8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) July 7, 2020

NORWOOD FINANCIAL CORP

(Exact name of registrant as specified in its charter)

Pennsylvania	0-28364	23-2828306
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS 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

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	NWFL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

NORWOOD FINANCIAL CORP

INFORMATION TO BE INCLUDED IN THE REPORT

Explanatory Note

On July 7, 2020, Norwood Financial Corp (“Norwood”) filed a Current Report on Form 8-K to report under Item 2.01 thereof that it had completed its acquisition of UpState New York Bancorp, Inc. (“UpState”) and its wholly owned subsidiary, USNY Bank (“USNY Bank”) as contemplated by the terms of the Agreement and Plan of Merger, dated January 8, 2020, by and among Norwood, Wayne Bank, UpState and USNY Bank (the “Merger Agreement”). In response to Item 9.01(a) and (b) of such Form 8-K, Norwood stated that it would file the required financial statements of the business acquired and pro forma financial information by amendment. This Form 8-K/A is being filed to provide the required financial statements and pro forma financial information.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

UpState’s audited consolidated balance sheets as of December 31, 2019 and December 31, 2018, and consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2019 and December 31, 2018, are incorporated herein by reference to Exhibit 99.2 hereto. UpState’s unaudited consolidated balance sheet as of March 31, 2020, and consolidated statements of income, comprehensive income, and cash flows for the three months ended March 31, 2020 are incorporated by reference from Exhibit 99.3 hereto.

(b) Pro forma financial information.

The pro forma financial information required by this item is incorporated herein by reference to Exhibit 99.4.

(c) Shell Company Transaction. Not applicable.

(d) Exhibits.

The following exhibits are filed with this report.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of January 8, 2020, by and among Norwood, Wayne Bank, UpState and USNY Bank (incorporated by reference to Exhibit 2.1 to Norwood’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2020).
23.1	Consent of Bonadio & Co., LLP.
99.1	Press release dated July 7, 2020.*

Exhibit No.	Description
99.2	Audited Consolidated Financial Statements of UpState (incorporated by reference from Registrant’s Registration Statement on Form S-4 (Commission File No. 333-237277)).
99.3	Unaudited Consolidated Financial Statements of UpState.
99.4	Unaudited pro forma condensed consolidated financial statements.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Previously filed

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NORWOOD FINANCIAL CORP
Date: September 16, 2020	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli
		President and Chief Executive Officer (Duly Authorized Representative)

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference to the Registration Statement on Form S-4 of our report dated February 28, 2020, relating to the consolidated financial statements of UpState New York Bancorp, Inc. and Subsidiary, appearing in this Current Report on Form 8-K/A.

Pittsford, New York

September 16, 2020

EX-99.3

Exhibit 99.3

Upstate New York Bancorp, Inc.

Consolidated Balance Sheet (unaudited)

(In Thousands, Except Share and Per Share Data)

	March 31,			December 31,
	2020			2019
ASSETS:
Cash and due from banks	$	20,897		$	14,854
Interest bearing deposits with banks		4,443			12,439
Cash and cash equivalents		25,340			27,293
Securities held-to-maturity		2,610			2,824
Securities available-for-sale		18,765			17,030
Total Securities		21,375			19,854
Loans receivable		392,186			388,493
Less: Allowance for loan losses		(8,209	)		(7,767	)
Net loans receivable		383,977			380,726
Regulatory stock, at cost		2,502			2,439
Premises and equipment, net		5,718			5,811
Accrued interest receivable		1,702			1,803
Foreclosed real estate owned		866			—
Deferred tax asset		1,525			1,441
Other assets		288			215
TOTAL ASSETS	$	443,293		$	439,582
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand	$	65,084		$	60,673
Interest-bearing		328,785			327,240
Total Deposits		393,869			387,913
Short term borrowings		—			2,000
Other borrowings		1,627			1,761
Accrued interest payable		231			258
Other liabilities		1,057			1,210
TOTAL LIABILITIES		396,784			393,142
STOCKHOLDERS’ EQUITY
Common stock, $5 par value per share, authorized 4,000,000 shares; issued 2,208,000 shares at March 31, 2020; and 2,208,000 shares at December 31, 2019		10,935			10,935
Surplus		6,749			6,695
Retained earnings		28,923			28,593
Accumulated other comprehensive (loss) income		(98	)		217
TOTAL STOCKHOLDERS’ EQUITY		46,509			46,440
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	443,293		$	439,582

Upstate New York Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months
	Ended March 31,
	2020		2019
INTEREST INCOME
Loans receivable, including fees	$	4,898	$	4,836
Securities		150		145
Other		34		39
Total interest income		5,082		5,020
INTEREST EXPENSE
Deposits		1,248		1,316
Other borrowings		10		13
Total interest expense		1,258		1,329
NET INTEREST INCOME		3,824		3,691
PROVISION FOR LOAN LOSSES		898		155
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		2,926		3,536
Other income
Service charges and fees		119		116
Net realized gains on sales of securities		—		169
Gain on sale of loans and servicing rights, net		99		21
Other		58		52
Total other income		276		358
OTHER EXPENSES
Salaries and employee benefits		902		1,249
Occupancy, furniture and equipment, net		365		350
Data processing		174		153
Professional fees		84		116
Federal Deposit Insurance Corporation insurance		37		33
Merger related		610		—
Other		450		399
Total Other Expenses		2,622		2,300
INCOME BEFORE INCOME TAXES		580		1,594
INCOME TAX (BENEFIT) EXPENSE		250		351
NET INCOME	$	330	$	1,243
BASIC EARNINGS PER SHARE	$	0.15	$	0.56
DILUTED EARNINGS PER SHARE	$	0.15	$	0.56

UpState New York Bancorp, Inc.

