Norwood Financial (NWFL) - 2025 Q2 - Quarterly Report

PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Norwood Financial Corp, including balance sheets, income statements, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, revenue recognition, earnings per share, stock-based compensation, credit losses, fair value measurements, and a proposed acquisition Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024): | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $2,365,350 | $2,317,462 | | Loans receivable (net) | $1,769,666 | $1,693,795 | | Total Deposits | $1,997,834 | $1,859,163 | | Total Liabilities | $2,139,925 | $2,103,954 | | Total Stockholders' Equity | $225,425 | $213,508 | Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific periods Consolidated Statements of Income Highlights (Three Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Total interest income | $31,206 | $27,671 | | Total interest expense | $12,141 | $12,746 | | Net interest income | $19,065 | $14,925 | | Total provision for credit losses | $950 | $347 | | Total other income | $2,248 | $2,207 | | Total other expenses | $12,531 | $11,444 | | Net income | $6,205 | $4,213 | | Basic Earnings Per Share | $0.67 | $0.52 | Consolidated Statements of Income Highlights (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Total interest income | $61,291 | $54,608 | | Total interest expense | $24,368 | $24,973 | | Net interest income | $36,923 | $29,635 | | Total provision for credit losses | $1,807 | $(276) | | Total other income | $4,599 | $4,213 | | Total other expenses | $24,595 | $23,175 | | Net income | $11,978 | $8,646 | | Basic Earnings Per Share | $1.30 | $1.07 | Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income items, reflecting changes in equity not resulting from owner transactions Consolidated Statements of Comprehensive Income (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net income | $11,978 | $8,646 | | Unrealized holding (loss) gain (net of tax) | $5,616 | $(2,471) | | Comprehensive Income | $17,594 | $6,175 | Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in the company's equity accounts over a specified period Changes in Stockholders' Equity (Six Months Ended June 30, 2025): | Item | Amount (in thousands) | | :--------------------------------- | :-------------------- | | Balance, December 31, 2024 | $213,508 | | Net income | $11,978 | | Other comprehensive income | $5,616 | | Cash dividends declared | $(5,742) | | Acquisition of treasury stock | $(349) | | Compensation expense related to restricted stock | $233 | | Director retainer stock | $57 | | Compensation expense related to stock options | $124 | | Balance, June 30, 2025 | $225,425 | Consolidated Statements of Cash Flows This section categorizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Six Months Ended June 30): | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $15,853 | $13,356 | | Net cash used in investing activities | $(64,711) | $(32,758) | | Net cash provided by financing activities | $29,564 | $22,677 | | Decrease (increase) in cash and cash equivalents | $(19,294) | $3,275 | | Cash and cash equivalents, end of period | $53,045 | $69,395 | Notes to the Unaudited Consolidated Financial Statements These notes provide essential details and explanations supporting the unaudited consolidated financial statements - The unaudited consolidated financial statements are prepared in conformity with GAAP for interim statements and Form 10-Q instructions, reflecting management's estimates and assumptions[23] - The Company operates as a single reportable operating segment, "Community Banking," offering traditional banking services to individuals, businesses, and government customers[105][106] 1. Basis of Presentation This section outlines the foundational principles and entities included in the consolidated financial statements - The consolidated financial statements include Norwood Financial Corp, Wayne Bank, and its wholly-owned subsidiaries (WCB Realty Corp., Norwood Investment Corp., and WTRO Properties, Inc.)