Norwood Financial (NWFL) Earnings Transcript

Image source: The Motley Fool.

Date

Thursday, January 22, 2026 at 9 a.m. ET

Call participants

• President and Chief Executive Officer — James Donnelly
• Chief Financial Officer — John McCaffery

Need a quote from a Motley Fool analyst? Email pr@fool.com

Takeaways

• Net interest spread -- Expanded by 62 basis points, resulting in a 62% increase in net interest income.
• Adjusted net income and EPS -- More than doubled on an adjusted basis, indicating higher profitability.
• Asset growth -- Asset base increased by 20% with the completed Presence Bank acquisition.
• Branch network expansion -- Gained four additional branches in Southeast and South Central Pennsylvania through the acquisition.
• Pre-provision net revenue -- Decreased by 2% on a linked quarter basis (from the third to fourth quarter of 2025), unadjusted, primarily due to higher expenses.
• Quarterly expenses -- Grew by 1.5% year over year and increased 5% sequentially from the prior quarter, driven by seasonal and compensation-related factors.
• Merger charges -- Totaled approximately $520,000 in the fourth quarter, impacting reported results.
• Credit metrics -- Nonperforming loans as a percentage of total loans declined; reserves to nonperforming assets rose, both indicating improved asset quality.
• Noninterest income -- Increased year over year excluding losses from sales securities related to the 2024 portfolio repositioning, with most growth attributed to fees from loan and deposit products.
• AI integration -- Adoption of AI tools from Presence Bank into the commercial system to boost lending efficiency and reduce staff workload.
• Leadership additions -- New executives and board members (Janakah Min, Larry Witt, Doug Byers, Joseph Carroll, Spencer Andres) appointed to strengthen management and governance.
• Dividend strategy -- Commitment to a "reliable and growing dividend" as part of the ongoing capital allocation framework.

Summary

Norwood Financial (NASDAQ:NWFL) reported substantial performance improvement, highlighted by strategic growth through the completed Presence Bank acquisition. Management emphasized the full integration of Presence Bank's branches, talent, and AI capabilities to create efficiencies and expand the customer base. Forward-looking priorities were clearly set to drive continued operational improvement, broaden geographic presence, and enhance shareholder returns via disciplined capital allocation.

• The Presence Bank deal closed on January 5, further increasing Norwood Financial's scale and access to talent in high-value Pennsylvania regions.
• Adoption of Presence Bank's AI systems is underway, focused on underwriting speed and operational gains without increasing employee headcount.
• Management reiterated a disciplined approach to deposit and asset management, stressing ongoing strength in the bank's financial position.
• Strategic hiring and board expansion signal preparedness for integration and sustained growth following the acquisition.

Industry glossary

• Net interest spread: The difference between the interest earned on loans and investments and the interest paid on deposits and borrowings.
• Pre-provision net revenue: Revenue before accounting for provisions set aside for potential loan losses.
• Noninterest income: Bank revenue derived from sources outside core lending, such as fees and service charges.
• Nonperforming loans: Loans on which the borrower is not making interest payments or repaying any principal.

Full Conference Call Transcript

James Donnelly: Thank you, Kristen. Good morning to everyone. We ended 2025 on a positive note and with good momentum, as the team achieved strong results by continuing to serve our customers and communities. We maintain focus on our mission to make every day better, even while we closed on the Presence Bank acquisition. We expanded our net interest spread by 62 basis points, increasing net interest income 62% compared with 2024. Net income and earnings per share more than doubled on an adjusted basis, and we improved returns on both average assets and tangible equity. By nearly any measure, 2025 was a great year.

The improvement in our results and financial position are a result of our portfolio repositioning we completed in December 2024, as well as strong loan and deposit growth. That activity combined resulted in a more robust balance sheet and higher quality earnings. That was the right thing to do for our bank, our customers, and our shareholders. It served us well in 2025 and should continue to benefit us in 2026. Our biggest achievement in 2025 was announcing and preparing for the acquisition of Presence Bank, which closed on January 5. Presence Bank is a nearly 106-year-old institution that shared our values, culture, and commitment to high-quality customer service.

With this acquisition, we have grown our asset base by 20%, increased our size by adding four branches in the coveted Southeast and South Central Pennsylvania region, and have enhanced our talent base with additional excellent employees. These additions better position us to serve our communities and bring value to our customers, whether they be small business owners looking to invest and expand their enterprises, homeowners looking to utilize the equity in their residences to fund college education for their children, or consumers using online tools to help manage their finances. I am pleased with our performance in 2025 and proud of what we were able to accomplish.

We have had great momentum, achieving strong results, and were able to do the additional work to close the Presence Bank acquisition at the beginning of this year. Looking forward, we have established four strategic priorities as we enter 2026 to continue to build on that momentum. The first is to successfully integrate all activity with Presence Bank in the acquisition. With the acquisition now closed, we are moving forward with a sense of urgency to integrate the two organizations, driving uniform systems and operating practices across the new combined entity. We will be bringing the acquired businesses and branches under our new brand and unifying all the branches.

