 of the Company’s 2017 Form 10-K, except for the valuation of loans which was impacted by the adoption of ASU 2016-01.  In accordance with ASU 2016-01, the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses.  The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and nonperformance risk.  Loans are considered a Level 3 classification.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

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, 2018 and 2017 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Available for Sale:
States and political subdivisions	$	97,613	$	-	$	97,613	$	-
Corporate obligations		8,640		-		8,640		-
Mortgage-backed securities-government
sponsored entities		137,024		-		137,024		-
Total available for sale	$	243,277	$	-	$	243,277	$	-
December 31, 2017
Available for Sale:
U.S. Treasury securities	$	1,998	$	-	$	1,998	$	-
States and political subdivisions		120,478		-		120,478		-
Corporate obligations		9,989		-		9,989		-
Mortgage-backed securities-government
sponsored entities		148,656		-		148,656		-
Total available for sale	$	281,121	$	-	$	281,121	$	-

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.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis

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, 2018 and 2017 are as follows (in thousands):

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Impaired Loans	$	1,319	$	-	$	-	$	1,319
Foreclosed real estate		1,115		-		-		1,115
December 31, 2017
Impaired Loans	$	1,247	$	-	$	-	$	1,247
Foreclosed real estate		1,661		-		-		1,661

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, 2018, the fair value investment in impaired loans totaled $1,319,000 which included six loan relationships that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan.  As of December 31, 2018, the Company has recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $428,000 over the life of the loans.

As of December 31, 2017, the fair value investment in impaired loans totaled $1,247,000 which included five 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, 2017, the Company had recognized charge-offs against the allowance for loan losses on these impaired loans in the amount of $277,000 over the life of the loans.

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.

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, 2018
Impaired loans	$	232	Appraisal of collateral(1)	Appraisal adjustments(2)	10.00-81.54%  (56.06%)
Impaired loans	$	1,087	Present value of future cash flows	Loan discount rate	4.00-6.00%  (5.80%)
				Probability of default	0%
Foreclosed real estate owned	$	1,115	Appraisal of collateral(1)	Liquidation Expenses(2)	7.00-85.71%  (7.80%)

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	131	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	1,116	Present value of future cash flows	Loan discount rate	4-5.25%  (5.11%)
				Probability of default	0%
Foreclosed real estate owned	$	1,661	Appraisal of collateral(1)	Liquidation Expenses(2)	0-42.60%  (14.68%)

(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.

Assets and Liabilities Not Required to be Measured or Reported at Fair Value

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, 2018 and 2017.

Cash and cash equivalents (carried at cost):

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

Loans receivable (carried at cost):

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

Mortgage servicing rights (generally carried at cost)

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

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

The Bank, 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):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, 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 fair 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 not required to be measured or reported at fair value were as follows at December 31, 2018 and December 31, 2017. (In thousands):

	Fair Value Measurements at December 31, 2018
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	18,348	$	18,348	$	18,348	$	-	$	-
Loans receivable, net		841,730		840,134		-		-		840,134
Mortgage servicing rights		178		220		-		-		220
Regulatory stock (1)		3,926		3,926		3,926		-		-
Bank owned life insurance (1)		37,932		37,932		37,932		-		-
Accrued interest receivable (1)		3,776		3,776		3,776		-		-
Financial liabilities:
Deposits		946,780		945,773		601,604		-		344,169
Short-term borrowings (1)		53,046		53,046		53,046		-		-
Other borrowings		52,284		52,043		-		-		52,043
Accrued interest payable (1)		1,806		1,806		1,806		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2017
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	16,697	$	16,697	$	16,697	$	-	$	-
Loans receivable, net		756,458		756,092		-		-		756,092
Mortgage servicing rights		200		223		-		-		223
Regulatory stock (1)		3,505		3,505		3,505		-		-
Bank owned life insurance (1)		37,060		37,060		37,060		-		-
Accrued interest receivable (1)		3,716		3,716		3,716		-		-
Financial liabilities:
Deposits		929,384		929,709		609,090		-		320,619
Short-term borrowings (1)		42,530		42,530		42,530		-		-
Other borrowings		35,945		35,514		-		-		35,514
Accrued interest payable (1)		1,434		1,434		1,434		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

(1) This financial instrument is carried at cost, which approximates the fair value of the instrument.

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Accumulated Other Comprehensive Loss

12 Months Ended

Dec. 31, 2018

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE LOSS

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, 2018 and 2017:

	Unrealized gains (losses)
	on available for sale		Unrealized gain (loss) on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2017	$	(3,041)	$	374	$	(2,667)
Other comprehensive income (loss) before reclassification		(2,349)		164		(2,185)
Amount reclassified from accumulated other comprehensive loss		(168)		-		(168)
Total other comprehensive loss		(2,517)		164		(2,353)
Balance as of December 31, 2018	$	(5,558)	$	538	$	(5,020)
	Unrealized gains (losses)
	on available for sale		Unrealized gain on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2016	$	(4,437)	$	318	$	(4,119)
Other comprehensive income (loss) before reclassification		2,127		(11)		2,116
Amount reclassified from accumulated other comprehensive loss		(230)		-		(230)
Total other comprehensive income		1,897		(11)		1,886
Reclassification of certain income tax effects from accumulated
other comprehensive loss		(501)		67		(434)
Balance as of December 31, 2017	$	(3,041)	$	374	$	(2,667)

(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, 2018 and 2017:

	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,
		2018		2017
Unrealized gains on available for sale securities	$	213	$	348	Net realized gains on sales of securities
		(45)		(118)	Income tax expense
	$	168	$	230

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

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Norwood Financial Corp (Parent Company Only) Financial Information

12 Months Ended

Dec. 31, 2018

Norwood Financial Corp (Parent Company Only) Financial Information [Abstract]

Norwood Financial Corp (Parent Company Only) Financial

NOTE 16 - NORWOOD FINANCIAL CORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

	December 31,
	2018		2017
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,509	$	4,782
Investment in bank subsidiary		120,511		110,218
Other assets		1,739		2,858
Total assets	$	124,759	$	117,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	2,474	$	2,119
Stockholders’ equity		122,285		115,739
Total liabilities and stockholders' equity	$	124,759	$	117,858

STATEMENTS OF INCOME

	Years Ended December 31,
	2018		2017
Income:	(In Thousands)
Dividends from bank subsidiary	$	5,643	$	5,412
Net realized gain on sales of securities		-		130
Other interest income		-		8
		5,643		5,550
Expenses		618		511
		5,025		5,039
Income tax benefit		(217)		(127)
		5,242		5,166
Equity in undistributed earnings of subsidiary		8,409		3,032
Net Income	$	13,651	$	8,198
Comprehensive Income	$	11,298	$	10,084

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2018		2017
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	13,651	$	8,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(8,409)		(3,032)
Net gains on sales of securities		-		(130)
Decrease in deferred income tax		1,158		1,736
Other, net		387		389
Net Cash Provided by Operating Activities		6,787		7,161
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in bank subsidiary		(4,000)		-
Proceeds from sales of securities		-		422
Net Cash (Used in) Provided by Investing Activities		(4,000)		422
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		520		1,040
Sale of treasury stock for ESOP		123		127
Acquisition of treasury stock		(194)		(1,587)
Cash dividends paid		(5,509)		(5,386)
Net Cash Used in Financing Activities		(5,060)		(5,806)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,273)		1,777
CASH AND CASH EQUIVALENTS - BEGINNING		4,782		3,005
CASH AND CASH EQUIVALENTS - ENDING	$	2,509	$	4,782

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies [Abstract]

Principles of Consolidation

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. In June 2017, the Bank adopted a plan of dissolution for Norwood Settlement Services, LLC.  Effective May 29, 2018, the existence of Norwood Settlement Services, LLC, was terminated.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Estimates

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 and Concentrations of Credit Risk

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

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 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

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, 2018.

Loans Receivable

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

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

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

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, 2018 and 2017, respectively, were not impaired. Total servicing assets included in other assets as of December 31, 2018 and 2017, were $178,000 and $200,000, respectively.

Allowance for Loan Losses

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

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

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

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

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

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, 2018 and 2017.

Other Intangible Assets

Other Intangible Assets

At December 31, 2018, the Company had other intangible assets of $336,000, which is net of accumulated amortization of $1,008,000.  These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years.  At December 31, 2017, the Company had other intangible assets of $462,000 which was net of accumulated amortization of $883,000.  Amortization expense related to other intangible assets was $126,000 and$150,000 for the years ended December 31, 2018 and 2017, respectively. 

As of December 31, 2018, the estimated future amortization expense for the core deposit intangible is as follows (in thousands):

2019	$	101
2020		77
2021		52
2022		38
2023		29
Thereafter		39
	$	336

Income Taxes

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. On December 22, 2017, the President signed the Tax Cut and Jobs Act (the “Act”) into law.  Among other things, the Act reduced the corporate tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018.  As a result of the reduction in the corporate income tax rate to 21%, the Company revalued its net deferred tax asset as of December 31, 2017, which resulted in a $3,060,000 reduction in its value.  The reduction in the value of the net deferred tax asset was recorded as additional income tax expense in the fourth quarter of 2017.

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, 2018 or 2017, or during the years then ended. No unrecognized tax benefits are expected to arise within the next twelve months.

Advertising Costs

Advertising Costs

Advertising costs are expensed as incurred.

Earnings Per Share

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

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 participants.

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

Stock Option Plans

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

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

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

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

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

Treasury Stock

Common shares repurchased are recorded as treasury stock at cost.

Comprehensive Income

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

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 Community Office 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.

Reclassification of Comparative Amounts

Reclassification of Comparative Amounts

Certain comparative amounts for the prior year have been reclassified to conform to current-year classifications. Such reclassifications had no material effect on net income or stockholders’ equity.

New and Recently Adopted Accounting Pronouncements

New and Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 1.

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.  Upon adoption on January 1, 2018, we have included the related new disclosure requirements in Note 14.

New Accounting Pronouncements Not Yet Adopted

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 the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on 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 one percent increase in assets and liabilities. The Company also anticipates additional disclosures will be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, 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.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update, should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20).The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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 should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning ofthe period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.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 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

ASU 2018-04, Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273, ASU 2018-04 supersedes various SEC paragraphs and adds an SEC paragraph pursuant to the issuance of Staff Accounting Bulletin No. 117.

In May 2018, the FASB issued ASU 2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending, which supersedes outdated guidance related to the Office of the Comptroller of the Currency (OCC)’s Banking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202), because that guidance has been rescinded by the OCC and no longer is relevant.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting: (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. 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 July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases.  In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s financial statements.