CONSOLIDATE STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended March 31
	2020			2019
Net income (loss)	$	330		$	1,243
Other comprehensive income:
Change in unrealized net gains (losses) on available-for-sale securities, net of tax of $26 and $11 for 2020 and 2019, respectively	($	98	)	$	41
COMPREHENSIVE INCOME	$	232		$	1,284

UPSTATE NEW YORK BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)	For the three months ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	330		$	1,243
Adjustments to reconcile net income to net cash flow from operating activities:
Amortization of investment security premiums		21			21
Provision for loan losses		898			155
Provision for depreciation and amortization		108			97
Realized investment securities gains		(99	)		(189	)
Stock-based compensation		54			163
Deferred tax expense		(110	)		38
Originations of residential mortgage loans held for sale		(5,170	)		(327	)
Proceeds from sales of residential mortgage loans held for sale		5,386			715
Decrease (increase) in accrued interest receivable and other assets		(922	)		79
Increase (decrease) in accrued interest payable and other liabilities		(180	)		(73	)
Net Cash Provided by Operating Activities		316			1,922
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale		(3,450	)		(1,000	)
Proceeds from maturities and calls of investment securities available for sale		1,372			94
Purchases of investment securities held to maturity		(41	)		(1,017	)
Proceeds from maturities and calls of investment securities held to maturity		256			522
Redemption (purchase) of investments in restricted stocks		(63	)		29
Net increase in portfolio loans		(4,150	)		(12,657	)
Proceeds from sales of government-guaranteed loans		—			2,067
Purchases of premises and equipment		(15	)		(212	)
Net Cash Used for Investing Activities		(6,091	)		(12,174	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings accounts		30,489			16,837
Net increase in certificates of deposit		(24,532	)		5,079
Repayments of federal funds purchased		(2,000	)		(4,000	)
Repayments of Federal Home Loan Bank		(135	)		(132	)
Net Cash Provided by Financing Activities		3,822			17,784
Net (Decrease) Increase in Cash and Cash Equivalents		(1,953	)		7,532
CASH AND CASH EQUIVALENTS - BEGINNING		27,293			16,031
CASH AND CASH EQUIVALENTS – ENDING	$	25,340		$	23,563

UpState New York Bancorp, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Financial Statement Presentation

The unaudited consolidated financial statements include all accounts of UpState New York Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, USNY Bank (the “Bank”). All significant intercompany balances and transactions have been eliminated in consolidation. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the financial position and results of operations of the Company. These statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Current Report on Form 8-K/A being filed by Norwood Financial Corp (“Norwood”) for the merger of the Company with Norwood which was completed on July 7, 2020.

2. Investment Securities

The following is a summary of held-to maturity and available-for-sale securities:

	Held-to-Maturity Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2020
Obligations of states and political subdivisions	$	2,610	$	43	$	—	$	2,653
SECURITIES	$	2,610	$	43	$	—	$	2,653

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2020
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$	5,491	$	6	$	—	$	5,497
Obligations of states and political subdivisions		13,398		11		141		13,268
TOTAL AVAILABLE FOR SALE SECURITIES	$	18,889	$	17	$	141	$	18,765

	(Dollars in Thousands)
December 31, 2019
Obligations of states and political subdivisions	$	2,824	$	89	$	—	$	2,914
TOTAL HELD-TO-MATURITY SECURITIES	$	2,824	$	89	$	—	$	2,914

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2019
U. S. Treasury securities and obligations of U.S. Government agencies and corporations	$	3,291	$	3	$	5	$	3,290
Obligations of states and Political subdivisions		13,465		276		0		13,740
TOTAL AVAILABLE-FOR-SALE SECURITIES	$	16,756	$	279	$	5	$	17,030

The amortized cost and estimated fair value of investments in debt securities at March 31, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Held-to-Maturity
Due in one year or less	$	1,724	$	1,736
Due after one year through five years		736		755
Due after five years through ten years		150		162
Due after ten years		0		0
	$	2,610	$	2,653

	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Available-for-Sale
Due in one year or less	$	1,607	$	1,604
Due after one year through five years		15,779		15,653
Due after five years through ten years		1,503		1,508
Due after ten years		0		0
	$	18,889	$	18,765

The following tables show the investments gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019.