[22] - Management's estimates and assumptions are used in preparing the financial statements, and actual results could differ[23] 2. Revenue Recognition This section details how the company recognizes revenue from various sources, distinguishing between in-scope and out-of-scope items under Topic 606 Noninterest Income (Three Months Ended June 30): | Category | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | In-scope of Topic 606 | $1,869 | $1,880 | | Out-of-scope of Topic 606 | $379 | $327 | | Total Noninterest Income | $2,248 | $2,207 | Noninterest Income (Six Months Ended June 30): | Category | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | In-scope of Topic 606 | $3,848 | $3,592 | | Out-of-scope of Topic 606 | $751 | $621 | | Total Noninterest Income | $4,599 | $4,213 | 3. Earnings Per Share This section provides details on the calculation of basic and diluted earnings per share, including weighted average shares outstanding Basic and Diluted EPS (Three Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Basic Earnings Per Share | $0.67 | $0.52 | | Diluted Earnings Per Share | $0.67 | $0.52 | | Basic EPS weighted average shares outstanding (in thousands) | 9,208 | 8,045 | | Diluted EPS weighted average shares outstanding (in thousands) | 9,210 | 8,048 | Basic and Diluted EPS (Six Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Basic Earnings Per Share | $1.30 | $1.07 | | Diluted Earnings Per Share | $1.30 | $1.07 | | Basic EPS weighted average shares outstanding (in thousands) | 9,212 | 8,058 | | Diluted EPS weighted average shares outstanding (in thousands) | 9,214 | 8,061 | - For the three and six month periods ended June 30, 2025, 189,350 stock options were anti-dilutive and excluded from EPS calculations[29] 4. Stock-Based Compensation This section details the compensation expenses related to stock options and restricted stock, along with unrecognized costs Stock Option Compensation Expense (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Compensation costs related to stock options | $124 | $175 | Restricted Stock Compensation Expense (Six Months Ended June 30): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Compensation costs related to restricted stock | $233 | $207 | - As of June 30, 2025, there was $124,000 of unrecognized compensation cost for non-vested options from 2024, expected to be fully realized by December 31, 2025[32] - The expected future compensation expense for 52,157 shares of non-vested restricted stock outstanding as of June 30, 2025, is $1,271,000, to be recognized over 4.50 years[34] 5. Accumulated Other Comprehensive Loss This section outlines the changes in accumulated other comprehensive loss, reflecting non-owner changes in equity Changes in Accumulated Other Comprehensive Loss (Six Months Ended June 30, 2025): | Item | Amount (in thousands) | | :--------------------------------- | :-------------------- | | Balance as of December 31, 2024 | $(33,121) | | Other comprehensive income before reclassification | $5,616 | | Balance as of June 30, 2025 | $(27,505) | 6. Off-Balance Sheet Financial Instruments and Guarantees This section details the company's commitments to grant loans, unfunded lines of credit, and standby letters of credit Financial Instrument Commitments (in thousands): | Commitment Type | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :-------------- | :---------------- | | Commitments to grant loans | $98,378 | $94,714 | | Unfunded commitments under lines of credit | $158,382 | $157,184 | | Standby letters of credit | $5,745 | $7,221 | | Total | $262,505 | $259,119 | - The Bank uses the same credit policies for off-balance sheet instruments as for on-balance sheet instruments and generally holds collateral or personal guarantees for standby letters of credit[38][39] 7. Securities This section provides an overview of the company's securities portfolio, including fair values and unrealized gains and losses Securities Available for Sale (Fair Value, in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :-------------- | :---------------- | | Total debt securities | $402,460 | $397,846 | | Gross Unrealized Gains (June 30, 2025) | $2,128 | N/A | | Gross Unrealized Losses (June 30, 2025) | $(37,465) | N/A | - At June 30, 2025, the Company had 12 debt securities in an unrealized loss position for less than 12 months and 181 for 12 months or more, totaling $37.465 million in unrealized losses[41] - Management believes unrealized losses reflect changes in interest rates, not credit losses, and the Company does not intend to sell these securities before cost recovery[41] 8. Loans Receivable and Allowance for Credit Losses This section details the composition of the loan portfolio, the allowance for credit losses, and key loan quality metrics Loan Portfolio Composition (June 30, 2025 vs. December 31, 2024): | Loan Type | June 30, 2025 (in thousands) | % of Total | December 31, 2024 (in thousands) | % of Total | | :--------------------------------- | :----------------------------- | :--------- | :----------------------------- | :--------- | | Real Estate Loans: Residential | $332,631 | 18.6% | $330,856 | 19.3% | | Real Estate Loans: Commercial | $736,969 | 41.1% | $716,875 | 41.8% | | Commercial loans | $229,182 | 12.8% | $211,991 | 12.4% | | Consumer loans to individuals | $335,040 | 18.7% | $307,775 | 18.0% | | Total loans | $1,791,044 | 100.0% | $1,714,082 | 100.0% | Allowance for Credit Losses and Non-Performing Loans (June 30, 2025 vs. December 31, 2024): | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Allowance for credit losses | $20,908 | $19,843 | | Non-performing loans | $8,091 | $7,874 | | Allowance for credit losses to total loans | 1.17% | 1.16% | | Non-performing loans to total loans | 0.45% | 0.46% | | Non-performing assets to total assets | 0.34% | 0.34% | - The Company recorded a provision for credit losses of $1,764,000 for the six months ended June 30, 2025, influenced by changes in cumulative loss rates, qualitative factors, and economic projections[54][55] - The largest loan concentrations by industry include Commercial Rentals ($162.7 million, 9.12% of total loans) and Residential Rentals ($117.2 million, 6.57% of total loans)[74] 9. Fair Value of Assets and Liabilities This section defines fair value and categorizes assets and liabilities based on the observability of inputs used in their measurement - Fair value is defined as the exit price in an orderly transaction between market participants[75] - Level 1 inputs are quoted prices in active markets, Level 2 are significant observable inputs other than Level 1, and Level 3 are significant unobservable inputs reflecting company assumptions[75][76][77] Fair Value Measurement of Recurring Assets (June 30, 2025): | Asset Type | Total Fair Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :--------------------------------- | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | | U.S. Treasury securities | $17,812 | $17,812 | $- | $- | | U.S. Government agencies | $9,561 | $- | $9,561 | $- | | States and political subdivisions | $87,748 | $- | $87,748 | $- | | Corporate obligations | $3,531 | $- | $3,531 | $- | | Mortgage-backed securities-government sponsored entities | $283,808 | $- | $283,808 | $- | | Interest rate derivatives | $875 | $- | $875 | $- | - Individually analyzed loans held for investment, totaling $9.619 million at June 30, 2025, are measured at fair value on a non-recurring basis, primarily using Level 3 inputs based on collateral appraisals[81][83][86] 10. Interest Rate Swaps This section describes the company's use of interest rate swaps to manage interest rate exposure and their accounting treatment - The Company enters into offsetting interest rate swaps with customers and third parties to convert variable-rate commercial loans to fixed-rate for customers and hedge its own exposure[96] - These swaps are not designated as hedges under FASB ASC 815, and while interest rate changes do not impact earnings, fair value adjustments related to credit quality variations between counterparties may[96] Notional Amount and Fair Value of Interest Rate Swaps (in thousands): | Swap Type | June 30, 2025 Notional Amount | December 31, 2024 Notional Amount | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------- | :----------------------- | | Customer interest rate swap (Total) | $9,182 | $9,524 | $875 | $1,193 | | Third party interest rate swap (Total) | $9,182 | $9,524 | $875 | $1,193 | 11. New and Recently Adopted Accounting Pronouncements This section outlines recently adopted and upcoming accounting standards and their potential impact on the company's financial statements - ASU 2023-09 (Income Taxes) was adopted for annual periods beginning January 1, 2025, improving income tax disclosures[100] - ASU 2024-03 and ASU 2025-01 (Expense Disaggregation Disclosures) are effective for fiscal years beginning after December 15, 2026, and the Company is evaluating their impact[101][103] 12. Segment Reporting This section describes how the company identifies and reports its operating segments, focusing on the "Community Banking" segment - The Company's Chief Executive Officer acts as the Chief Operating Decision Maker, evaluating operating segments based on strategy, resource allocation, and performance[104] - All financial service operations are aggregated into one reportable operating segment: Community Banking[106] - Performance is assessed using net income, return on assets, and return on equity, benchmarked against competitors[107] 13. Proposed Acquisition of PB Bankshares, Inc. This section details the proposed merger agreement with PB Bankshares, Inc., including key terms, financial metrics, and expected completion