In November, 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which amended the effective date of ASU 2016-13 for entities other than public business entities (PBEs), by requiring non-PBEs to adopt the standard for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Therefore, the revised effective dates of ASU 2016-13 for PBEs that are SEC filers will be fiscal years beginning after December 15, 2019, including interim periods within those years, PBEs other than SEC filers will be for fiscal years beginning after December 15, 2020, including interim periods within those years, and all other entities (non-PBEs) will be for fiscal years beginning after December 15, 2021, including interim periods within those years.  The ASU also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Rather, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.  The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13, as amended by ASU 2018-19.  This Update is not expected to have a significant impact on the Company’s financial statements.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which addressed implementation questions arising from stakeholders in regard to ASU 2016-02, Leases.  Specifically addressed in this Update were issues related to 1) sales taxes and other similar taxes collected from lessees, 2) certain lessor costs, and 3) recognition of variable payments for contracts with lease and nonlease components.  The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02 (for example, January 1, 2019, for calendar-year-end public business entities).  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Nature of Operations (Tables)

12 Months Ended

Dec. 31, 2018

Nature of Operations [Abstract]

Summary of Noninterest Income

(dollars in thousands)		2018
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts	$	263
ATM Fees		398
Overdraft Fees		1,505
Safe deposit box rental		96
Loan related service fees		515
Debit card		1,330
Fiduciary activities		589
Commissions on mutual funds & annuities		185
Other income		782
Noninterest Income (in-scope of Topic 606)		5,663
Out-of-scope of Topic 606:
Net realized gains on sales of securities		213
Loan servicing fees		48
Gain on sales of loans		15
Earnings on and proceeds from bank-owned life insurance		1,126
Noninterest Income (out-of-scope of Topic 606)		1,402
Total Noninterest Income	$	7,065

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies [Abstract]

Schedule of Estimated Useful Lives

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

Schedule of Estimated Future Amortization Expense for the Core Deposit Intangible

2019	$	101
2020		77
2021		52
2022		38
2023		29
Thereafter		39
	$	336

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Securities (Tables)

12 Months Ended

Dec. 31, 2018

Securities [Abstract]

Schedule of Amortized Cost Gross Unrealized Gains and Losses, and Fair Values of Securities

	December 31, 2018
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
States and political subdivisions	$	99,218	$	385	$	(1,990)	$	97,613
Corporate obligations		8,896		-		(256)		8,640
Mortgage-backed securities-
government sponsored entities		142,197		25		(5,198)		137,024
Total debt securities	$	250,311	$	410	$	(7,444)	$	243,277

	December 31, 2017
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
	(In Thousands)
AVAILABLE FOR SALE:
U.S. Treasury securities	$	2,001	$	-	$	(3)	$	1,998
States and political subdivisions		120,000		1,535		(1,057)		120,478
Corporate obligations		10,068		16		(95)		9,989
Mortgage-backed securities-
government sponsored entities		152,901		17		(4,262)		148,656
Total debt securities	$	284,970	$	1,568	$	(5,417)	$	281,121

Schedule of Investments' Gross Unrealized Losses and Fair Value Aggregated by Security Type and Length of Time that Individual Securities have been in a Continous Unrealized Loss Position

	December 31, 2018
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
States and political subdivisions	$	19,140	$	(390)	$	56,740	$	(1,600)	$	75,880	$	(1,990)
Corporate obligations		2,045		(21)		6,595		(235)		8,640		(256)
Mortgage-backed securities-government sponsored entities		8,444		(22)		122,950		(5,176)		131,394		(5,198)
	$	29,629	$	(433)	$	186,285	$	(7,011)	$	215,914	$	(7,444)

	December 31, 2017
	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	$	-	$	-	$	1,998	$	(3)	$	1,998	$	(3)
States and political subdivisions		17,310		(228)		44,948		(829)		62,258		(1,057)
Corporate obligations		-		-		6,859		(95)		6,859		(95)
Mortgage-backed securities-government sponsored entities		22,250		(320)		125,846		(3,942)		148,096		(4,262)
	$	39,560	$	(548)	$	179,651	$	(4,869)	$	219,211	$	(5,417)

Schedule of Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

	Amortized		Fair
	Cost		Value
		(In Thousands)
Due in one year or less	$	1,666	$	1,671
Due after one year through five years		22,532		22,130
Due after five years through ten years		44,638		43,454
Due after ten years		39,278		38,998
		108,114		106,253
Mortgage-backed securities - government sponsored entities		142,197		137,024
	$	250,311	$	243,277

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Loans Receivable and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2018

Loans Receivable and Allowance for Loan Losses [Abstract]

Composition of the Loan Portfolio

	December 31, 2018				December 31, 2017
Real Estate:
Residential	$	235,523	27.7	%	$	235,759	30.8	%
Commercial		374,790	44.1			342,934	44.9
Construction		17,445	2.0			17,228	2.3
Commercial, financial and agricultural		110,542	13.0			97,461	12.7
Consumer loans to individuals		112,002	13.2			70,953	9.3
Total loans		850,302	100.0	%		764,335	100.0	%
Deferred fees, net		(120)				(243)
Total loans receivable		850,182				764,092
Allowance for loan losses		(8,452)				(7,634)
Net loans receivable	$	841,730			$	756,458

Changes in the Accretable Yield for Purchased Credit-impaired Loans

	2018		2017
Balance at beginning of period	$	108	$	208
Additions		-		-
Accretion		(56)		(73)
Reclassification and other		(23)		(27)
Balance at end of period	$	29	$	108

Information Regarding Loans Acquired and Accounted for in Accordance With ASC 310-30

	December 31, 2018		December 31, 2017
Outstanding Balance	$	1,055	$	1,444
Carrying Amount	$	886	$	1,174

Summary of Amount of Loans in Each Category that were Individually and Collectively Evaluated for Impairment

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2018
Individually evaluated for  impairment	$	-	$	1,319	$	-	$	-	$	-	$	1,319
Loans acquired with deteriorated credit quality		630		256		-		-		-		886
Collectively evaluated for impairment		234,893		373,215		17,445		110,542		112,002		848,097
Total Loans	$	235,523	$	374,790	$	17,445	$	110,542	$	112,002	$	850,302

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2017
Individually evaluated for  impairment	$	23	$	1,224	$	-	$	-	$	-	$	1,247
Loans acquired with deteriorated credit quality		833		341		-		-		-		1,174
Collectively evaluated for impairment		234,903		341,369		17,228		97,461		70,953		761,914
Total Loans	$	235,759	$	342,934	$	17,228	$	97,461	$	70,953	$	764,335

Impaired Loans and Related Interest Income by Loan Portfolio Class

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2018	(In thousands)
With no related allowance recorded:
Real Estate Loans
Commercial	$	1,319	$	1,747	$	-
Subtotal		1,319		1,747		-
Total:
Real Estate Loans
Commercial		1,319		1,747		-
Total Impaired Loans	$	1,319	$	1,747	$	-

			Unpaid
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2017	(In thousands)
With no related allowance recorded:
Real Estate Loans
Residential	$	23	$	28	$	-
Commercial		1,224		1,496		-
Subtotal		1,247		1,524		-
Total:
Real Estate Loans
Residential		23		28		-
Commercial		1,224		1,496		-
Total Impaired Loans	$	1,247	$	1,524	$	-

The following information for impaired loans is presented for the years ended December 31, 2018 and 2017:

	Average Recorded	Average Recorded			Interest Income
		Investment			Recognized
	2018		2017		2018		2017
	(In thousands)
Total:
Real Estate Loans
Residential	$	-	$	23	$	-	$	-
Commercial		1,220		1,209		67		56
Total Loans	$	1,220	$	1,232	$	67	$	56

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2018
Commercial real estate loans	$	360,838	$	7,918	$	6,034	$	-	$	-	$	374,790
Commercial		109,966		82		494		-		-		110,542
Total	$	470,804	$	8,000	$	6,528	$	-	$	-	$	485,332

			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2017
Commercial real estate loans	$	329,617	$	9,680	$	3,637	$	-	$	-	$	342,934
Commercial		97,389		16		56		-		-		97,461
Total	$	427,006	$	9,696	$	3,693	$	-	$	-	$	440,395

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, 2018 and December 31, 2017 (in thousands):

	Performing		Nonperforming		Total
December 31, 2018
Residential real estate loans	$	234,725	$	798	$	235,523
Construction		17,445		-		17,445
Consumer loans to individuals		112,002		-		112,002
Total	$	364,172	$	798	$	364,970

	Performing		Nonperforming		Total
December 31, 2017
Residential real estate loans	$	233,966	$	1,793	$	235,759
Construction		17,228		-		17,228
Consumer loans to individuals		70,953		-		70,953
Total	$	322,147	$	1,793	$	323,940

Loan Portfolio Summarized by the Past Due Status

	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, 2018
Real Estate loans
Residential	$	234,201	$	373	$	151	$	-	$	798	$	1,322	$	235,523
Commercial		372,617		1,043		788		-		342		2,173		374,790
Construction		17,445		-		-		-		-		-		17,445
Commercial  loans		110,191		320		31		-		-		351		110,542
Consumer  loans		111,796		171		35		-		-		206		112,002
Total	$	846,250	$	1,907	$	1,005	$	-	$	1,140	$	4,052	$	850,302

	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, 2017
Real Estate loans
Residential	$	233,291	$	594	$	81	$	87	$	1,706	$	2,468	$	235,759
Commercial		341,602		646		-		409		277		1,332		342,934
Construction		17,228		-		-		-		-		-		17,228
Commercial  loans		97,424		10		27		-		-		37		97,461
Consumer  loans		70,869		60		24		-		-		84		70,953
Total	$	760,414	$	1,310	$	132	$	496	$	1,983	$	3,921	$	764,335

Allowance for Loan Losses and Recorded Investment in Financing Receivables

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, 2017	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634
Charge Offs		(197)		(283)		-		(246)		(263)		(989)
Recoveries		9		33		-		8		32		82
Provision for loan losses		244		440		3		487		551		1,725
Ending balance, December 31, 2018	$	1,328	$	5,455	$	93	$	712	$	864	$	8,452
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,328	$	5,455	$	93	$	712	$	864	$	8,452

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2016	$	1,092	$	4,623	$	78	$	307	$	363	$	6,463
Charge Offs		(83)		(902)		(28)		-		(207)		(1,220)
Recoveries		6		159		-		-		26		191
Provision for loan losses		257		1,385		40		156		362		2,200
Ending balance, December 31, 2017	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,272	$	5,265	$	90	$	463	$	544	$	7,634

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2018

Premises and Equipment [Abstract]

Componenets of Premises and Equipment

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

	2018		2017
	(In Thousands)
Land and improvements	$	2,832	$	2,771
Buildings and improvements		17,788		17,613
Furniture and equipment		7,171		6,636
		27,791		27,020
Accumulated depreciation		(13,945)		(13,156)
	$	13,846	$	13,864

Schedule of Future Minimum Rental Commitments Under Noncancellable Leases

2019	$	454
2020		452
2021		452
2022		452
2023		452
Thereafter		4,202
	$	6,464

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Deposits (Tables)

12 Months Ended

Dec. 31, 2018

Deposits [Abstract]

Schedule of Maturities of Time Deposits

2019	$	212,786
2020		81,453
2021		17,246
2022		17,374
2023		16,318
	$	345,177

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2018

Borrowings [Abstract]

Short-Term Borrowings

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

	2018		2017
	(In Thousands)
Securities sold under agreements to repurchase	$	37,457	$	24,286
Federal Home Loan Bank short-term borrowings		15,589		18,244
	$	53,046	$	42,530

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

	Years Ended December 31,
	2018			2017
	(Dollars In Thousands)
Average balance during the year	$	41,963		$	39,170
Average interest rate during the year		0.77	%		0.51	%
Maximum month-end balance during the year	$	53,046		$	54,286
Weighted average interest rate at the end of the year		1.27	%		0.87	%

Collateral Pledged for Repurchase Agreements

	As of December 31, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$40,161	$            -	$              -	$            -	$40,161
Total liability recognized for repurchase agreements					$37,457

	As of December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and continuous	Up to 30 days	30-90 days	Greater than 90 days	Total
Repurchase Agreements:
Mortgage-backed securities - government sponsored entities	$26,626	$            -	$              -	$            -	$26,626
Total liability recognized for repurchase agreements					$24,286

Other Borrowings

	2018		2017
	(In Thousands)
Amortizing fixed rate borrowing due January 2018 at 0.91%	$	-	$	51
Amortizing fixed rate borrowing due December 2018 at 1.42%		-		823
Amortizing fixed rate borrowing due January 2019 at 1.39%		423		5,451
Fixed rate term borrowing due August 2019 at 1.61%		10,000		10,000
Amortizing fixed rate borrowing due June 2020 at 1.49%		3,079		5,093
Amortizing fixed rate borrowing due July 2020 at 2.77%		7,962		-
Amortizing fixed rate borrowing due December 2020 at 1.71%		5,000		3,051
Amortizing fixed rate borrowing due December 2020 at 3.06%		2,051		-
Amortizing fixed rate borrowing due March 2022 at 1.75%		2,877		3,730
Amortizing fixed rate borrowing due October 2022 at 1.88%		6,200		7,746
Amortizing fixed rate borrowing due October 2023 at 3.24%		9,692		-
Amortizing fixed rate borrowing due December 2023 at 3.22%		5,000		-
	$	52,284	$	35,945