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars in Thousands)
March 31, 2019
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of states and political subdivisions		10,576		141		—		—		10,576		141
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	10,576	$	141	$	—	$	—	$	10,576	$	141

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(Dollars in Thousands)
December 31, 2019
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$	997	$	4	$	249	$	1	$	1,246	$	5
Obligations of states and political subdivisions		125		—		—		—		125		—
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,122	$	4	$	249	$	1	$	1,371	$	5

At March 31, 2020, the Bank had 99 debt securities with unrealized losses in the above table. These unrealized losses relate principally to changes in interest rates. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the Federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

3. Loans

The loan portfolio at March 31, 2020 and December 31, 2019, is summarized as follows:

	2020		2019
	(Dollars in Thousands)
Real estate mortgages:
Residential	$	69,986	$	82,446
Commercial		149,210		127,042
Farm		66,852		75,795
Agricultural production and other		42,088		42,315
Commercial		61,299		58,199
Consumer		2,751		2,696
	$	392,186	$	388,493

The loan portfolio includes certain loans, which are considered impaired because, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreements.

Following is a summary of nonaccrual loans and impaired loans as of March 31, 2020 and December 31, 2019, by class of financing receivables (Dollars in Thousands):

	2020		2019
	(Dollars in Thousands)
Nonaccrual Loans
Commercial – Real Estate	$	5,749	$	3,677
Commercial and other business		1,226		626
Farm – Real Estate		1,163		1,170
Agricultural Production and other		—		—
Residential – Real Estate		—		330
Consumer		—		—
TOTAL	$	8,138		5,803

Impaired Loans as of March 31, 2020 (Dollars in Thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance Investment		Average Recorded Investment		Interest Income Recognized
Commercial – Real Estate	$	4,332	$	4,332	$	1,680	$	4,434	$	—
Commercial and other business		634		634		465		674		—
Farm – Real Estate		—		—		—		—		—
Agricultural Production and other		—		—		—		—		—
Residential – Real Estate		—		—		—		—		—
Consumer		—		—		—		—		—
TOTAL	$	4,966	$	4,966	$	2,145	$	5,108		—

Impaired Loans as of December 31, 2019 (Dollars in Thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance Investment		Average Recorded Investment		Interest Income Recognized
Commercial – Real Estate	$	3,316	$	3,316	$	790	$	2,971	$	—
Commercial and other business		612		612		365		636		—
Farm – Real Estate		361		361		—		362		—
Agricultural Production and other		1,170		1,170		550		1,145		—
Residential – Real Estate		313		313		220		324		—
Consumer		—		—		—		—		—
TOTAL	$	5,772	$	5,772	$	1,925	$	5,438	$	—

Based on management’s analysis, the risk categories of loans are summarized as follows at March 31, 2020 and December 31, 2019:

	2020 (Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total Portfolio Loans
Real-Estate Mortgages:
Commercial	$	136,675	$	5,790	$	996	$	5,749	$	149,210
Residential		69,986		—		—		—		69,986
Farm		54,956		10,059		674		1,163		66,852
Total loans secured by real estate		261,617		15,849		1,670		6,912		286,048
Commercial and other business-purpose loans		54,295		5,703		75		1,226		61,299
Consumer		2,751		—		—		—		2,751
Agricultural production and other		32,847		6,662		2,579		—		42,088
TOTAL	$	351,510	$	28,214	$	4,324	$	8,138	$	392,186

	2019 (Dollars in Thousands)
	Pass		Special Mention		Substandard		Doubtful		Total Portfolio Loans
Loans secured by real estate
Commercial	$	116,515	$	4,803	$	2,409	$	3,316	$	127,043
Residential		80,620		957		555		313		82,445
Farm		64,004		9,844		415		1,531		75,794
Total loans secured by real estate		261,139		15,604		3,379		5,160		285,282
Commercial and other business-purpose loans		53,393		3,378		817		612		58,200
Consumer		2,696		—		—		—		2,696
Agricultural production and other		32,598		7,622		2,095		—		42,315
TOTAL	$	349,826	$	26,604	$	6,291	$	5,772	$	388,493

Changes in the allowance for loan losses for the years ended March 31, 2020 and December 31, 2019 are summarized as follows:

	2020 (Dollars in Thousands)
Secured by Real Estate
	Commercial			Residential			Farm		Commercial and other business- purpose loans		Consumer		Agricultural			Total
Beginning balance
ALLL	$	2,907		$	1,114		$	1,052	$	1,419	$	43	$	1,232		$	7,767
Charge-offs		(61	)		(395	)		—		—		—		—			(456	)
Recoveries		—			—			—		—		—		—			—
Provision for loan losses		1,067			28			106		233		4		(540	)		898
Ending balance ALLL		3,913			747			1,158		1,652		47		692			8,209
Individually evaluated for impairment		1,680			—			—		465		—		—			2,145
Collectively evaluated for impairment	$	2,233		$	747		$	1,158	$	1,187	$	47	$	692		$	6,064
Loans Receivable:
Ending balance loans	$	149,210		$	69,986		$	66,852	$	61,299	$	2,751	$	42,088		$	392,186
Individually evaluated for impairment loans	$	4,332			—			—		634		—		—			4,966
Collectively evaluated for impairment loans	$	144,878		$	69,986			66,852		60,665	$	2,751	$	42,088		$	387,220