timeline - Norwood Financial Corp and Wayne Bank entered an agreement to merge with PB Bankshares, Inc. and Presence Bank, respectively, on July 7, 2025[109] - PB Bankshares had total consolidated assets of $464.1 million, total deposits of $363.4 million, and total stockholders' equity of $50.3 million as of June 30, 2025[110] - PB Bankshares shareholders will receive 0.7850 shares of Company common stock or $19.75 in cash per share, with an 80% stock / 20% cash allocation[112] - The merger is subject to regulatory and shareholder approvals and is expected to be completed in Q4 2025 or Q1 2026. Janak M. Amin, CEO of PB Bankshares, will become COO of Norwood Financial Corp and Wayne Bank[114][116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting forward-looking statements, critical accounting policies, and detailed analysis of changes in financial position and operating results for the three and six months ended June 30, 2025, compared to the prior year - Forward-looking statements are subject to risks including economic conditions, regulatory changes, interest rate fluctuations, and integration of acquired businesses[118] - Material estimates susceptible to change include the allowance for credit losses and goodwill impairment[122] Forward-Looking Statements This section identifies forward-looking statements and outlines key risks that could cause actual results to differ materially - Forward-looking statements are identified by terms like "may," "will," "believe," "expect," and "estimate"[118] - Key risks include changes in interest rates, inflation, deposit flows, loan demand, competition, and the potential for a recessionary economy[118][119] Critical Accounting Policies This section discusses accounting policies that require significant management judgment and estimates, particularly for credit losses and goodwill impairment - Material estimates susceptible to significant change relate to the allowance for credit losses and goodwill impairment[122] - Goodwill, recorded from past acquisitions (North Penn in 2011, Delaware in 2016, UpState New York Bancorp in 2020), is tested annually for impairment[123][124] Changes in Financial Condition This section analyzes significant changes in the company's balance sheet items, including assets, liabilities, and equity, from December 31, 2024, to June 30, 2025 Key Financial Condition Changes (June 30, 2025 vs. December 31, 2024): | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $2,365,350 | $2,317,462 | | Gross Loans Outstanding | $1,791,044 | $1,714,082 | | Total Deposits | $1,997,834 | $1,859,163 | | Short-term borrowings | $26,500 | $113,069 | | Other borrowings | $85,350 | $101,793 | | Total Stockholders' Equity | $225,425 | $213,508 | General This subsection provides an overview of the overall changes in the company's financial position - Total assets increased to $2.365 billion at June 30, 2025, from $2.317 billion at December 31, 2024, primarily due to a $77.0 million increase in gross loans[125] Other Assets This subsection details the changes in other asset categories, including the reclassification of prepaid dealer fees - Other assets decreased by $9.0 million, primarily due to the movement of $6.9 million in prepaid dealer fees from other assets to loans receivable[126] Securities This subsection discusses the changes in the fair value of securities available for sale and the nature of unrealized losses - Fair value of securities available for sale increased to $402.5 million at June 30, 2025, from $397.8 million at December 31, 2024[127] - Unrealized losses are attributed to changes in interest rates, not credit losses, and the Company does not intend to sell these securities before cost recovery[127] Loans This subsection analyzes the growth in net loans receivable and provides key metrics on loan quality and non-performing assets - Net loans receivable increased by $75.9 million to $1.770 billion, primarily from increases in commercial real estate ($20.1 million), commercial ($17.2 million), consumer ($27.3 million), and other loans ($12.4 million)[128] Loan Quality Metrics (June 30, 2025 vs. December 31, 2024): | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Allowance for credit losses | $20,908,000 | $19,843,000 | | Allowance for credit losses as % of total loans | 1.17% | 1.16% | | Net charge-offs (six months) | $699,000 | $834,000 | | Non-performing loans | $8,091,000 | $7,874,000 | | Non-performing loans as % of total loans | 0.45% | 0.46% | | Non-performing assets as % of total assets | 0.34% | 0.34% | Deposits This subsection examines