Contractual Maturities of Other Borrowings

2019	$	26,234
2020		13,018
2021		5,581
2022		4,760
2023		2,691
	$	52,284

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2018

Employee Benefit Plans [Abstract]

Schedule Of Projected Benefit Obligation And Changes In Plan Assets For The Defined Benefit Pension Plan

(in Thousands of Dollars)		2018		2017
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	(8,465)	$	(8,084)
Service cost		(64)		(68)
Interest cost		(279)		(303)
Actuarial gain (loss)		1,040		(587)
Benefits paid		582		577
Benefit obligation at end of year	$	(7,186)	$	(8,465)
Change in plan assets:
Fair value of plan assets at beginning of year	$	7,110	$	6,702
Actual return on plan assets		(401)		981
Benefits paid		(573)		(573)
Fair value of assets at end of year		6,136		7,110
Funded status at end of year	$	(1,050)	$	(1,355)

Schedule of Amounts Recognized in Accumulated Other Comprehensive Income

		2018		2017
Transition asset	$	-	$	-
Prior service credit		-		-
Gain		207		473
Total	$	207	$	473

Components Of Net Pension Cost (Income)

		2018		2017
Service cost benefits earned during the period	$	64	$	68
Interest cost on projected benefit obligation		279		303
Actual return on assets		(441)		(416)
Net amortization and deferral		-		-
NET PERIODIC PENSION COST	$	(98)	$	(45)

Schedule of Weighted Average Assumptions Used to Determine the Benefit Obligation and the Net Periodic Cost

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

	2018		2017
Discount rate	4.54	%	3.43	%

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

	2018		2017
Discount rate	3.43	%	3.90	%
Expected long-term return on plan assets	6.50	%	6.50	%
Rate of compensation increase	0.00	%	0.00	%

Schedule of Asset Allocation and Fair Value of Plan Assets

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

	2018		2017
Cash equivalents	4.2	%	6.4	%
Equity securities	46.1	%	50.2	%
Fixed income securities	45.8	%	40.2	%
Other	3.9	%	3.2	%
	100.0	%	100.0	%

The Delaware 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 the Delaware Plan 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, mortgage-backed securities, municipals, and other asset backed securities.

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

		December 31, 2018
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)		$	6	$	6	$	-	$	-
Equity securities:
Common stock			2,475		2,475		-		-
Depository receipts			42		42		-		-
Preferred stock			20		20		-		-
Fixed income securities:
Corporate bonds			608		-		608		-
Government issue			2,228		-		2,228		-
Collateralized mortgage obligations			156		-		156		-
Other			601		-		-		601
Total		$	6,136	$	2,543	$	2,992	$	601
		December 31, 2017
				Quoted Market		Other
				Price in		Observable		Unobservable
				Active Markets		Inputs		Inputs
		Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands of dollars)
Cash equivalents:
Cash (including foreign currencies)		$	70	$	70	$	-	$	-
Short-term investment funds			19		-		19		-
Equity securities:
Common stock			1,401		1,401		-		-
Depository receipts			35		35		-		-
Commingled Pension Trust Fund			2,203		-		2,203		-
Preferred stock			31		31		-		-
Fixed income securities:
Corporate bonds			296		-		296		-
Government issue			992		-		992		-
Mortgage-backed securities			6		-		6		-
Collateralized mortgage obligations			56		-		56		-
Commingled Pension Trust Fund			1,746		-		1,746		-
Other			255		-		-		255
Total		$	7,110	$	1,537	$	5,318	$	255

Schedule of Changes in Level 3 Assets

		2018		2017
Balance, January 1	$	255	$	283
Purchase		-		-
Unrealized gain (loss)		346		(28)
Balance, December 31	$	601	$	255

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Taxes [Abstract]

Schedule of Components of the Provision for Federal Income Taxes

	Years Ended December 31,
	2018		2017
	(In Thousands)
Current	$	2,529	$	3,822
Change in corporate tax rate		-		3,060
Deferred		24		(331)
	$	2,553	$	6,551

Schedule of Effective Income Tax Rate Reconciliation

	Percentage of Income
	before Income Taxes
	Years Ended December 31,
	2018		2017
Tax at statutory rates	21.0	%	35.0	%
Tax exempt interest income, net of interest expense disallowance	(4.9)		(9.6)
Incentive stock options	0.2		0.2
Earnings and proceeds on life insurance	(1.1)		(2.7)
Change in corporate tax rate	-		20.8
Other	0.6		0.7
	15.8	%	44.4	%

Schedule of Deferred Tax Assets and Liabilties

	2018		2017
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	1,775	$	1,603
Deferred compensation		766		775
Core deposit intangible		278		232
Prepaid expenses		90		125
Pension liability		263		384
Foreclosed real estate valuation allowance		20		7
AMT tax credit carryforward		260		260
Net operating loss carryforward		1,173		1,249
Net unrealized loss on securities		1,477		808
Other		95		92
Total Deferred Tax Assets		6,197		5,535
Deferred tax liabilities:
Premises and equipment		223		210
Deferred loan fees		186		142
Net unrealized gain on pension liability		43		99
Purchase price adjustment		321		303
Total Deferred Tax Liabilities		773		754
Net Deferred Tax Asset	$	5,424	$	4,781

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Regulatory Matters and Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2018

Regulatory Matters and Stockholders' Equity [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

								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, 2018:
Total capital (to risk-weighted assets)	$	122,917	14.00	%	≥$70,248	≥8.00	%	≥$87,810	≥10.00	%
Tier 1 capital (to risk-weighted assets)		114,465	13.04		≥52,686	≥6.00		≥70,248	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		114,465	13.04		≥39,515	≥4.50		≥57,077	≥6.50
Tier 1 capital (to average assets)		114,465	9.82		≥46,619	≥4.00		≥58,273	≥5.00
As of December 31, 2017:
Total capital (to risk-weighted assets)	$	113,091	14.11	%	≥$64,126	≥8.00	%	≥$80,158	≥10.00	%
Tier 1 capital (to risk-weighted assets)		105,457	13.16		≥48,095	≥6.00		≥64,126	≥8.00
Common Equity Tier 1 capital                              (to risk-weighted assets)		105,457	13.16		≥36,071	≥4.50		≥52,103	≥6.50
Tier 1 capital (to average assets)		105,457	9.36		≥45,075	≥4.00		≥56,343	≥5.00

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Stock Based Compensation (Tables)

12 Months Ended

Dec. 31, 2018

Stock Based Compensation [Abstract]

Summary of Stock Option Activity

	2018					2017
		Weighted					Weighted
		Average		Average			Average		Average
		Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	212,725	$	20.76			225,669	$	19.46
Granted	28,900		32.34			34,750		32.81
Exercised	(28,275)		18.39			(44,219)		23.53
Forfeited	(4,650)		27.08			(3,475)		21.71
Outstanding, end of year	208,700	$	22.54	$	2,182,537	212,725	$	20.76	$	2,604,097
Exercisable, end of year	179,800	$	20.97	$	2,163,463	177,975	$	18.41	$	2,597,494

Schedule of Fair Value Assumptions

	Years Ended December 31,
	2018		2017
Dividend yield		3.72%		3.89%
Expected life		10 years		10 years
Expected volatility		29.10%		29.11%
Risk-free interest rate		2.68%		2.41%
Weighted average fair value of options granted	$	7.18	$	6.83

Schedule of Outstanding Stock Options

		Average				Average
	Options	Exercise		Remaining	Options	Exercise
	Outstanding	Price		Life, Years	Exercisable	Price
	14,775	$	17.33	1.0	14,775	$	17.33
	14,025		16.83	2.0	14,025		16.83
	18,825		16.65	3.0	18,825		16.65
	26,400		18.03	4.0	26,400		18.03
	1,650		18.36	4.0	1,650		18.36
	3,000		19.30	4.8	3,000		19.30
	25,375		17.93	5.0	25,375		17.93
	12,000		19.39	5.9	12,000		19.39
	13,500		19.03	6.9	13,500		19.03
	18,500		22.37	8.0	18,500		22.37
	31,750		32.81	9.0	31,750		32.81
	28,900		32.34	10.0	-		-
Total	208,700				179,800

Summary of Restricted Stock Activity

	2018		2017
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	30,415	$24.46	28,035	$20.64
Granted	13,100	32.34	9,400	32.81
Vested	(8,900)	23.00	(7,020)	20.37
Forfeited	-	-	-	-
Non-vested at December 31	34,615	$27.82	30,415	$24.46

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2018

EARNINGS PER SHARE

Computations of Basic and Diluted Earnings Per Share

	Years Ended December 31,
	2018		2017
	(In Thousands, Except Per Share Data)
Numerator, net income	$	13,651	$	8,198
Denominator:
Weighted average shares outstanding		6,263		6,238
Less:  Weighted average unvested restricted shares		(31)		(28)
Denominator:  Basic earnings per share		6,232		6,210
Weighted average shares outstanding, basic		6,232		6,210
Add:  Dilutive effect of stock options		58		61
Denominator:  Diluted earnings per share		6,290		6,271
Basic earnings per common share	$	2.19	$	1.32
Diluted earnings per common share	$	2.17	$	1.31

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Off-Balance Sheet Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Off-Balance Sheet Financial Instruments [Abstract]

Schedule of Fair Value, Off-balance Sheet Risks

	December 31,
	2018		2017
	(In Thousands)
Commitments to grant loans	$	45,246	$	44,970
Unfunded commitments under lines of credit		71,906		62,228
Standby letters of credit		4,269		5,919
	$	121,421	$	113,117

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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Fair Value of Financial Instruments [Abstract]

Fair Value, Assets Measured on Recurring Basis

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Available for Sale:
States and political subdivisions	$	97,613	$	-	$	97,613	$	-
Corporate obligations		8,640		-		8,640		-
Mortgage-backed securities-government
sponsored entities		137,024		-		137,024		-
Total available for sale	$	243,277	$	-	$	243,277	$	-
December 31, 2017
Available for Sale:
U.S. Treasury securities	$	1,998	$	-	$	1,998	$	-
States and political subdivisions		120,478		-		120,478		-
Corporate obligations		9,989		-		9,989		-
Mortgage-backed securities-government
sponsored entities		148,656		-		148,656		-
Total available for sale	$	281,121	$	-	$	281,121	$	-

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis

	Fair Value Measurement Reporting Date using
Description	Total		Level 1		Level 2		Level 3
December 31, 2018
Impaired Loans	$	1,319	$	-	$	-	$	1,319
Foreclosed real estate		1,115		-		-		1,115
December 31, 2017
Impaired Loans	$	1,247	$	-	$	-	$	1,247
Foreclosed real estate		1,661		-		-		1,661

Additional Qualitative Information about Level 3 Assets

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2018
Impaired loans	$	232	Appraisal of collateral(1)	Appraisal adjustments(2)	10.00-81.54%  (56.06%)
Impaired loans	$	1,087	Present value of future cash flows	Loan discount rate	4.00-6.00%  (5.80%)
				Probability of default	0%
Foreclosed real estate owned	$	1,115	Appraisal of collateral(1)	Liquidation Expenses(2)	7.00-85.71%  (7.80%)

	Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2017
Impaired loans	$	131	Appraisal of collateral(1)	Appraisal adjustments(2)	10%  (10%)
Impaired loans	$	1,116	Present value of future cash flows	Loan discount rate	4-5.25%  (5.11%)
				Probability of default	0%
Foreclosed real estate owned	$	1,661	Appraisal of collateral(1)	Liquidation Expenses(2)	0-42.60%  (14.68%)