	2019 (Dollars in Thousands)
Secured by Real Estate
	Commercial			Residential			Farm		Commercial and other business purpose loans		Consumer		Agricultural		Total
Beginning balance	$	1,915		$	782		$	1,036	$	1,054	$	38	$	1,177	$	6,002
Charge-offs		(189	)		(10	)		—		—		—		—		(199	)
Recoveries		—			—			—		—		1		21		22
Provision for loan losses		1,182			342			15		365		4		34		1,942
Ending balance		2,908			1,114			1,051		1,419		43		1,232		7,767
Individually evaluated for impairment		790			220			—		365		—		550		1,925
Collectively evaluated for impairment	$	2,118		$	894		$	1,051	$	1,054	$	43	$	682	$	5,842
Loans Receivable:
Ending balance loans	$	127,042		$	82,446		$	75,795	$	58,199	$	2,696	$	42,315	$	388,493
Individually evaluated for impairment	$	3,316			313			361		612		—		1,170		5,772
Collectively evaluated for impairment	$	123,726		$	82,133		$	75,434	$	57,587	$	2,696	$	41,145	$	382,721

11. Fair Value Disclosures

FASB authoritative guidance on fair value measurements provides a framework for measuring fair value under accounting principles generally accepted in the United States of America. The guidance applies to all financial instruments that are being measured and reported on a fair value basis. As defined in the guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Bank uses various methods, including market, income, and cost approaches. Based on these approaches, the Bank often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Bank is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

• Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

• Level 3 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

Securities available-for-sale: The Bank’s securities available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Bank obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, credit information, and the bond’s terms and conditions, among other things.

Fair value at March 31, 2020 and December 31, 2019, for assets and liabilities measured on a recurring basis is as follows (Dollars in Thousands):

	Quoted Market Price in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
March 31, 2020
Securities available-for-sale	$	—	$	18,765	$	—

	Quoted Market Price in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
December 31, 2019
Securities available-for-sale	$	—	$	17,030	$	—

Impaired Loans Impaired loans are those for which the Bank has measured impairment generally based on the fair value of the loan’s collateral. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These real estate appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income producing property) and the cost approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, if applicable. Although the fair value of the property normally will be based on an appraisal, the valuation should be consistent with the price that a market participant will pay to purchase the property at the measurement date. Circumstances may exist that indicate that the appraised value is not an accurate measurement of the property’s current fair value. Examples of such circumstances include changed economic conditions since the last appraisal, change in property use, stale appraisals, or imprecision and subjectivity in the appraisal process. Appraisal adjustments may be made by management to reflect these conditions resulting in a discount of the appraised value. In addition, a discount is typically applied to account for estimated costs to sell. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuations, and management’s expertise and knowledge of the client and client’s business. At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive a specific valuation allowance for loan losses. The methods used to determine the fair values of impaired loans typically result in a level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Fair value at March 31, 2020 and December 31, 2019, for assets and liabilities measured on a nonrecurring basis is as follows (Dollars in Thousands):

	Quoted Market Price in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
March 31, 2020
Impaired Loans	$	—	$	—	$	2,820

	Quoted Market Price in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
December 31, 2019
Impaired Loans	$	—	$	—	$	2,126

12. Subsequent Event

In response to the onset of COVID-19, the Bank has participated in the federal government’s Paycheck Protection Program (“PPP”). This program provides borrower guarantees for lenders and envisions a certain amount of loan forgiveness for loan recipients who properly utilize funds, all in accordance with the rules and regulations established by the Small Business Association for the PPP. As of the date of the merger, the Bank had issued PPP loans to borrowers in the amount of $28,522,965. In addition, per discussion above the Bank offered 281 payment deferrals to borrowers who were suffering as a result of the COVID-19 pandemic. Lastly, in order to provide additional financial relief to borrowers and customers, the bank waived NSF and ATM fees for the months of April to June, prior to the merger.

EX-99.4

Exhibit 99.4

Pro Forma Post Acquisition Form 8-K

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The accompanying unaudited pro forma combined consolidated financial information has been prepared using the acquisition method of accounting, giving effect to Norwood’s proposed acquisition of UpState New York Bancorp, Inc. (“UpState”). Under this method, UpState’s assets and liabilities as of the date of the acquisition will be recorded at their respective fair values and added to those of Norwood. Any difference between the purchase price for UpState and the fair value of the identifiable net assets acquired (including core deposit intangibles) will be recorded as goodwill. The goodwill resulting from the acquisition will not be amortized to expense, but instead will be reviewed for impairment at least annually. Any core deposit intangible and other intangible assets with estimated useful lives to be recorded by Norwood in connection with the acquisition will be amortized to expense over their estimated useful lives. The financial statements of Norwood issued after the acquisition will reflect the results attributable to the acquired operations of UpState beginning on the date of completion of the acquisition.

