Norwood Financial (NASDAQ:NWFL) reported record second-quarter 2026 earnings and said it has completed the integration of Presence Bank, while management also addressed a customer bankruptcy that led to a modest charge-off during the quarter.
President and CEO James Donnelly said the company continued to build momentum in the quarter, citing organic growth, the Presence Bank acquisition, favorable interest rate movement and a repositioned portfolio. Chief Financial Officer John McCaffery said second-quarter net income was a record $9.3 million, or $0.86 per diluted share, compared with $6.2 million, or $0.67 per diluted share, in the year-earlier period.
Margin expands as deposit costs ease
Norwood’s net interest margin expanded to 3.90% in the second quarter, up 47 basis points from a year earlier and 22 basis points from the first quarter. McCaffery said about $241,000 of interest income was non-recurring, stemming from bond calls and acceleration of a credit mark tied to a purchased credit-deteriorated loan acquired from Presence Bank. That represented roughly three to four basis points of margin, with about $170,000 tied to loans and $65,000 to bonds.
In response to an analyst question, McCaffery said much of the margin improvement, excluding one-time items, came from lower deposit costs. He said the company had been running certificate of deposit specials over the past two years and saw a “wave” of maturities in the second quarter, with many balances rolling into specials at lower rates.
McCaffery said loan pipeline yields were in the “high to mid sixes,” compared with a prior reference to around 7%. He added that second-quarter loan production was good, though higher-than-expected payoffs held back loan growth.
Donnelly said the company’s noninterest-bearing demand deposit accounts continued to grow in both account count and dollars, which could help temper higher costs in money market accounts and CDs. McCaffery said Norwood is hearing anecdotal evidence of increased competition for deposits, including more inbound calls on larger deposits seeking special rates. He said June deposit costs were about two basis points higher than the quarterly average.
Presence Bank integration completed
Donnelly said Norwood has completed all planned integration activities related to the Presence Bank acquisition, including core systems integration and brand convergence across entities and branches.
“The integration team has done a great job leading us through this process,” Donnelly said, adding that the experience should benefit Norwood as it continues to explore acquisitions.
Donnelly said the company is continuing discussions across locations and functions to identify best practices and policies that can improve service and results. McCaffery said merger-related expenses were largely behind the company, with about $53,000 recorded in the second quarter compared with nearly $5 million in the first quarter. The first quarter also included a one-time bank-owned life insurance restructuring fee of approximately $225,000.
Norwood’s tangible book value per share was $22.96 at quarter-end, up from the first quarter and above the $22.90 reported at Dec. 31, immediately before the Presence Bank acquisition closed. Donnelly said the company had earned back the shareholder dilution from the Presence Bank transaction two years ahead of estimates.
Credit event tied to customer bankruptcy
Management also discussed a customer loan totaling $22 million that entered Chapter 11 bankruptcy, which Norwood disclosed in June. Donnelly said the company has been involved in the process and has held discussions with parties to seek an agreeable outcome.
Based on the current process and anticipated result, Norwood recorded a net charge-off of $700,000. Donnelly called that “an acceptable outcome given the total exposure,” while noting that the bankruptcy process remains ongoing.
McCaffery said the charge-off and its impact on quantitative factors in the company’s CECL model pushed the provision higher. The allowance for credit losses totaled $25.6 million at quarter-end, or approximately 1.13% of total loans. The second quarter also included about $75,000 in legal bills related to the loan workout.
In the question-and-answer session, management said nonperforming assets were largely tied to the single credit. McCaffery later clarified that nonaccrual loans totaled $22.5 million at quarter-end and were about flat with the first quarter in dollar terms.
Balance sheet and loan trends
At quarter-end, Norwood reported total assets of approximately $2.9 billion. Loans increased to $2.26 billion, while deposits totaled approximately $2.51 billion.
McCaffery said loan growth in the quarter came from commercial real estate and indirect consumer lending, with indirect lending benefiting from seasonal strength. The company recorded a slight paydown in commercial and industrial loans.
Asked about lending competition, Donnelly said Norwood operates in competitive markets but described the environment as rational. He said the company can compete with institutions that are “rational,” and added that Norwood’s loan pipeline remained strong. Donnelly said the company is losing roughly the same percentage of loans to rate or terms as it typically would, with no indication that competition is overheated.
AI plans, leadership changes and M&A outlook
Donnelly outlined several strategic priorities, including using artificial intelligence to improve operating efficiency and customer experience. He said Norwood is implementing a commercial credit system from Presence Bank across the broader organization. The system uses embedded AI and machine learning to bring automation, speed and quality to the credit process.
Donnelly said Norwood has developed a three-year plan for rolling out AI in each department, with the goal of allowing employees to use AI agents to supplement their work and improve customer service.
The company also announced leadership changes. Donnelly said Steve Daniels has been appointed chief lending officer, succeeding Vinnie O’Bell, who will retire this fall after a 47-year banking career, including the last 10 years at Wayne Bank. Daniels joined Norwood in 2011 and most recently served as chief consumer officer. Deb Kennedy, who currently oversees the Pennsylvania franchise, will become director of retail banking and oversee branches in both New York and Pennsylvania.
On mergers and acquisitions, Donnelly said Norwood continues to meet with potential partners and communicate its position as an acquirer. However, he said urgency among possible sellers appears to have eased as the banking environment has improved, including a better regulatory backdrop, stronger earnings and stable credit quality.
“We are a stronger organization and well-positioned to deliver a brighter future as we serve our communities,” Donnelly said in closing remarks.
About Norwood Financial (NASDAQ:NWFL)
Norwood Financial Corp. operates as the bank holding company for Wayne Bank that provides various banking products and services. The company accepts a range of deposit products, including interest-bearing and non-interest-bearing transaction accounts, and statement savings and money market accounts, as well as certificate of deposits. It also provides commercial loans comprising lines of credit, revolving credit, term loans, mortgages, secured lending products, and letter of credit facilities; municipal finance lending; construction loans for commercial construction projects and single-family residences; land loans; construction financing; consumer loans; mortgage lending to finance principal residences and second home dwellings; and indirect dealer financing of new and used automobiles, boats, and recreational vehicles.