(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

	Fair Value Measurements at December 31, 2018
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	18,348	$	18,348	$	18,348	$	-	$	-
Loans receivable, net		841,730		840,134		-		-		840,134
Mortgage servicing rights		178		220		-		-		220
Regulatory stock (1)		3,926		3,926		3,926		-		-
Bank owned life insurance (1)		37,932		37,932		37,932		-		-
Accrued interest receivable (1)		3,776		3,776		3,776		-		-
Financial liabilities:
Deposits		946,780		945,773		601,604		-		344,169
Short-term borrowings (1)		53,046		53,046		53,046		-		-
Other borrowings		52,284		52,043		-		-		52,043
Accrued interest payable (1)		1,806		1,806		1,806		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2017
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents (1)	$	16,697	$	16,697	$	16,697	$	-	$	-
Loans receivable, net		756,458		756,092		-		-		756,092
Mortgage servicing rights		200		223		-		-		223
Regulatory stock (1)		3,505		3,505		3,505		-		-
Bank owned life insurance (1)		37,060		37,060		37,060		-		-
Accrued interest receivable (1)		3,716		3,716		3,716		-		-
Financial liabilities:
Deposits		929,384		929,709		609,090		-		320,619
Short-term borrowings (1)		42,530		42,530		42,530		-		-
Other borrowings		35,945		35,514		-		-		35,514
Accrued interest payable (1)		1,434		1,434		1,434		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

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Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2018

Accumulated Other Comprehensive Loss [Abstract]

Summary of Changes In Accumulated Other Comprehensive Income (Loss)

	Unrealized gains (losses)
	on available for sale		Unrealized gain (loss) on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2017	$	(3,041)	$	374	$	(2,667)
Other comprehensive income (loss) before reclassification		(2,349)		164		(2,185)
Amount reclassified from accumulated other comprehensive loss		(168)		-		(168)
Total other comprehensive loss		(2,517)		164		(2,353)
Balance as of December 31, 2018	$	(5,558)	$	538	$	(5,020)
	Unrealized gains (losses)
	on available for sale		Unrealized gain on
	securities (a)		pension liability (a)		Total (a)
Balance as of December 31, 2016	$	(4,437)	$	318	$	(4,119)
Other comprehensive income (loss) before reclassification		2,127		(11)		2,116
Amount reclassified from accumulated other comprehensive loss		(230)		-		(230)
Total other comprehensive income		1,897		(11)		1,886
Reclassification of certain income tax effects from accumulated
other comprehensive loss		(501)		67		(434)
Balance as of December 31, 2017	$	(3,041)	$	374	$	(2,667)

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

Significant Amounts Reclassified Out of Each Component of Accumulated Other Comprehensive Income (Loss)

	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,
		2018		2017
Unrealized gains on available for sale securities	$	213	$	348	Net realized gains on sales of securities
		(45)		(118)	Income tax expense
	$	168	$	230

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

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Norwood Financial Corp (Parent Company Only) Financial Information (Tables) - Parent Company [Member]

12 Months Ended

Dec. 31, 2018

Condensed Financial Statements, Captions [Line Items]

Parent Company Only - Balance Sheets

BALANCE SHEETS

	December 31,
	2018		2017
	(In Thousands)
ASSETS
Cash on deposit in bank subsidiary	$	2,509	$	4,782
Investment in bank subsidiary		120,511		110,218
Other assets		1,739		2,858
Total assets	$	124,759	$	117,858
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	2,474	$	2,119
Stockholders’ equity		122,285		115,739
Total liabilities and stockholders' equity	$	124,759	$	117,858

Parent Company Only - Statements of Income

STATEMENTS OF INCOME

	Years Ended December 31,
	2018		2017
Income:	(In Thousands)
Dividends from bank subsidiary	$	5,643	$	5,412
Net realized gain on sales of securities		-		130
Other interest income		-		8
		5,643		5,550
Expenses		618		511
		5,025		5,039
Income tax benefit		(217)		(127)
		5,242		5,166
Equity in undistributed earnings of subsidiary		8,409		3,032
Net Income	$	13,651	$	8,198
Comprehensive Income	$	11,298	$	10,084

Parent Company Only - Statements of Cash Flows

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2018		2017
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	13,651	$	8,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed earnings of bank subsidiary		(8,409)		(3,032)
Net gains on sales of securities		-		(130)
Decrease in deferred income tax		1,158		1,736
Other, net		387		389
Net Cash Provided by Operating Activities		6,787		7,161
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in bank subsidiary		(4,000)		-
Proceeds from sales of securities		-		422
Net Cash (Used in) Provided by Investing Activities		(4,000)		422
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		520		1,040
Sale of treasury stock for ESOP		123		127
Acquisition of treasury stock		(194)		(1,587)
Cash dividends paid		(5,509)		(5,386)
Net Cash Used in Financing Activities		(5,060)		(5,806)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,273)		1,777
CASH AND CASH EQUIVALENTS - BEGINNING		4,782		3,005
CASH AND CASH EQUIVALENTS - ENDING	$	2,509	$	4,782

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Nature of Operations (Narrative) (Details) - segment	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Nature of Operations [Abstract]
Number of Reportable Segments	1
Common Stock, Dividend Rate, Percentage		50.00%

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Nature of Operations (Summary of Noninterest Income) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Noninterest Income (in scope of Topic 606)	$ 5,663
Net realized gains on sales of securities	213	$ 348
Loan servicing fees	48
Gain on sales of loans	15	67
Earnings on and proceeds from bank-owned life insurance	1,126	1,133
Noninterest Income (out-of-scope of Topic 606)	1,402
Total Other Income	7,065	$ 6,911
Service Charges On Deposit Accounts [Member]
Noninterest Income (in scope of Topic 606)	263
ATM Fees [Member]
Noninterest Income (in scope of Topic 606)	398
Overdraft Fees [Member]
Noninterest Income (in scope of Topic 606)	1,505
Safe Deposit Box Rental [Member]
Noninterest Income (in scope of Topic 606)	96
Loan Related Service Fees [Member]
Noninterest Income (in scope of Topic 606)	515
Debit Card [Member]
Noninterest Income (in scope of Topic 606)	1,330
Fiduciary Activities [Member]
Noninterest Income (in scope of Topic 606)	589
Commissions On Mutual Funds And Annuities [Member]
Noninterest Income (in scope of Topic 606)	185
Other Income [Member]
Noninterest Income (in scope of Topic 606)	$ 782

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Summary of Significant Accounting Policies (Narrative) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Summary of Significant Accounting Policies [Abstract]
Regulatory Stock, Par Value		$ 100
Impairment of investments		$ 0
Loan servicing assets, impairment		0	$ 0
Servicing Assets	$ 200,000	178,000	200,000
Goodwill	11,331,000	11,331,000	11,331,000
Goodwill, Impairment Loss		0	0
Intangible Assets, Net (Excluding Goodwill)	462,000	336,000	462,000
Finite-Lived Intangible Assets, Accumulated Amortization	883,000	$ 1,008,000	883,000
Finite-Lived Intangible Assets, Amortization Method		sum-of-the-years digits method
Finite-Lived Intangible Asset, Useful Life		10 years
Amortization of Intangibles		$ 126,000	$ 150,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		21.00%	35.00%
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount	3,060,000		$ 3,060,000
Unrecognized Tax Benefits	$ 0	$ 0	$ 0
Unrecognized tax benefits expected within next twelve months		$ 0

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Summary of Significant Accounting Policies (Schedule of Estimated Useful Lives ) (Details)	12 Months Ended
	Dec. 31, 2018
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 (Schedule of Estimated Future Amortization Expense for the Core Deposit Intangible) (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Summary of Significant Accounting Policies [Abstract]
2019	$ 101
2020	77
2021	52
2022	38
2023	29
Thereafter	39
Amortization Expense for the Core Deposit Intangible, Total	$ 336

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Securities (Narrative) (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) security	Dec. 31, 2017 USD ($)
Securities [Abstract]
Debt securities in unrealized loss position in the less than twelve months category | security	43
Debt securities in unrealized loss position in the twelve months or more category | security	188
Impairment of investments	$ 0
Available-for-sale Securities Pledged as Collateral	193,918,000	$ 213,065,000
Gross realized gains	213,000	354,000
Gross realized losses	0	6,000
Proceeds from sales	$ 17,745,000	$ 15,612,000

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Securities (Schedule of Amortized Cost Gross Unrealized Gains and Losses, and Fair Values of Securities) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Schedule of Investments [Line Items]
Available for Sale, Gross Unrealized Gains
Available for Sale, Fair Value	$ 243,277	281,121
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	250,311	284,970
Available for Sale, Gross Unrealized Gains	410	1,568
Available for Sale, Gross Unrealized Losses	(7,444)	(5,417)
Available for Sale, Fair Value	243,277	281,121
US Treasury Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost		2,001
Available for Sale, Gross Unrealized Gains
Available for Sale, Gross Unrealized Losses		(3)
Available for Sale, Fair Value		1,998
States and Political Subdivisions [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	99,218	120,000
Available for Sale, Gross Unrealized Gains	385	1,535
Available for Sale, Gross Unrealized Losses	(1,990)	(1,057)
Available for Sale, Fair Value	97,613	120,478
Corporate Obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	8,896	10,068
Available for Sale, Gross Unrealized Gains		16
Available for Sale, Gross Unrealized Losses	(256)	(95)
Available for Sale, Fair Value	8,640	9,989
Mortgage-backed Securities-Government Sponsored Entities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	142,197	152,901
Available for Sale, Gross Unrealized Gains	25	17
Available for Sale, Gross Unrealized Losses	(5,198)	(4,262)
Available for Sale, Fair Value	$ 137,024	$ 148,656

XML

Securities (Schedule of 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) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
US Treasury Securities [Member]
Schedule of Investments [Line Items]
12 Months or More, Fair Value		$ 1,998
12 Months or More, Unrealized Losses		(3)
Total, Fair Value		1,998
Total, Unrealized Losses		(3)
States and Political Subdivisions [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	$ 19,140	17,310
Less than 12 Months, Unrealized Losses	(390)	(228)
12 Months or More, Fair Value	56,740	44,948
12 Months or More, Unrealized Losses	(1,600)	(829)
Total, Fair Value	75,880	62,258
Total, Unrealized Losses	(1,990)	(1,057)
Corporate Obligations [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	2,045
Less than 12 Months, Unrealized Losses	(21)
12 Months or More, Fair Value	6,595	6,859
12 Months or More, Unrealized Losses	(235)	(95)
Total, Fair Value	8,640	6,859
Total, Unrealized Losses	(256)	(95)
Mortgage-backed Securities-Government Sponsored Entities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	8,444	22,250
Less than 12 Months, Unrealized Losses	(22)	(320)
12 Months or More, Fair Value	122,950	125,846
12 Months or More, Unrealized Losses	(5,176)	(3,942)
Total, Fair Value	131,394	148,096
Total, Unrealized Losses	(5,198)	(4,262)
Total Debt Securities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	29,629	39,560
Less than 12 Months, Unrealized Losses	(433)	(548)
12 Months or More, Fair Value	186,285	179,651
12 Months or More, Unrealized Losses	(7,011)	(4,869)
Total, Fair Value	215,914	219,211
Total, Unrealized Losses	$ (7,444)	$ (5,417)

XML

Securities (Schedule of Amortized Cost and Fair Value Of Debt Securities by Contractual Maturity) (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Securities [Abstract]
Available for Sale, Amortized Cost, Due in one year or less	$ 1,666
Available for Sale, Amortized Cost, Due after one year through five years	22,532
Available for Sale, Amortized Cost, Due after five years through ten years	44,638
Available for Sale, Amortized Cost, Due after ten years	39,278
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis, Total	108,114
Available for Sale, Amortized Cost, Mortgage-backed securities- government sponsored agencies	142,197
Available for Sale, Amortized Cost, Total	250,311
Available for Sale, Fair Value, Due in one year or less	1,671
Available for Sale, Fair Value, Due after one year through five years	22,130
Available for Sale, Fair Value, Due after five years through ten years	43,454
Available for Sale, Fair Value, Due after ten years	38,998
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Total	106,253
Available for Sale, Fair Value, Mortgage-backed securities- government sponsored agencies	137,024
Available for Sale, Fair Value, Total	$ 243,277