The accompanying unaudited pro forma combined consolidated balance sheet as of March 31, 2020 combines the historical financial statements of Norwood and UpState. The unaudited pro forma consolidated financial statements give effect to the proposed acquisition as if the acquisition occurred on March 31, 2020 with respect to the balance sheet, and at the beginning of the period for the twelve months ended December 31, 2019 and for the three months ended March 31, 2020, with respect to the statement of income. The unaudited pro forma consolidated financial statements were prepared with Norwood as the acquirer and UpState as the acquiree under the acquisition method of accounting. Accordingly, the consideration paid by Norwood to complete the acquisition of UpState will be allocated to UpState’s assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition. The allocation is dependent upon certain valuations and other studies that have not been finalized at the time of the acquisition announcement; however, preliminary valuations based on the fair value of the acquired assets and liabilities have been estimated and included in the unaudited pro forma financial statements.

The final allocation of the purchase price will be determined after the merger is completed and after completion of thorough analyses to determine the fair value of UpState’s tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited pro forma combined consolidated financial information may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact Norwood’s consolidated statement of income due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to UpState shareholders’ equity, including results of operations from March 31, 2020 through the date the merger is completed will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein. The pro forma calculations, shown herein, assume a closing price for Norwood common stock of $24.30, which represents the closing price of Norwood common stock on July 6, 2020.

The pro forma income statement and per share data information does not include anticipated cost savings or revenue enhancements, nor does it include one-time merger-related expenses which will be expensed against income. UpState and Norwood are currently in the process of assessing the two companies’ personnel, benefits plans, premises, equipment, computer systems and service contracts to determine where the companies may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve canceling contracts between either UpState or Norwood and certain service providers. The pro forma combined basic earnings and diluted earnings per share of Norwood common stock is based on the pro forma combined net income per common share for UpState and Norwood divided by the pro forma common shares or diluted common shares of the combined entities. The pro forma information includes adjustments related to the fair value of assets and liabilities of UpState and is subject to adjustment as additional information becomes available and as a final merger date analyses are performed. The pro forma combined balance sheet and book value per share data does include the impact of merger-related expenses on the balance sheet with UpState’s after-tax charges currently estimated at $4.9 million, illustrated as a pro forma fair value liability accrual, and Norwood’s after-tax estimated charges of $1.7 million, illustrated as a pro forma adjustment to retained earnings and liability accrual. The pro forma combined book value and tangible book value of Norwood common stock is based on the pro forma combined common stockholders’ equity of UpState and Norwood divided by total pro forma common shares of the combined entities.

1

Certain reclassification adjustments have been made to UpState’s unaudited pro forma financial statements to conform to Norwood’s financial statement presentation. The unaudited pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during this period. The unaudited pro forma combined financial information has been derived from, and should be read in conjunction with, the historical consolidated financial statements and the related notes of both UpState and Norwood that have been included in or incorporated by reference into this joint proxy statement/prospectus.

The unaudited pro forma data are qualified by the statements set forth under this caption and should not be considered indicative of the market value of Norwood common stock or the actual or future results of operations of Norwood for any period. Actual results may be materially different than the pro forma information presented.

2

Unaudited Combined Pro Forma Balance Sheets as of March 31, 2020

($ In Thousands, Except Share and Per Share Data)

	Norwood Financial Corp.			Upstate New York Bancorp, Inc.			Pro Forma Adjustments			Pro Forma Combined
ASSETS
Cash and due from banks	$	14,712		$	20,897		$	—		$	35,609
Interest-bearing deposits with banks		23,706			4,443			—			28,149
Cash and cash equivalents		38,418			25,340			—			63,758
Securities available for sale		196,998			18,765			(8,844	) (1)(3)		206,919
Securities held to maturity		—			2,610			88	(4)		2,698
Loans receivable		928,565			392,186			(15,180	) (5)		1,305,571
Less: Allowance for loan losses		9,088			8,209			(8,209	) (6)		9,088
Net loans receivable		919,477			383,977			(6,971	)		1,296,483
Regulatory stock, at cost		3,770			2,502			—			6,272
Bank premises and equipment, net		14,071			5,718			(1,211	) (7)		18,578
Bank owned life insurance		38,971			—			—			38,971
Foreclosed real estate owned		1,077			866			—			1,943
Accrued interest receivable		3,669			1,702			—			5,371
Goodwill		11,331			—			20,209	(1)		31,540
Other intangible assets		212			—			409	(8)		621
Other assets		14,297			1,813			4,077	(9)		20,187
Total assets	$	1,242,291		$	443,293		$	7,757		$	1,693,341
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest-bearing	$	213,359		$	65,084		$	—		$	278,443
Interest-bearing		776,801			328,785			2,754	(10)		1,108,340
Total deposits		990,160			393,869			2,754			1,386,783
Short-term borrowings		40,656			—			—			40,656
Other borrowings		51,350			1,627			—			52,977
Accrued interest payable		2,895			231			—			3,126
Other liabilities		15,043			1,057			7,901	(11)		24,001
Total liabilities		1,100,104			396,784			10,655			1,507,543
STOCKHOLDERS’ EQUITY
Common stock		634			10,935			(10,748	) (1)(2)		821
Surplus		49,644			6,749			38,401	(1)(2)		94,794
Retained earnings		88,032			28,923			(30,649	) (2)(9)		86,306
Treasury stock		(400	)		—			—			(400	)
Accumulated other comprehensive income (loss)		4,277			(98	)		98	(2)		4,277
Total stockholders’ equity		142,187			46,509			(2,898	)		185,798
Total liabilities and stockholders’ equity	$	1,242,291		$	443,293		$	7,757		$	1,693,341
Per Share Data
Common shares outstanding		6,330,561			2,208,000			(342,262	) (1)		8,196,299
Book value per common share	$	22.52		$	21.06					$	22.72
Tangible book value per common share	$	20.70		$	21.06					$	18.79

