Norwood Financial Corp. Q1 FY2026 earnings call

• Began 2026 with strong performance extending momentum from 2025, including results from President bank acquisition. • First priority: successfully complete President's Bank integration, on plan with activities like uniting systems, operating practices, and locations under brand. Early accomplishments include core integration of IT and HR systems and unifying locations under brand. • Second priority: increase operating efficiency and elevate customer experience through AI, implementing best practices from President's Bank and deploying systems like commercial credit system integrating in July. • Third objective: strengthen talent pool and deepen leadership bench, welcomed former President's Bank employees including to executive leadership team. • Fourth priority: ensure everything done increases shareholder value, results demonstrate accomplishment during quarter, acquisition bringing immediate growth and strategic/financial benefits ahead of projections.

Net interest income was a record $24,600,000, an increase of 38% compared with the first quarter of 2025. Net interest income margin expanded by 38 basis points to 3.68%. Net income and earnings per share increased improved 35% and 14% respectively on an adjusted basis with higher adjusted returns on average assets and tangible equity. Loans grew approximately $46 million, or 8.4% annualized, and deposits grew about $70 million, or $11.6 million on an annualized basis. Non-interest income increased compared to the same period last year due to higher service charges and debit card income. Quarterly expenses were up as a percent of average assets compared to Q4 2025, mostly in technology related areas.

• Anticipate accretion to shareholder value ahead of original projections, tangible book value payback to occur more quickly than planned. • For 2026, scheduled about $2.2 million in total margin accretion, dropping to about $2 million for 2027. • Margin can increase throughout the year, expecting maybe three to five basis points over the next couple quarters. • Fee income has room to grow with plans to staff up appropriately for brokerage, trust, mortgage, and treasury management businesses.

Q: On the operating expense number that came in this quarter, how much was tech-related and are all tech-related investments made?

A: Increasing tech expenses were mostly due to ongoing investments like Abrico system and new accounting system, trying to exclude one-timers in Q1, level of OpEx probably a good run rate.

Q: On the margin, what was the contribution from yield accretion in the quarter and impact on go-forward basis?

A: Yield accretion in the quarter was about six basis points, for full year 2026 scheduled about $2.2 million, dropping to about $2 million for 2027.

Q: On the non-performing number, was it all attributable to acquisition and what was it made up of?

A: Mostly from their own portfolio, largely on commercial side.

Q: Touch on components of margin, competitive conditions around deposits and deposit cost outlook?

A: Not seeing competitive pressure in markets on deposit pricing yet, CD costs and trying to get CD number below 40% of total deposits.

Q: How much room to squeeze deposit costs lower and on lending side competitive conditions and new origination yields?

A: Ability to squeeze deposit costs smaller than before but still some room, pipeline healthy, closings averaged 7.05.

Q: On margin shakeout for remainder of year, what's the outlook?

A: Margin can increase throughout the year, expecting maybe three to five basis points over next couple quarters.

Q: On fee income drivers for higher numbers in 2Q and beyond?

A: Partly from getting more debit cards and promoting utilization, and need to staff up for brokerage, trust, mortgage, and treasury management businesses.