XML

Loans Receivable and Allowance for Loan Losses (Narrative) (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans and Debt Securities Acquired in Transfer, Allowance for Credit Losses Due to Subsequent Impairment	$ 0
Impaired Financing Receivable, Related Allowance
Impaired Financing Receivable, Average Recorded Investment	1,220,000	1,232,000	$ 0
Impaired Financing Receivable, Interest Income, Cash Basis Method	67,000	56,000	0
Foreclosed Real Estate Expense	172,000	1,164,000
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Outstanding Balance	1,055,000	1,444,000
Real Estate Acquired Through Foreclosure	1,115,000	1,661,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,319,000	1,247,000
Annual Loan Review threshold, amount	1,500,000
Loans and Leases Receivable, Gross	850,302,000	764,335,000
Charge Offs	989,000	1,220,000
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Accretable Yield, Period Increase (Decrease)	86,100,000
Allowance for Loan and Lease Losses, Period Increase (Decrease)	818,000
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	98,000	163,000
Allowance for Loan and Lease Losses, Real Estate	$ 8,452,000	$ 7,634,000
Historical loss factor	0.26%	0.41%
Servicing Asset at Amortized Cost	$ 26,800,000	$ 29,000,000
Mortgage loans originated for sale	752,000	0
Customer Concentration Risk [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Charge Offs	0	762,000
Commercial Rentals [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 71,800,000
Concentration Risk, Percentage	68.90%
Hospitality Lodging Industry [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 59,700,000
Concentration Risk, Percentage	57.30%
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Related Allowance
Impaired Financing Receivable, Average Recorded Investment		23,000
Impaired Financing Receivable, Interest Income, Cash Basis Method
Real Estate Acquired Through Foreclosure	$ 36,000
Number Of Properties Under Foreclosure Proceedings | loan	3
Mortgage Loans in Process of Foreclosure, Amount	$ 298,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		23,000
Loans and Leases Receivable, Gross	235,523,000	235,759,000
Charge Offs	197,000	83,000
Proceeds from Sale of Mortgage Loans Held-for-sale	767,000,000	0
Gross Realized Gains on Loans	15,000	0
Gross Realized Losses on Loans	0	0
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Related Allowance
Impaired Financing Receivable, Average Recorded Investment	1,220,000	1,209,000	0
Impaired Financing Receivable, Interest Income, Cash Basis Method	67,000	56,000	0
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,319,000	1,224,000
Loans and Leases Receivable, Gross	374,790,000	342,934,000
Charge Offs	283,000	902,000
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Accretable Yield, Period Increase (Decrease)		22,747,000
Allowance for Loan and Lease Losses, Period Increase (Decrease)		642,000
Allowance for Loan and Lease Losses, Real Estate		$ 5,265,000	$ 4,623,000
Historical loss factor		0.74%	0.80%
Troubled Debt Restructured Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,100,000	$ 1,100,000
Impaired Financing Receivable, Related Allowance	$ 0	$ 0
New Loans Identified as Troubled Debt Restructurings, Number of Loans | loan	0	0
Mortgage Loans on Real Estate, Number of Foreclosures | loan	1	1
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Foreclosure		$ 23,000	$ 322,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	$ 0	55,000
Impaired Loans Requiring Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	0	0
Impaired Loans Not Requiring Allowance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,319,000	1,247,000
Charge Offs	$ 428,000	$ 277,000

XML

Loans Receivable and Allowance for Loan Losses (Composition of the Loan Portfolio) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 850,302	$ 764,335
Deferred fees, net	(120)	(243)
Total loans receivable	850,182	764,092
Allowance for loan losses	(8,452)	(7,634)	$ (6,463)
Net loans receivable	$ 841,730	$ 756,458
Percent of Loans	100.00%	100.00%
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 235,523	$ 235,759
Allowance for loan losses	$ (1,328)	$ (1,272)	(1,092)
Percent of Loans	27.70%	30.80%
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 374,790	$ 342,934
Allowance for loan losses	$ (5,455)	$ (5,265)	(4,623)
Percent of Loans	44.10%	44.90%
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 17,445	$ 17,228
Allowance for loan losses	$ (93)	$ (90)	(78)
Percent of Loans	2.00%	2.30%
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 110,542	$ 97,461
Allowance for loan losses	$ (712)	$ (463)	(307)
Percent of Loans	13.00%	12.70%
Consumer Loans To Individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Loans	$ 112,002	$ 70,953
Allowance for loan losses	$ (864)	$ (544)	$ (363)
Percent of Loans	13.20%	9.30%

XML

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, 2018	Dec. 31, 2017
Loans Receivable and Allowance for Loan Losses [Abstract]
Balance at beginning of period	$ 108	$ 208
Additions
Accretion	(56)	(73)
Reclassification and other	(23)	(27)
Balance at end of period	$ 29	$ 108

XML

Loans Receivable and Allowance for Loan Losses (Information Regarding Loans Acquired and Accounted for in Accordance with ASC 310-30) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Loans Receivable and Allowance for Loan Losses [Abstract]
Outstanding Balance	$ 1,055	$ 1,444
Carrying Amount	$ 886	$ 1,174

XML

Loans Receivable and Allowance for Loan Losses (Summary of Amount of Loans in Each Category that were Individually and Collectively Evaluated for Impairment) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 1,319	$ 1,247
Loans acquired with deteriorated credit quality	886	1,174
Collectively evaluated for impairment	848,097	761,914
Total Loans	850,302	764,335
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment		23
Loans acquired with deteriorated credit quality	630	833
Collectively evaluated for impairment	234,893	234,903
Total Loans	235,523	235,759
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	1,319	1,224
Loans acquired with deteriorated credit quality	256	341
Collectively evaluated for impairment	373,215	341,369
Total Loans	374,790	342,934
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Collectively evaluated for impairment	17,445	17,228
Total Loans	17,445	17,228
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Collectively evaluated for impairment	110,542	97,461
Total Loans	110,542	97,461
Consumer Loans To Individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Collectively evaluated for impairment	112,002	70,953
Total Loans	$ 112,002	$ 70,953

XML

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, 2018	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 1,319	$ 1,247
Impaired Financing Receivable, Recorded Investment	1,319	1,247
Unpaid Principal Balance, With no related allowance recorded	1,747	1,524
Unpaid Principal Balance, Total	1,747	1,524
Associated Allowance
Average Recorded Investment, Total	1,220	1,232	$ 0
Interest Income Recognized, Total	67	56	0
Impaired Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, Recorded Investment	1,319	1,247
Associated Allowance	0
Residential Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		23
Impaired Financing Receivable, Recorded Investment		23
Unpaid Principal Balance, With no related allowance recorded		28
Unpaid Principal Balance, Total		28
Associated Allowance
Average Recorded Investment, Total		23
Interest Income Recognized, Total
Commercial Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,319	1,224
Impaired Financing Receivable, Recorded Investment	1,319	1,224
Unpaid Principal Balance, With no related allowance recorded	1,747	1,496
Unpaid Principal Balance, Total	1,747	1,496
Associated Allowance
Average Recorded Investment, Total	1,220	1,209	0
Interest Income Recognized, Total	$ 67	$ 56	$ 0

XML

Loans Receivable and Allowance for Loan Losses (Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	$ 485,332	$ 440,395
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	470,804	427,006
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	8,000	9,696
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	6,528	3,693
Doubtful Or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	364,970	323,940
Performing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	364,172	322,147
Nonperforming [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	798	1,793
Commercial Real Estate Loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	374,790	342,934
Commercial Real Estate Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	360,838	329,617
Commercial Real Estate Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	7,918	9,680
Commercial Real Estate Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	6,034	3,637
Commercial Real Estate Loans [Member] | Doubtful Or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Commercial Real Estate Loans [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Commercial [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	110,542	97,461
Commercial [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	109,966	97,389
Commercial [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	82	16
Commercial [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	494	56
Commercial [Member] | Doubtful Or Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Commercial [Member] | Loss [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount		0
Residential Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	235,523	235,759
Residential Real Estate Loans [Member] | Performing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	234,725	233,966
Residential Real Estate Loans [Member] | Nonperforming [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	798	1,793
Construction Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	17,445	17,228
Construction Real Estate Loans [Member] | Performing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	17,445	17,228
Construction Real Estate Loans [Member] | Nonperforming [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount
Consumer Loans To Individuals [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	112,002	70,953
Consumer Loans To Individuals [Member] | Performing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount	112,002	70,953
Consumer Loans To Individuals [Member] | Nonperforming [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying Amount

XML

Loans Receivable and Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 846,250	$ 760,414
Non-Accrual	1,140	1,983
Total Past Due and Non-Accrual	4,052	3,921
Total Loans	850,302	764,335
Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,907	1,310
Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,005	132
Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		496
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	234,201	233,291
Non-Accrual	798	1,706
Total Past Due and Non-Accrual	1,322	2,468
Total Loans	235,523	235,759
Residential Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	373	594
Residential Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	151	81
Residential Real Estate Loans [Member] | Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		87
Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	372,617	341,602
Non-Accrual	342	277
Total Past Due and Non-Accrual	2,173	1,332
Total Loans	374,790	342,934
Commercial Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,043	646
Commercial Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	788
Commercial Real Estate Loans [Member] | Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due		409
Construction Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	17,445	17,228
Non-Accrual
Total Past Due and Non-Accrual
Total Loans	17,445	17,228
Construction Real Estate Loans [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due
Construction Real Estate Loans [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due
Construction Real Estate Loans [Member] | Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	110,191	97,424
Non-Accrual
Total Past Due and Non-Accrual	351	37
Total Loans	110,542	97,461
Commercial [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	320	10
Commercial [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	31	27
Commercial [Member] | Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due
Consumer Loans To Individuals [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	111,796	70,869
Non-Accrual
Total Past Due and Non-Accrual	206	84
Total Loans	112,002	70,953
Consumer Loans To Individuals [Member] | Financing Receivables, 31 to 60 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	171	60
Consumer Loans To Individuals [Member] | Financing Receivables, 61 to 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	35	24
Consumer Loans To Individuals [Member] | Financing Receivables, Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due

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, 2018	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	$ 7,634	$ 6,463
Charge Offs	(989)	(1,220)
Recoveries	82	191
Provision for loan losses	1,725	2,200
Ending balance,	8,452	7,634
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	8,452	7,634
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	1,272	1,092
Charge Offs	(197)	(83)
Recoveries	9	6
Provision for loan losses	244	257
Ending balance,	1,328	1,272
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	1,328	1,272
Commercial Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	5,265	4,623
Charge Offs	(283)	(902)
Recoveries	33	159
Provision for loan losses	440	1,385
Ending balance,	5,455	5,265
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	5,455	5,265
Construction Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	90	78
Charge Offs		(28)
Recoveries
Provision for loan losses	3	40
Ending balance,	93	90
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	93	90
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	463	307
Charge Offs	(246)
Recoveries	8
Provision for loan losses	487	156
Ending balance,	712	463
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	712	463
Consumer Loans To Individuals [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance,	544	363
Charge Offs	(263)	(207)
Recoveries	32	26
Provision for loan losses	551	362
Ending balance,	864	544
Ending balance individually evaluated for impairment
Ending balance collectively evaluated for impairment	$ 864	$ 544

XML

Premises and Equipment (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Premises and Equipment [Abstract]
Depreciation expense	$ 895	$ 922
Rent expense	$ 470	$ 405