3

Unaudited Pro Forma Combined Statements of Income for the twelve months ended December 31, 2019

($ In Thousands, Except Share and Per Share Data)

	Norwood Financial Corp.		Upstate New York Bancorp, Inc.		Pro Forma Adjustments			Pro Forma Combined
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	41,889	$	19,994	$	1,574	(5)	$	63,457
Securities		5,314		431		(111	) (3)		5,634
Other		81		314		—			395
Total Interest Income		47,284		20,739		1,463			69,486
INTEREST EXPENSE
Deposits		7,139		5,620		(1,731	) (9)		11,028
Short-term borrowings		468		1		—			469
Other borrowings		1,071		45		—			1,116
Total Interest Expense		8,678		5,666		(1,731	)		12,613
Net Interest Income		38,606		15,073		3,194			56,873
PROVISION FOR LOAN LOSSES		1,250		1,942		—			3,192
Net Interest Income after Provision for Loan Losses		37,356		13,131		3,194			53,681
OTHER INCOME
Service charges and fees		4,450		497		—			4,947
Income from fiduciary activities		610		—		—			610
Net realized gains on sales of securities		254		—		—			254
Gains on sales of loans, net		169		439		—			608
Earnings and proceeds on life insurance policies		830		—		—			830
Other		465		245		—			710
Total Other Income		6,778		1,181		—			7,959
OTHER EXPENSES
Salaries and employee benefits		14,655		4,140		—			18,795
Occupancy, furniture and equipment		3,719		902		(24	) (7)		4,597
Data processing and related operations		1,869		680		—			2,549
Taxes, other than income		751		77		—			828
Professional fees		1,113		471		—			1,584
FDIC Insurance assessment		153		110		—			263
Foreclosed real estate		45		—		—			45
Amortization of intangibles		101		—		74	(8)		175
Other		4,905		2,184		—			7,089
Total Other Expenses		27,311		8,564		50			35,925
Income before Income Taxes		16,823		5,748		3,144			25,715
PROVISION FOR INCOME TAXES		2,608		1,121		660	(9)		4,389
Net income	$	14,215	$	4,627	$	2,484		$	21,326
Earnings per common share:
Basic	$	2.27	$	2.12				$	2.62
Diluted	$	2.25	$	2.12				$	2.60
Weighted average common shares outstanding:
Basic		6,260,215		2,182,397		(316,659	) (1)		8,125,953
Diluted		6,332,291		2,182,397		(316,659	) (1)		8,198,029

4

Unaudited Pro Forma Combined Statements of Income for the three months ended March 31, 2020

($ In Thousands, Except Share and Per Share Data)

	Norwood Financial Corp.		Upstate New York Bancorp, Inc.		Pro Forma Adjustments			Pro Forma Combined
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees	$	10,683	$	4,898	$	521	(5)	$	16,102
Securities		1,179		150		(28	) (3)		1,301
Other		6		34		—			40
Total Interest Income		11,868		5,082		493			17,443
INTEREST EXPENSE
Deposits		1,790		1,248		(594	) (9)		2,444
Short-term borrowings		111		—		—			111
Other borrowings		302		10		—			312
Total Interest Expense		2,203		1,258		(594	)		2,867
Net Interest Income		9,665		3,824		1,087			14,576
PROVISION FOR LOAN LOSSES		700		898		—			1,598
Net Interest Income after Provision for Loan Losses		8,965		2,926		1,087			12,978
OTHER INCOME
Service charges and fees		1,063		119		—			1,182
Income from fiduciary activities		153		—		—			153
Net realized gains on sales of securities		38		—		—			38
Gains on sales of loans, net		56		99		—			155
Earnings and proceeds on life insurance policies		208		—		—			208
Other		136		58		—			194
Total Other Income		1,654		276		—			1,930
OTHER EXPENSES
Salaries and employee benefits		3,777		902		—			4,679
Occupancy, furniture and equipment		968		365		(24	) (7)		1,309
Data processing and related operations		437		174		—			611
Taxes, other than income		214		—		—			214
Professional fees		218		84		—			302
FDIC Insurance assessment		—		37		—			37
Foreclosed real estate		16		—		—			16
Amortization of intangibles		23		—		19	(8)		42
Merger cost		—		610		(610	) (11)		—
Other		1,406		450		—			1,856
Total Other Expenses		7,059		2,622		(615	)		9,066
Income before Income Taxes		3,560		580		1,702			5,842
PROVISION FOR INCOME TAXES		481		250		357	(9)		1,088
Net income	$	3,079	$	330	$	1,345		$	4,754
Earnings per common share:
Basic	$	0.49	$	0.15				$	0.58
Diluted	$	0.49	$	0.15				$	0.58
Weighted average common shares outstanding:
Basic		6,293,440		2,208,000		(342,262	) (1)		8,159,178
Diluted		6,322,770		2,208,000		(342,262	) (1)		8,188,508