the increase in total deposits, highlighting growth in interest-bearing demand deposits and certificates of deposit - Total deposits increased by $138.7 million, driven by a $69.9 million increase in interest-bearing demand deposits and a $50.6 million increase in certificates of deposit[133] Deposit Balances (June 30, 2025 vs. December 31, 2024): | Deposit Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | | Non-interest bearing demand | $406,358 | $381,479 | | Interest-bearing demand | $386,229 | $316,283 | | Money market deposit accounts | $186,297 | $183,570 | | Savings | $200,870 | $210,312 | | Time deposits <$250,000 | $548,966 | $494,551 | | Time deposits >$250,000 | $269,114 | $272,968 | | Total | $1,997,834 | $1,859,163 | Borrowings This subsection details the changes in short-term and other borrowings, including reductions in overnight and Federal Reserve Bank borrowings - Short-term borrowings decreased by $86.6 million, mainly due to a reduction in overnight borrowings[134] - Other borrowings decreased by $16.4 million, with Federal Reserve Bank borrowings decreasing by $20.0 million, partially offset by a $3.6 million increase in Federal Home Loan Bank borrowings[134][136] Stockholders' Equity and Capital Ratios This subsection analyzes the increase in total stockholders' equity and presents the company's regulatory capital ratios - Total stockholders' equity increased by $12.0 million due to net income ($12.0 million) and an increase in fair value of available-for-sale securities ($5.6 million), partially offset by dividends ($5.7 million)[137] Regulatory Capital Ratios (June 30, 2025 vs. December 31, 2024): | Capital Ratio | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Tier 1 Capital (To average assets) | 9.41% | 9.36% | | Tier 1 Capital (To risk-weighted assets) | 12.13% | 12.35% | | Common Equity Tier 1 Capital (To risk-weighted assets) | 12.13% | 12.35% | | Total Capital (To risk-weighted assets) | 13.27% | 13.45% | - The Company and the Bank were in compliance with all applicable regulatory capital requirements as of June 30, 2025[142] Liquidity This subsection provides an overview of the company's liquidity position, including cash, cash equivalents, and available-for-sale securities - Total liquidity (cash and cash equivalents + securities available for sale) was $455.5 million at June 30, 2025, representing 19.3% of total assets[144] Capital Resources This subsection details the company's borrowing capacity and available lines of credit - The Bank's maximum borrowing capacity with the Federal Home Loan Bank was approximately $661.8 million at June 30, 2025, with $85.350 million outstanding[146] - The Company has two lines of credit totaling $17.0 million, with no borrowings outstanding as of June 30, 2025[145] Non-GAAP Financial Measures This subsection explains the use of non-GAAP financial measures, such as fully taxable-equivalent interest income, and their calculation methodology - Fully taxable-equivalent (fte) interest income and net interest income are non-GAAP measures used to compare taxable and tax-exempt income, calculated using a 21% assumed tax rate[147] Results of Operations This section analyzes the company's operating performance, including net income and key financial ratios, for the three and six months ended June 30, 2025, compared to the prior year Net Income and Key Ratios (Three Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Net income (in thousands) | $6,205 | $4,213 | | Basic EPS | $0.67 | $0.52 | | Annualized return on average assets | 1.06% | 0.75% | | Annualized return on average equity | 11.14% | 9.44% | Net Income and Key Ratios (Six Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Net income (in thousands) | $11,978 | $8,646 | | Basic EPS | $1.30 | $1.07 | | Annualized return on average assets | 1.03% | 0.78% | | Annualized return on average equity | 10.94% | 9.62% | Comparison of Operating Results for the Three Months Ended June 30, 2025 to June 30, 2024 This subsection compares the company's operating results for the three months ended June 30, 2025, against the same period in the prior year - Net income increased by $1.992 million, driven by a $4.140 million increase in net interest income, offset by a $603,000 increase in provision for credit losses and a $651,000 increase in salaries and benefits[154][155] General This sub-subsection provides an overview of the key performance indicators for the three-month period Key Performance Indicators (Three Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Net income (in thousands) | $6,205 | $4,213 | | Basic EPS | $0.67 | $0.52 | | Annualized return on average assets | 1.06% | 0.75% | | Annualized return on average equity | 11.14% | 9.44% | Net Interest Income This sub-subsection analyzes the changes in net interest income, interest income, and interest expense for the three-month period - Net interest income (fte) increased by $4.140 million to $19.264 million, with net interest spread at 2.75% and net interest margin at 3.43%[156] - Total interest income (fte) rose by $3.535 million to $31.405 million, with average earning assets increasing by $82.701 million[157] - Interest expense decreased by $605,000 to $12.141 million, reflecting lower market interest rates, particularly for time and savings deposits[158] Provision for Credit Losses This sub-subsection discusses the provision for credit losses, net charge-offs, and the allowance for credit losses ratio - Provision for credit losses increased to $950,000 from $347,000[159] - Net charge-offs decreased to $375,000 from $511,000[159] - Allowance for credit losses was 1.17% of loans receivable and 258% of non-performing loans at June 30, 2025[159] Other Income This sub-subsection analyzes the changes in other income, primarily driven by gains on sales of loans - Other income increased by $41,000 to $2.248 million, mainly due to a $29,000 increase in gains on sales of loans[160] Other Expense This sub-subsection details the increases in various other expense categories, including salaries, data processing, and occupancy - Other expenses increased by $1.087 million, primarily due to increases in salaries and employee benefits ($651,000), data processing ($165,000), foreclosed real estate expenses ($122,000), and occupancy ($120,000)[161] Income Tax Expense This sub-subsection discusses the changes in income tax expense and the effective tax rate - Income tax expense increased to $1.627 million (effective tax rate of 20.8%) from $1.128 million (effective tax rate of 21.1%)[162] Comparison of Operating Results for the Six Months Ended June 30, 2025 to June 30, 2024 This subsection compares the company's operating results for the six months ended June 30, 2025, against the same period in the prior year - Net income increased by $3.332 million, driven by a $7.288 million increase in net interest income, offset by a $2.083 million increase in provision for credit losses and a $987,000 increase in salaries and benefits[167][168] General This sub-subsection provides an overview of the key performance indicators for the six-month period Key Performance Indicators (Six Months Ended June 30): | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Net income (in thousands) | $11,978 | $8,646 | | Basic EPS | $1.30 | $1.07 | | Annualized return on average assets | 1.03% | 0.78% | | Annualized return on average equity | 10.94% | 9.62% | Net Interest Income This sub-subsection analyzes the changes in net interest income, interest income, and interest expense for the six-month period - Net interest income (fte) increased by $7.291 million to $37.320 million, with net interest spread at 2.68% and net interest margin at 3.37%[169] - Total interest income (fte) rose by $6.686 million to $61.688 million, with average earning assets increasing by $80.871 million[170] - Interest expense decreased by $605,000 to $24.368 million, reflecting lower market interest rates, particularly for time deposits[171] Provision for Credit Losses This sub-subsection discusses the provision for credit losses, net charge-offs, and the allowance for credit losses ratio for the six-month period - Provision for credit loss expense was $1.807 million, compared to a release of $276,000 in the prior year[172] - Net charge-offs decreased to $699,000 from $834,000[172] - Allowance for credit losses was 1.17% of loans receivable and 258% of non-performing loans at June 30, 2025[172] Other Income This sub-subsection analyzes the changes in other income, primarily driven by service charges and fees, for the six-month period - Other income increased by $386,000 to $4.599 million, mainly due to a $180,000 increase in service charges and fees[173] Other Expense This sub-subsection details the increases in various other expense categories, including salaries, professional fees, occupancy, and data processing, for the six-month period - Other expenses increased by $1.420 million (6.1%), driven by increases in salaries and employee benefits ($987,000), professional fees ($190,000), occupancy ($238,000), and data processing expenses ($228,000)[174] Income Tax Expense This sub-subsection discusses the changes in income tax expense