XML

Premises and Equipment (Components of Premises and Equipment) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 27,791	$ 27,020
Accumulated depreciation	(13,945)	(13,156)
Property, Plant and Equipment, Net, Total	13,846	13,864
Land and Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	2,832	2,771
Buildings and improvements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	17,788	17,613
Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Gross	$ 7,171	$ 6,636

XML

Premises and Equipment (Schedule of Future Minimum Rental Commitments Under Noncancellable Leases) (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Premises and Equipment [Abstract]
2019	$ 454
2020	452
2021	452
2022	452
2023	452
Thereafter	4,202
Operating Leases, Future Minimum Payments Due, Total	$ 6,464

XML

Deposits (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deposits [Abstract]
Time Deposits, $250,000 or More	$ 112,665	$ 92,527

XML

Deposits (Schedule of Maturities of Time Deposits) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deposits [Abstract]
2019	$ 212,786
2020	81,453
2021	17,246
2022	17,374
2023	16,318
Time Deposits, Total	$ 345,177	$ 320,294

XML

Borrowings (Narrative) (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 193,918,000	$ 213,065,000
FHLB of Pittsburgh [Member]
Debt Instrument [Line Items]
Long-term Line of Credit	15,589,000	18,244,000
Line of Credit Facility, Maximum Borrowing Capacity	150,000,000
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	398,936,000
Advances from Federal Home Loan Banks	67,873,000
Outstanding letter of credit amount	45,000,000
Atlantic Community Bankers Bank [Member]
Debt Instrument [Line Items]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	7,000,000
PNC Bank [Member]
Debt Instrument [Line Items]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	16,000,000
Zion Bank [Member]
Debt Instrument [Line Items]
Long-term Line of Credit	0	0
Line of Credit Facility, Maximum Borrowing Capacity	17,000,000
Securities Sold under Agreements to Repurchase [Member]
Debt Instrument [Line Items]
Available-for-sale securities pledged as collateral, amortized cost	41,587,000	27,255,000
Available-for-sale Securities Pledged as Collateral	$ 40,161,000	$ 26,626,000

XML

Borrowings (Short-Term Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Short-term Debt [Line Items]
Short-term borrowings	$ 53,046	$ 42,530
Securities Sold under Agreements to Repurchase [Member]
Short-term Debt [Line Items]
Short-term borrowings	37,457	24,286
FHLB of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member]
Short-term Debt [Line Items]
Short-term borrowings	$ 15,589	$ 18,244

XML

Borrowings (Outstanding Balances and Related Information of Short-Term Borrowings) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Borrowings [Abstract]
Short-term Debt, Average Balance During the Year	$ 41,963	$ 39,170
Short-term Debt, Average Interest Rate During the Year	0.77%	0.51%
Short-term Debt, Maximum Month-end Balance During The Year	$ 53,046	$ 54,286
Short-term Debt, Weighted Average Interest Rate at the End of the Year	1.27%	0.87%

XML

Borrowings (Collateral Pledged for Repurchase Agreements) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 193,918	$ 213,065
Short-term Borrowings	53,046	42,530
Mortgage-backed Securities-Government Sponsored Entities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	40,161	26,626
Maturity Overnight [Member] | Mortgage-backed Securities-Government Sponsored Entities [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	40,161	26,626
Securities Sold under Agreements to Repurchase [Member]
Assets Sold under Agreements to Repurchase [Line Items]
Available-for-sale Securities Pledged as Collateral	40,161	26,626
Short-term Borrowings	$ 37,457	$ 24,286

XML

Borrowings (Other Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 52,284	$ 35,945
Amortizing fixed rate borrowing due January 2018 at 0.91% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances		51
Debt Instrument, Interest Rate, Stated Percentage	0.91%
Amortizing fixed rate borrowing due December 2018 at 1.42% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances		823
Debt Instrument, Interest Rate, Stated Percentage	1.42%
Amortizing fixed rate borrowing due January 2019 at 1.39% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 423	5,451
Debt Instrument, Interest Rate, Stated Percentage	1.39%
Fixed rate term borrowing due August 2019 at 1.61% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 10,000	10,000
Debt Instrument, Interest Rate, Stated Percentage	1.61%
Amortizing fixed rate borrowing due June 2020 at 1.49% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 3,079	5,093
Debt Instrument, Interest Rate, Stated Percentage	1.49%
Amortizing fixed rate borrowing due July 2020 at 2.77% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 7,962
Debt Instrument, Interest Rate, Stated Percentage	2.77%
Amortizing fixed rate borrowing due December 2020 at 1.71% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 5,000	3,051
Debt Instrument, Interest Rate, Stated Percentage	1.71%
Amortizing fixed rate borrowing due December 2020 at 3.06% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 2,051
Debt Instrument, Interest Rate, Stated Percentage	3.06%
Amortizing fixed rate borrowing due March 2022 at 1.75% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 2,877	3,730
Debt Instrument, Interest Rate, Stated Percentage	1.75%
Amortizing fixed rate borrowing due October 2022 at 1.88% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 6,200	$ 7,746
Debt Instrument, Interest Rate, Stated Percentage	1.88%
Amortizing fixed rate borrowing due October 2023 at 3.24% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 9,692
Debt Instrument, Interest Rate, Stated Percentage	3.24%
Amortizing fixed rate borrowing due December 2023 at 3.22% [Member]
Debt Instrument [Line Items]
Long-term Federal Home Loan Bank Advances	$ 5,000
Debt Instrument, Interest Rate, Stated Percentage	3.22%

XML

Borrowings (Contractual Maturities of Other Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Borrowings [Abstract]
2019	$ 26,234
2020	13,018
2021	5,581
2022	4,760
2023	2,691
Long-term Federal Home Loan Bank Advances, Total	$ 52,284	$ 35,945

XML

Employee Benefit Plans (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
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	$ 738	$ 605
Defined Benefit Plan, Benefit Obligation	7,186	8,465	$ 8,084
Defined Benefit Plan, Net Periodic Benefit Cost	(98)	(45)
Defined Benefit Plan, Benefits Paid	582	577
Defined Benefit Plan, Expected Future Benefit Payments, Next Twelve Months	510
Defined Benefit Plan, Expected Future Benefit Payments, Year Five	498
Defined Benefit Plan, Expected Future Benefit Payments, Year Four	486
Defined Benefit Plan, Expected Future Benefit Payments, Year Three	487
Defined Benefit Plan, Expected Future Benefit Payments, Year Two	472
Defined Benefit Plan, Expected Future Benefit Payments, Five Fiscal Years Thereafter	2,233
Change in Projected Benefit Obligation from Change in Projected Discount Rate	900
Defined Benefit Plan, Accumulated Benefit Obligation	$ 7,186	$ 8,465
Defined Benefit Plan, Target Plan Asset Allocations	100.00%	100.00%
Defined Benefit Plan, Plan Assets, Target Allocation, Long-term Growth, Percentage	97.00%
Defined Benefit Plan, Plan Assets, Target Allocation, Short-term Growth, Percentage	3.00%
Accumulated Postretirement Benefit Obligation	$ 1,291	$ 1,142
Supplemental Employee Retirement Plan, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	3,362	3,360
Pension and Other Postretirement Benefits Cost (Reversal of Cost)	434	301
Cash Surrender Value of Life Insurance	37,932	37,060
Defined Benefit Plan, Net Periodic Benefit Cost	149	168
Multiemployer Plans, Postretirement Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Net Periodic Benefit Cost	46
Defined Benefit Plan, Contributions by Employer	$ 46	$ 46
Defined Benefit Plan, Percentage of Plan Funded	91.40%	89.00%
Defined Benefit Plan, Contribution Percentage	5.00%
Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	4.20%	6.40%
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	46.10%	50.20%
Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	45.80%	40.20%
Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	3.90%	3.20%
Minimum [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	0.00%
Minimum [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	40.00%
Minimum [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	40.00%
Minimum [Member] | Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	0.00%
Maximum [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	20.00%
Maximum [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	60.00%
Maximum [Member] | Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	60.00%
Maximum [Member] | Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	5.00%
Delaware Bancshares, Inc. [Member] | Director Fee Deferral and Continuation Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefit Obligation	$ 249	$ 331
Pension and Other Postretirement Benefits Cost (Reversal of Cost)	$ 6	$ 9
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 Projected Benefit Obligation and Changes in Plan Assets for the Defined Benefit Pension Plan) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Change in benefit obligation:
Projected benefit obligation at beginning of year	$ (8,465)	$ (8,084)
Service cost	(64)	(68)
Interest cost	(279)	(303)
Actuarial gain (loss)	1,040	(587)
Benefits paid	582	577
Benefit obligation at end of year	(7,186)	(8,465)
Change in plan assets:
Fair value of plan assets at beginning of year	7,110	6,702
Actual return on plan assets	(401)	981
Benefits paid	(573)	(573)
Fair value of plan assets at end of year	$ 7,110	$ 6,702	$ 6,136	$ 7,110
Funded status at end of year			$ (1,050)	$ (1,355)

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Employee Benefit Plans (Schedule of Amounts Recognized in Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Pension Plans And Other Postretirement Benefits [Abstract]
Gain	$ 207	$ 473
Total	$ 207	$ 473

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Employee Benefit Plans (Components of Net Pension Cost (Income)) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Pension Plans And Other Postretirement Benefits [Abstract]
Service cost benefits earned during the period	$ 64	$ 68
Interest cost on projected benefit obligation	279	303
Actual return on assets	(441)	(416)
Net amortization and deferral
Net periodic pension cost	$ (98)	$ (45)

XML

Employee Benefit Plans (Schedule of Weighted Average Assumptions Used to Determine the Benefit Obligation And the Net Periodic Cost) (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Pension Plans And Other Postretirement Benefits [Abstract]
Discount rate, benefit obligation	4.54%	3.43%
Discount rate, net periodic pension cost	3.43%	3.90%
Expected long-term return on plan assets	6.50%	6.50%
Rate of compensation increase	0.00%	0.00%

XML

Employee Benefit Plans (Schedule Of Asset Allocation and Fair Value Of Plan Assets) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	100.00%	100.00%
Total assets	$ 6,136	$ 7,110	$ 6,702
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	2,543	1,537
Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	2,992	5,318
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 601	$ 255	$ 283
Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	4.20%	6.40%
Cash (Including Foreign Currencies) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 6	$ 70
Cash (Including Foreign Currencies) [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 6	70
Short-term Investment Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		19
Short-term Investment Funds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		$ 19
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	46.10%	50.20%
Common Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 2,475	$ 1,401
Common Stock [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	2,475	1,401
Depository Receipts [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	42	35
Depository Receipts [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	42	35
Commingled Pension Trust Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		2,203
Commingled Pension Trust Fund [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		2,203
Preferred Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	20	31
Preferred Stock [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 20	$ 31
Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	45.80%	40.20%
Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 608	$ 296
Corporate Bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	608	296
Government Issue [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	2,228	992
Government Issue [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	2,228	992
Mortgage Backed Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		6
Mortgage Backed Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		6
Collateralized Mortgage Obligations [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	156	56
Collateralized Mortgage Obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 156	56
Commingled Pension Trust Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		1,746
Commingled Pension Trust Fund [Member] | Significant Other Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets		$ 1,746
Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations	3.90%	3.20%
Total assets	$ 601	$ 255
Other Investments [Member] | Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Total assets	$ 601	$ 255

XML

Employee Benefit Plans (Schedule of Changes in Level 3 Assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets at beginning of year	$ 7,110	$ 6,702
Balacne at end of year	6,136	7,110
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets at beginning of year	255	283
Unrealized gain (loss)	346	(28)
Balacne at end of year	$ 601	$ 255

XML

Income Taxes (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Operating Loss Carryforwards [Line Items]
Net operating loss carryforward	$ 4,970
Net operating loss carryforward, expiration date	Dec. 31, 2035
Earliest Tax Year [Member]
Operating Loss Carryforwards [Line Items]
Open Tax Year	2015