5

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1) The acquisition will be effected by the issuance of shares of Norwood common stock and cash to UpState’s shareholders. Pursuant to the terms of the merger agreement, shareholders of UpState will have the opportunity to elect to receive for each share of UpState common stock they own, either 0.9390 shares of Norwood common stock or $33.33 in cash, or a combination of both. All shareholder elections will be subject to the allocation and proration procedures set forth in the merger agreement which are intended to ensure that 90% of the shares of UpState will be exchanged for Norwood common stock and 10% of the shares of UpState will be exchanged for cash. Based on the merger allocation requirements, this pro forma information assumes 1,987,206 of the 2,208,000 shares of UpState common stock outstanding as of March 31, 2019 would be exchanged for Norwood common stock, with the balance of the outstanding UpState shares being exchanged for cash of $7.4 million. In addition to the purchase price per share under the terms of the merger agreement Norwood also paid an additional $0.67 per share in cash for each share of UpState common stock held, or a total of $1.5 million to UpState’s shareholders. The transaction is expected to be a tax-free exchange for shareholders of UpState receiving Norwood common stock. The shares of Norwood common stock issued for the merger in the pro forma data were assumed to be recorded at a fair value of $24.30 per share, which represents Norwood’s common stock closing price per share as of July 6, 2020.

The final accounting purchase price assigned to record the shares issued in the acquisition will be based on the closing price of Norwood common stock on the closing date of the acquisition. Norwood and UpState cannot predict what the value or price of Norwood common stock will be at the closing of the transaction or how the value or price of Norwood common stock may trade at any time.

The final allocation of the purchase price will be determined after the acquisition is completed and additional analyses are performed to determine the fair values of UpState tangible and identifiable intangible assets and liabilities as of the date the acquisition is completed. Changes in the fair value of the net assets of UpState as of the date of the acquisition will likely change the amount of purchase price allocable to excess purchase price. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein. The unaudited pro forma financial information has been prepared to include the estimated adjustments necessary to record the assets and liabilities of UpState at their respective fair values and represents management’s best estimate based upon the information available at this time. These pro forma adjustments included herein are subject to change as additional information becomes available and as additional analyses are performed. Such adjustments, when compared to the information shown in this document, may change the amount of the purchase price allocated to goodwill while changes to other assets and liabilities may impact the statement of income due to adjustments in the yield and/or amortization/accretion of the adjusted assets and liabilities.

The total estimated purchase price for the purpose of this pro forma financial information is $54.2 million. The following table provides the calculation and allocation of the purchase price used in the pro forma financial statements and a reconcilement of pro forma shares to be outstanding:

6

Summary of Purchase Price Calculation and Goodwill Resulting from Merger

Reconcilation of Pro Forma Shares Outstanding at March 31, 2020

($ in Thousands, Except per Share Data)

				March 31, 2020
Purchase Price Consideration in Common Stock:
UpState common shares settled for stock		1,987,206
Exchange Ratio		0.9390
Norwood shares to be issued		1,865,738
Value assigned to Norwood common shares (7/06/2020 closing price)	$	24.30
Purchase price assigned to Norwood common shares exchanged for UpState stock				$	45,337
Purchase Price Consideration - Cash for Common Stock (1)
UpState shares exchanged for cash		220,794
Purchase price paid to each UpState common share exchanged for cash	$	33.33
Purchase price assigned to UpState common shares exchanged for cash					7,359
Purchase Price Consideration - Additional Cash Consideration
UpState common shares		2,208,000
Purchase price paid to each UpState common share	$	0.67
Purchase price assigned to additional cash paid to each UpState common share					1,479
Cash paid in lieu of fractional shares					6
Total Purchase Price					54,181
Net Assets Acquired:
UpState stockholders’ equity as of 3/31/2020	$	46,509
UpState goodwill and intangibles		—
Estimated adjustments to reflect assets acquired at fair value:
Investments		88
Loan - ASC 310-20 interest rate fair value		3,982
Loan - ASC 310-20 general credit fair value		(10,528	)
Loan - ASC 310-30 acquired with deteriorated credit quality		(6,937	)
ASC 310-20 deferred loan expense, net		(1,697	)
Allowance for loan losses		8,209
Core deposit intangible		409
Premises		(1,211	)
Deferred tax assets		3,941
Other assets		(48	)
Estimated adjustments to reflect liabilities acquired at fair value:
Time deposits		(2,754	)
Seller transaction merger liabilities accrued at closing		(5,991	)
Net Assets Acquired					33,972
Goodwill resulting from merger				$	20,209
Reconcilement of Pro Forma Shares Oustanding
UpState shares outstanding including restricted stock		1,987,206
Exchange ratio		0.939
Norwood shares to be issued to UpState		1,865,738
Norwood shares outstanding		6,330,561
Pro Forma Norwood shares oustanding		8,196,299
Percentage ownership for Norwood		77.24	%
Percentage ownership for UpState		22.76	%