and the effective tax rate for the six-month period - Income tax expense increased to $3.142 million (effective tax rate of 20.8%) from $2.303 million (effective tax rate of 21.0%)[175] Item 3. Quantitative and Qualitative Disclosures about Market Risk Management identifies interest rate risk as the most significant market risk, actively managing it through the Asset and Liability Committee to maintain net interest margin, liquidity, and capital. Sensitivity analysis indicates a decreased negative impact on net interest income from rising interest rates compared to the prior year - Interest rate risk is the most significant market risk, managed by the Asset and Liability Committee to maintain net interest margin, liquidity, and capital[177][178] - A 200-basis point increase in interest rates is projected to decrease net interest income by 2.4% in year 1 and 1.0% in year 2, a decrease in sensitivity compared to December 31, 2024[184] - The U.S. Treasury yield curve inverted slightly during the three months ended June 30, 2025, with the 3-month/5-year Treasury spread decreasing to a negative 62 basis points[182] Asset/Liability Management This section describes the company's approach to managing interest rate risk through its Asset and Liability Committee and strategic actions - The Asset and Liability Committee evaluates interest rate risk at least four times a year, using a simulation model to project net interest income sensitivity over a two-year horizon[179][181] - The Company's strategy has been to proactively lower deposit and borrowing costs to dampen the effect of variable and adjustable-rate loan repricing[184] Item 4. Controls and Procedures The Company's management, including the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective as of June 30, 2025. No material changes in internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[187] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[188] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in a class action lawsuit related to a 2023 data security incident involving the MOVEit file sharing software used by a third-party vendor. While the Company believes it has meritorious defenses and does not anticipate a material adverse effect, modest discovery obligations are expected - The Company is a defendant in a class action lawsuit (MOVEit Customer Data Security Breach Litigation) stemming from a 2023 cyber-incident involving a third-party vendor's file transfer software[189][190] - The incident did not involve Wayne Bank's internal systems or impact customer service[189] - Management believes it has meritorious defenses and does not currently expect a material adverse effect on its business, operations, or financial results, despite ongoing legal proceedings[191] Item 1A. Risk Factors This section states that there are no new material risk factors applicable for this reporting period - Not applicable for this reporting period[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company did not make any unregistered sales of equity securities or issuer purchases of equity securities during the quarter ended June 30, 2025. The existing share repurchase programs remain in effect, with 244,234 shares still available for repurchase - No unregistered sales of equity securities or issuer purchases of equity securities occurred during the quarter ended June 30, 2025[195][196] - As of June 30, 2025, 244,234 shares remain available for repurchase under existing programs[195] - The Company has two active share repurchase programs, announced in March 2021 and March 2008 (increased in November 2011), for up to 5% of outstanding common stock[197] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable[198] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - Not applicable[198] Item 5. Other Information This section states that there is no other information to report - Not applicable[198] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, stock certificates, CEO/CFO certifications, and XBRL-formatted financial statements - Exhibits include Amended and Restated Articles of Incorporation, Bylaws, Specimen Stock Certificate, CEO/CFO Certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. §1350), and Inline XBRL financial statements[199] Signatures Signatures The report was duly signed on August 8, 2025, by James O. Donnelly, President and Chief Executive Officer, and John M. McCaffery, Executive Vice President and Chief Financial Officer - The report was signed by James O. Donnelly (President and CEO) and John M. McCaffery (EVP and CFO) on August 8, 2025[204]