XML

Income Taxes (Schedule of Components of the Provision for Federal Income Taxes) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
Current		$ 2,529,000	$ 3,822,000
Change in corporate tax rate	$ 3,060,000		3,060,000
Deferred		24,000	(331,000)
Income Tax Expense (Benefit), Total		$ 2,553,000	$ 6,551,000

XML

Income Taxes (Schedule of Effective Income Tax Rate Reconciliation) (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
Tax at statutory rates	21.00%	35.00%
Tax exempt interest income, net of interest expense disallowance	(4.90%)	(9.60%)
Incentive stock options	0.20%	0.20%
Earnings and proceeds on life insurance	(1.10%)	(2.70%)
Change in corporate tax rate		20.80%
Other	0.60%	0.70%
Effective Income Tax Rate, Continuing Operations, Total	15.80%	44.40%

XML

Income Taxes (Schedule of Deferred Tax Assets and Liabilties) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
Deferred tax assets, Allowance for loan losses	$ 1,775	$ 1,603
Deferred tax assets, Deferred compensation	766	775
Deferred tax assets, Core deposit intangible	278	232
Deferred tax assets, Prepaid expenses	90	125
Deferred tax assets, Pension liability	263	384
Deferred tax assets, Foreclosed real estate valuance allowance	20	7
Deferred tax assets, AMT tax credit carryforward	260	260
Deferred tax assets, Net operating loss carryforward	1,173	1,249
Deferred tax assets, Net unrealized loss on securities	1,477	808
Deferred tax assets, Other	95	92
Total Deferred Tax Assets	6,197	5,535
Deferred tax liabilities, Premises and equipment	223	210
Deferred tax liablities, Deferred loan fees	186	142
Deferred tax liabilities, Net unrealized gain on pension liability	43	99
Deferred tax liabilities, Purchase price adjustment	321	303
Total Deferred Tax Liabilities	773	754
Net Deferred Tax Asset	$ 5,424	$ 4,781

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Regulatory Matters and Stockholders' Equity (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Regulatory Matters and Stockholders' Equity [Abstract]
Restricted Cash and Cash Equivalents	$ 1,018	$ 1,111
Statutory Accounting Practices, Statutory Amount Available for Dividend Payments without Regulatory Approval	$ 64,886
Risk weight assigned to exposures	150.00%
Capital conservation buffer	2.50%

XML

Regulatory Matters and Stockholders' Equity (Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Regulatory Matters and Stockholders' Equity [Abstract]
Total capital (to risk weighted assets), Amount	$ 122,917	$ 113,091
Total capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	70,248	64,126
Total capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 87,810	$ 80,158
Total capital (to risk weighted assets), Ratio	14.00%	14.11%
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	$ 114,465	$ 105,457
Tier 1 capital (to risk weighted assets) For Capital Adequacy Purposes, Amount	52,686	48,095
Tier 1 capital (to risk weighted assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 70,248	$ 64,126
Tier 1 capital (to risk weighted assets), Ratio	13.04%	13.16%
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	$ 114,465	$ 105,457
Common Equity Tier 1 capital (to risk-weighted assets), for Capital Adequacy Purposes, amount	39,515	36,071
Common Equity Tier 1 capital (to risk-weighted assets) to be Well Capitalized under Prompt Corrective Action Provision, amount	$ 57,077	$ 52,103
Common Equity Tier 1 capital (to risk-weighted assets), Ratio	13.04%	13.16%
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	$ 114,465	$ 105,457
Tier 1 capital (to average assets) For Capital Adequacy Purposes, Amount	46,619	45,075
Tier 1 capital (to average assets) To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 58,273	$ 56,343
Tier 1 capital (to average assets), Ratio	9.82%	9.36%
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%

XML

Stock-Based Compensation (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	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	28,900	34,750
Remaining Life, Years	5 years 10 months 24 days
Stock options exercised	$ 520	$ 1,040
Compensation expense related to stock options	237	93
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 205	$ 143
Share price	$ 33.00	$ 33.00
Allocated Share-based Compensation Expense	$ 237	$ 93
Future compensation expense of non-vested restricted stock outstanding	963	744
Compensation expense related to restricted stock	205	142
Unrecognized Salaries And Employee Benefits Expense	207	$ 237
Common Stock, Dividend Rate, Percentage		50.00%
Net Income Reduction	$ 388	$ 187
Stock options exercised, shares	28,275	44,219
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share price	$ 16.65
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share price	$ 32.81
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, granted	13,100	9,400
Non-vested stock outstanding	34,615	30,415	28,035
Allocated Share-based Compensation Expense	$ 205	$ 143
Outside Directors [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, granted	2,400
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 1	$ 1
Stock options exercised, shares	25,950
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								412,500
Options, Granted	0	0		11,135	18,750	42,900
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								66,000
Options, Granted						6,000
Shares available for awards	0
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							375,000
Options and restricted stock, granted		44,150	36,675	20,591	13,950
Shares available for awards	217,635
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			24,000	10,616
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							63,000
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	185,510
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted		26,750
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, granted		9,000	9,000	6,375	9,750
Shares available for awards	21,075
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							60,000
Shares available for awards	32,125
Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Outside Directors [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted		8,000
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							12,000
Restricted stock, granted		400	3,675	3,600	4,200
Shares available for awards	14,825
Amended Norwood Financial Corp 2014 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options and restricted stock, granted	42,000
Amended Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	26,500
Amended Norwood Financial Corp 2014 Equity Incentive Plan [Member] | Officer [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	62,700
Restricted stock, granted	7,500
Shares increased (decrased)	(300)
Amended 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	32,300
Restricted stock, granted	5,600
Shares increased (decrased)	20,300

XML

Stock-Based Compensation (Summary of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Stock Based Compensation [Abstract]
Options, beginning of year	212,725	225,669
Options, Granted	28,900	34,750
Options, Exercised	(28,275)	(44,219)
Options, Forfeited	(4,650)	(3,475)
Options, end of year	208,700	212,725
Options, Exercisable, end of period	179,800	177,975
Weighted Average Exercise Price Per Share, Outstanding, beginning of period	$ 20.76	$ 19.46
Weighted Average Exercise Price Per Share, Granted	32.34	32.81
Weighted Average Exercise Price Per Share, Exercised	18.39	23.53
Weighted Average Exercise Price Per Share, Forfeited	27.08	21.71
Weighted Average Exercise Price Per Share, Outstanding, end of period	22.54	20.76
Weighted Average Exercise Price Per Share, Exercisable, end of period	$ 20.97	$ 18.41
Weighted Average Remaining Contractual Term, Outstanding	5 years 10 months 24 days
Aggregate Intrinsic Value, Outstanding, beginning of period	$ 2,604,097
Aggregate Intrinsic Value, Outstanding, end of period	2,182,537	$ 2,604,097
Aggregate Intrinsic Value, Exercisable at end of period	$ 2,163,463	$ 2,597,494

XML

Stock Based Compensation (Schedule of Fair Value Assumptions) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Stock Based Compensation [Abstract]
Dividend yield	3.72%	3.89%
Expected life	10 years	10 years
Expected volatility	29.10%	29.11%
Risk-free interest rate	2.68%	2.41%
Weighted average fair value of options granted	$ 7.18	$ 6.83

XML

Stock Based Compensation (Schedule of Outstanding Stock Options) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	208,700	212,725	225,669
Average Exercise Price	$ 22.54	$ 20.76	$ 19.46
Remaining Life, Years	5 years 10 months 24 days
Options Exercisable	179,800	177,975
Average Exercise Price	$ 20.97	$ 18.41
Average Exercise Price - $17.33 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	14,775
Average Exercise Price	$ 17.33
Remaining Life, Years	1 year
Options Exercisable	14,775
Average Exercise Price	$ 17.33
Average Exercise Price - $16.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	14,025
Average Exercise Price	$ 16.83
Remaining Life, Years	2 years
Options Exercisable	14,025
Average Exercise Price	$ 16.83
Average Exercise Price - $16.65 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	18,825
Average Exercise Price	$ 16.65
Remaining Life, Years	3 years
Options Exercisable	18,825
Average Exercise Price	$ 16.65
Average Exercise Price - $18.03 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	26,400
Average Exercise Price	$ 18.03
Remaining Life, Years	4 years
Options Exercisable	26,400
Average Exercise Price	$ 18.03
Average Exercise Price - $18.36 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	1,650
Average Exercise Price	$ 18.36
Remaining Life, Years	4 years
Options Exercisable	1,650
Average Exercise Price	$ 18.36
Average Exercise Price - $19.30 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	3,000
Average Exercise Price	$ 19.30
Remaining Life, Years	4 years 9 months 18 days
Options Exercisable	3,000
Average Exercise Price	$ 19.30
Average Exercise Price - $17.93 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	25,375
Average Exercise Price	$ 17.93
Remaining Life, Years	5 years
Options Exercisable	25,375
Average Exercise Price	$ 17.93
Average Exercise Price - $19.39 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	12,000
Average Exercise Price	$ 19.39
Remaining Life, Years	5 years 10 months 24 days
Options Exercisable	12,000
Average Exercise Price	$ 19.39
Average Exercise Price - $19.03 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	13,500
Average Exercise Price	$ 19.03
Remaining Life, Years	6 years 10 months 24 days
Options Exercisable	13,500
Average Exercise Price	$ 19.03
Average Exercise Price - $22.37 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	18,500
Average Exercise Price	$ 22.37
Remaining Life, Years	8 years
Options Exercisable	18,500
Average Exercise Price	$ 22.37
Average Exercise Price - $32.81 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	31,750
Average Exercise Price	$ 32.81
Remaining Life, Years	9 years
Options Exercisable	31,750
Average Exercise Price	$ 32.81
Average Exercise Price - $32.34 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding	28,900
Average Exercise Price	$ 32.34
Remaining Life, Years	10 years

XML

Stock-Based Compensation (Summary of Restricted Stock Activity) (Details) - Restricted Stock [Member] - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock Non-vested, beginning balance	30,415	28,035
Restricted stock, granted	13,100	9,400
Restricted stock, vested	(8,900)	(7,020)
Restricted stock, forfeited		0
Restricted stock Non-vested, ending balance	34,615	30,415
Restricted stock Non-vested, weighted-average grant date fair value, beginning balance	$ 24.46	$ 20.64
Restricted stock, granted, weighted-average grant date fair value	32.34	32.81
Restricted stock, vested, weighted-average grant date fair value	23.00	20.37
Restricted stock, forfeited, weighted-average grant date fair value
Restricted stock Non-vested, weighted-average grant date fair value, ending balance	$ 27.82	$ 24.46

XML

Earnings Per Share (Narrative) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
EARNINGS PER SHARE
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0
Share price	$ 33.00	$ 33.00
Common Stock, Dividend Rate, Percentage		50.00%

XML

Earnings Per Share (Schedule of Weighted Average Shares Outstanding Used in the Computations of Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
EARNINGS PER SHARE
Numerator, net income	$ 13,651	$ 8,198
Weighted average shares outstanding	6,263	6,238
Less: Weighted average unvested restricted shares	(31)	(28)
Denominator: Basic earnings per share	6,232	6,210
Weighted average shares outstanding, basic	6,232	6,210
Add: Dilutive effect of stock options	58	61
Denominator: Diluted earnings per share	6,290	6,271
Basic earnings per common share	$ 2.19	$ 1.32
Diluted earnings per common share	$ 2.17	$ 1.31

XML

Off-Balance Sheet Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Loss Contingencies [Line Items]
Financial instrument commitments	$ 121,421	$ 113,117
Commitments to grant loans [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	45,246	44,970
Unfunded commitments under lines of credit [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	71,906	62,228
Standby letters of credit [Member]
Loss Contingencies [Line Items]
Financial instrument commitments	$ 4,269	$ 5,919