7

2) Balance sheet adjustment to reflect the issuance of shares of Norwood common stock with $0.10 per share par value in connection with the acquisition and the adjustments to shareholders’ equity for the reclassification of UpState historical equity accounts (common stock, accumulated other comprehensive loss, and undivided profits) into surplus and adjustment for goodwill created in the transaction.

3) Securities available-for-sale were recorded at fair value at March 31, 2020 therefore no balance sheet adjustment is necessary. Income statement adjustment includes prospective reclassification of existing available-for-sale securities fair value adjustment to an amortizing premium which will be amortized into income based on the expected life. This investment adjustment is expected to decrease pro forma pre-tax interest income by $78 thousand in the first year following consummation.

Balance sheet adjustment related to payment of cash consideration of $7.4 million and the special dividend of $1.5 million for the transaction and corresponding income statement adjustments includes related interest income impact of $7 thousand assumed at a rate of 0.08% (Fed Funds Effective Rate as of 3/31/20).

4) Balance sheet adjustment to reflect the fair value premium of $88 thousand for securities held-to-maturity. This adjustment will be recognized into income over the expected life. This investment adjustment is expected to decrease pro forma pre-tax interest income by $26 thousand in the first year following consummation.

5) Balance sheet adjustment includes an ASC 310-20 interest rate fair value premium of $4.0 million based on current discount rates of similar loans, an ASC 310-20 general credit fair value discount of $10.5 million, an ASC 310-30 $6.9 million fair value credit discount and $1.7 million ASC 310-20 deferred loan expenses net reversal. The amortizable loan interest and credit fair value adjustments will be substantially recognized over the expected life of the loans and is expected to increase pro forma pre-tax interest income by $1.6 million in the first year following consummation.

6) Balance sheet adjustment for the reversal of the UpState allowance for loan losses in accordance with acquisition method of accounting for the acquisition.

7) Balance sheet adjustment to reflect a $1.2 million fair value write-down of bank premises amortized over the estimated life. These adjustments are expected to decrease pro forma expense by $24 thousand in the first year following consummation.

8) Balance sheet and income statement adjustment to intangible assets to reflect the fair value of $409 thousand for acquired core deposit intangible asset and the related amortization adjustment based upon an expected life of 10 years. The amortization of the core deposit intangible is expected to increase pro forma pre-tax expense by $74 thousand in the first year following consummation. It is anticipated that the brand names of UpState’s two units, Bank of the Finger Lakes and Bank of Cooperstown, will be used for a limited period of time (currently anticipated to be 1 year) and due to the limited time of use no trade name intangible asset is anticipated to be recorded.

9) Balance sheet and income statement adjustment to reflect an effective tax rate of 21%.

10) Balance sheet and income statement adjustments to reflect a fair value premium of $2.8 million for UpState’s certificates of deposit. This adjustment will be recognized using into income over the expected life. These adjustments are expected to decrease pro forma pre-tax interest expense by $1.7 million the first year following consummation.

11) Balance sheet adjustment to reflect the accrual of one-time merger-related charges for Norwood and UpState: (a) UpState pre-tax charges are estimated at $6.0 million ($4.9 million after-tax) and are included as a pro forma fair value liability accrual, and (b) Wayne Bank pre-tax charges are estimated at $1.9 million ($1.7 million after-tax) and are included as a pro forma liability accrual with the after-tax cost as reduction to retained earnings. Since the Day 1 balance sheet includes one-time merger-related charges, the pro forma income statement does not include one-time merger-related expenses which will be expensed against income when incurred. It is noted that a tax benefit was not taken for certain merger obligations and costs that were not considered to be tax deductible.

8

XML

Document and Entity Information	Jul. 07, 2020
Cover [Abstract]
Document Type	8-K/A
Document Period End Date	Jul. 07, 2020
Entity File Number	0-28364
Entity Registrant Name	NORWOOD FINANCIAL CORP
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2828306
Entity Address, Address Line One	717 Main Street
Entity Address, City or Town	Honesdale
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	18431
City Area Code	570
Local Phone Number	253-1455
Title of 12(b) Security	Common Stock, par value $0.10 per share
Trading Symbol	NWFL
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Entity Central Index Key	0001013272
Amendment Flag	false
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false