XML

Fair Value of Financial Instruments (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment	$ 1,319	$ 1,247
Impaired Loans, Cumulative Charge-Offs	428
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment	$ 1,319	$ 1,247
Number of impaired loans not requiring a valuation allowance | loan	6	5
Impaired Loans, Cumulative Charge-Offs		$ 277

XML

Fair Value of Financial Instruments (Fair Value, Assets Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 243,277	$ 281,121
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
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	243,277	281,121
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities
US Treasury Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		1,998
US Treasury Securities [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
US Treasury Securities [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		1,998
US Treasury Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities
States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	97,613	120,478
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
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	97,613	120,478
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
Corporate Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	8,640	9,989
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
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	8,640	9,989
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
Mortgage-backed Securities-Government Sponsored Entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	137,024	148,656
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
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	137,024	148,656
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

XML

Fair Value of Financial Instruments (Fair Value, Assets and Liabilities Measured on Nonrecurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 1,319	$ 1,247
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
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
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	1,319	1,247
Foreclosed Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	1,115	1,661
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
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
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	$ 1,115	$ 1,661

XML

Fair Value of Financial Instruments (Additional Qualitative Information about Level 3 Assets) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 1,319,000	$ 1,247,000
Fair Value Disclosure, Unobservable Input Range	Probability of default
Impaired Loans [Member] | Measurement Input, Default Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	0	0
Impaired Loans [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 232,000	$ 131,000
Fair Value Disclosure, Unobservable Input Range	Appraisal adjustments(2)
Impaired Loans [Member] | Appraisal of collateral [Member] | Measurement Input, Appraised Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input		10
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	$ 1,087,000	$ 1,116,000
Fair Value Disclosure, Unobservable Input Range	Loan discount rate
Impaired Loans [Member] | Minimum [Member] | Appraisal of collateral [Member] | Measurement Input, Appraised Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	10.00
Impaired Loans [Member] | Minimum [Member] | Present value of future cash flows [Member] | Measurement Input, Discount Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	4.00	4
Impaired Loans [Member] | Maximum [Member] | Appraisal of collateral [Member] | Measurement Input, Appraised Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	81.54
Impaired Loans [Member] | Maximum [Member] | Present value of future cash flows [Member] | Measurement Input, Discount Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	6.00	5.25
Impaired Loans [Member] | Weighted Average [Member] | Appraisal of collateral [Member] | Measurement Input, Appraised Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	56.06	10
Impaired Loans [Member] | Weighted Average [Member] | Present value of future cash flows [Member] | Measurement Input, Discount Rate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Servicing Asset, Measurement Input	5.80	5.11
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	$ 1,115,000	$ 1,661,000
Fair Value Disclosure, Unobservable Input Range	Liquidation Expenses(2)
Foreclosed Real Estate Owned [Member] | Minimum [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate Owned, Measurement Input	7.00	0
Foreclosed Real Estate Owned [Member] | Maximum [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate Owned, Measurement Input	85.71	42.60
Foreclosed Real Estate Owned [Member] | Weighted Average [Member] | Appraisal of collateral [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other Real Estate Owned, Measurement Input	7.80	14.68

XML

Fair Value of Financial Instruments (Fair Value, by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and cash equivalents, Fair Value Disclosure	$ 18,348	$ 16,697
Financial assets: Loans receivable, net, Fair Value Disclosure	840,134	756,092
Financial assets: Mortgage servicing rights, Fair Value Disclosure	220	223
Financial assets: Regulatory stock, Fair Value Disclosure	3,926	3,505
Financial assets: Bank owned life insurance, Fair Value Disclosure	37,932	37,060
Financial assets: Accrued interest receivable, Fair Value Disclosure	3,776	3,716
Financial liabilities: Deposits, Fair Value Disclosure	945,773	929,709
Financial liabilities: Short-term borrowings, Fair Value Disclosure	53,046	42,530
Financial liabilities: Other borrowings, Fair Value Disclosure	52,043	35,514
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,806	1,434
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure
Financial assets: Cash and cash equivalents	18,348	16,697	$ 17,174
Financial assets: Loans receivable, net	841,730	756,458
Financial assets: Mortgage servicing rights	178	200
Financial assets: Regulatory stock	3,926	3,505
Financial assets: Bank owned life insurance	37,932	37,060
Financial assets: Accrued interest receivable	3,776	3,716
Financial liabilities: Deposits	946,780	929,384
Financial liabilities: Short-term borrowings	53,046	42,530
Financial liabilities: Other borrowings	52,284	35,945
Financial liabilities: Accrued interest payable	1,806	1,434
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit
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	18,348	16,697
Financial assets: Loans receivable, net, Fair Value Disclosure
Financial assets: Mortgage servicing rights, Fair Value Disclosure
Financial assets: Regulatory stock, Fair Value Disclosure	3,926	3,505
Financial assets: Bank owned life insurance, Fair Value Disclosure	37,932	37,060
Financial assets: Accrued interest receivable, Fair Value Disclosure	3,776	3,716
Financial liabilities: Deposits, Fair Value Disclosure	601,604	609,090
Financial liabilities: Short-term borrowings, Fair Value Disclosure	53,046	42,530
Financial liabilities: Other borrowings, Fair Value Disclosure
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,806	1,434
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure
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
Financial assets: Loans receivable, net, Fair Value Disclosure
Financial assets: Mortgage servicing rights, Fair Value Disclosure
Financial assets: Regulatory stock, Fair Value Disclosure
Financial assets: Bank owned life insurance, Fair Value Disclosure
Financial assets: Accrued interest receivable, Fair Value Disclosure
Financial liabilities: Deposits, Fair Value Disclosure
Financial liabilities: Short-term borrowings, Fair Value Disclosure
Financial liabilities: Other borrowings, Fair Value Disclosure
Financial liabilities: Accrued interest payable, Fair Value Disclosure
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure
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
Financial assets: Loans receivable, net, Fair Value Disclosure	840,134	756,092
Financial assets: Mortgage servicing rights, Fair Value Disclosure	220	223
Financial assets: Regulatory stock, Fair Value Disclosure
Financial assets: Bank owned life insurance, Fair Value Disclosure
Financial assets: Accrued interest receivable, Fair Value Disclosure
Financial liabilities: Deposits, Fair Value Disclosure	344,169	320,619
Financial liabilities: Short-term borrowings, Fair Value Disclosure
Financial liabilities: Other borrowings, Fair Value Disclosure	52,043	35,514
Financial liabilities: Accrued interest payable, Fair Value Disclosure
Off-balance sheet financial instruments: Commitments to extend credit and outstanding letters of credit, Fair Value Disclosure

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Accumulated Other Comprehensive Loss (Summary Of Changes In Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (2,667)
Other comprehensive (loss) income	(2,353)	$ 1,886
Ending balance	(5,020)	(2,667)
Unrealized gains (losses) on available for sale securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(3,041)	(4,437)
Other comprehensive income (loss) before reclassification	(2,349)	2,127
Amount reclassified from accumulated other comprehensive loss	(168)	(230)
Other comprehensive (loss) income	(2,517)	1,897
Reclassification of certain income tax effects from other comprehensive loss		(501)
Ending balance	(5,558)	(3,041)
Unrealized gain (loss) on pension liability [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	374	318
Other comprehensive income (loss) before reclassification	164	(11)
Other comprehensive (loss) income	164	(11)
Reclassification of certain income tax effects from other comprehensive loss		67
Ending balance	538	374
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(2,667)	(4,119)
Other comprehensive income (loss) before reclassification	(2,185)	2,116
Amount reclassified from accumulated other comprehensive loss	(168)	(230)
Other comprehensive (loss) income	(2,353)	1,886
Reclassification of certain income tax effects from other comprehensive loss		(434)
Ending balance	$ (5,020)	$ (2,667)

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Accumulated Other Comprehensive Loss (Significant Amounts Reclassified Out Of Each Component Of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	$ 213	$ 348
Income tax expense	(2,553)	(6,551)
Net income	13,651	8,198
Amount Reclassified From Accumulated Other Comprehensive Income (Loss) [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	(45)	(118)
Net income	168	230
Amount Reclassified From Accumulated Other Comprehensive Income (Loss) [Member] | Unrealized gains (losses) on available for sale securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	$ 213	$ 348

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Norwood Financial Corp (Parent Company Only) Financial Information (Balance Sheets) (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	$ 18,039	$ 16,212
Securities available for sale	243,277	281,121
Other assets	8,942	7,041
Total Assets	1,184,559	1,132,916
Liabilities	1,062,274	1,017,177
Stockholders' equity	122,285	115,739	$ 111,079
Total Liabilities and Stockholders' Equity	1,184,559	1,132,916
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Cash on deposit in bank subsidiary	2,509	4,782
Investment in bank subsidiary	120,511	110,218
Other assets	1,739	2,858
Total Assets	124,759	117,858
Liabilities	2,474	2,119
Stockholders' equity	122,285	115,739
Total Liabilities and Stockholders' Equity	$ 124,759	$ 117,858

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Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Income) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Condensed Financial Statements, Captions [Line Items]
Net realized gain (loss) on sales of securities	$ 213	$ 348
Income before Income Taxes	16,204	14,749
Income tax expense	2,553	6,551
Net income	13,651	8,198
COMPREHENSIVE INCOME	11,298	10,084
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Dividends from bank subsidiary	5,643	5,412
Net realized gain (loss) on sales of securities		130
Other interest income		8
Revenues	5,643	5,550
Expenses	618	511
Income before Income Taxes	5,025	5,039
Income tax expense	(217)	(127)
Income before equity in undistributed earnings	5,242	5,166
Equity in undistributed earnings of subsidiary	8,409	3,032
Net income	13,651	8,198
COMPREHENSIVE INCOME	$ 11,298	$ 10,084

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Norwood Financial Corp (Parent Company Only) Financial Information (Statements of Cash Flows) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Condensed Financial Statements, Captions [Line Items]
Net income	$ 13,651,000	$ 8,198,000
Net realized gain on sales of securities	(213,000)	(348,000)
Other, net	(275,000)	193,000
Net Cash Provided by Operating Activities	17,298,000	16,051,000
Proceeds from sale of securities	17,745,000	15,612,000
Net Cash Used for Investing Activities	(54,838,000)	(28,593,000)
Stock options exercised	520,000	1,040,000
Sale of treasury stock for ESOP	123,000	127,000
Acquisition of treasury stock	(194,000)	(1,587,000)
Cash dividends paid	(5,509,000)	(5,386,000)
Net Cash Provided by Financing Activities	39,191,000	12,065,000
Net Increase (Decrease) in Cash and Cash Equivalents	1,651,000	(477,000)
CASH AND CASH EQUIVALENTS, BEGINNING	16,697,000	17,174,000
CASH AND CASH EQUIVALENTS, END	18,348,000	16,697,000
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Net income	13,651,000	8,198,000
Undistributed earnings of bank subsidiary	(8,409,000)	(3,032,000)
Net realized gain on sales of securities		(130,000)
Decrease in deferred ncome tax	1,158,000	1,736,000
Other, net	387,000	389,000
Net Cash Provided by Operating Activities	6,787,000	7,161,000
Investment in bank subsidiary	(4,000,000)
Proceeds from sale of securities		422,000
Net Cash Used for Investing Activities	(4,000,000)	422,000
Stock options exercised	520,000	1,040,000
Sale of treasury stock for ESOP	123,000	127,000
Acquisition of treasury stock	(194,000)	(1,587,000)
Cash dividends paid	(5,509,000)	(5,386,000)
Net Cash Provided by Financing Activities	(5,060,000)	(5,806,000)
Net Increase (Decrease) in Cash and Cash Equivalents	(2,273,000)	1,777,000
CASH AND CASH EQUIVALENTS, BEGINNING	4,782,000	3,005,000
CASH AND CASH EQUIVALENTS, END	$ 2,509,000	$ 4,782,000