This alignment enhances the brand recognition and makes it easier for customers to connect with us online, in a branch, or in a community. We will also engage in open conversations across locations and functions, evaluating current practices of each company, and adopting the best-in-class policies. That will allow us to serve our communities in the best way possible. One example is our use of AI, which is foundational in the second objective of exploring ways to increase operational efficiency and elevate customer experience. Presence Bank has implemented advanced AI tools in their commercial system, which we are adopting as part of our integration.

We are using AI to supplement and enhance the work of our talented credit officers in drafting credit narratives, summarizing financials, and confirming required documentation. This will allow us to underwrite deals more quickly and to do more deals with our existing team. As we move with our integration, we will evaluate these tools and deploy those that increase operating efficiency across our organization. This will empower our employees to focus on high-value activities that improve customer experience, which is critical to the success of our company.

Although we are moving forward with a sense of urgency, we are not rushed, and we will be thoughtful and measured in our progress to limit and eliminate disruptions for our customers and our employees. Third, we are focused on strengthening our talent pool and deepening our leadership bench. As a regional bank with a prominent presence within the communities we serve, it is much more than a cliché to say that our people are our greatest asset. Whether teller, customer service representative, branch manager, regional manager, or executive leadership, our entire organization is committed to the proposition of delivering financial solutions along with an outstanding experience for all of our customer engagements.

Beyond that, as members of our community, our team members act in ways that make our communities better. With the Presence Bank acquisition, I am pleased to welcome Janakah Min as our new Chief Operating Officer. We have also recently added Larry Witt as the Chief Information Officer and Doug Byers as the Market Executive and Head of Treasury Management. Finally, I am pleased to welcome Joseph Carroll and Spencer Andres to the Norwood Financial Corp. board of directors. All of these additions, plus the entire Presence Bank team, make us a stronger bank, and I am excited to see what we are able to accomplish together.

Our results in 2025 were strong before adding these growth areas served by Presence Bank. I think they will only make us better and stronger. Finally, everything we do as an executive leadership team is designed to increase shareholder value. John McCaffery will cover the nice accretion that we have added to shareholder value in 2025 as we have grown the balance sheet and profitably later in this call. Let me say an impressive testament to our shareholder focus. We will manage our deposits and assets to maintain our strong financial position, ensuring that we are positioned to continue serving our communities for years to come.

We will actively grow our assets through increased deposits and investment decisions, as well as strategic M&A when an attractive and fairly valued target is available. Finally, we will combine these activities with a capital allocation framework that includes returning cash to shareholders through a reliable and growing dividend. I firmly believe that these priorities will allow us to continue to create value and build momentum in 2026 and beyond. I will now turn the call over to John McCaffery to walk us through the results.

John McCaffery: Thank you, James. Good morning, everybody. I am going to just walk through the fourth quarter results. And for the fourth quarter, we again demonstrated our ability to improve financial results, continuing the trend that began with our balance sheet repositioning back in December 2024. Our net interest income increased by $5 million on a linked quarter basis, but the margin itself did drop three basis points. This was due to loan growth in the quarter as well as some seasonal outflow of municipal deposits on a temporary basis. Below the margin line, our quarterly results do continue to include merger charges. We had about $520,000 in merger charges in the quarter.

We have adjusted our returns in the press release to be able to show you performance ratios that reflect the impact of these expenses. We also reported last year's numbers net of the loss on the securities. Well, so, again, trying to look at a pre-provision net revenue number across the entire span of the press release. Our unadjusted pre-provision net revenue decreased by 2% on a linked quarter basis and an adjusted basis, mostly due to higher expenses during the quarter. We will get to that in a minute.

Excluding losses from sales securities related to our portfolio repositioning in 2024, noninterest income for the year increased in the same period, most of the growth coming from fees on our loans and deposit products. Quarterly expenses year over year were up 1.5% from the fourth quarter of 2024. On a linked quarter basis, expenses were up 5% due to several factors in the quarter, including lower loan volumes resulting in lower expense deferrals, and we had some vesting of risk of stock for long-term retiring employees in the quarter. In addition, we had some elevated incentive accruals based upon the improved performance in 2025. Credit metrics continue to improve year over year.

Nonperforming loans as a percentage of total loans decreased, and our reserves to nonperforming assets increased. The overall theme of the quarter was continued profitable growth, sound balance sheet management, and benign credit. These themes have aligned to deliver a solid quarter and leave our company well-positioned for the future. James Donnelly and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking a question.

Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced.

Ross Haberman: And to withdraw a question, please press 11 again. Please press 11 on your telephone. Okay. I am not showing any questions at this time, so I will now turn it back over to James Donnelly.

James Donnelly: Thank you. And thank you once again for joining us this morning. We are pleased with our accomplishments in 2025 and optimistic for what we will achieve in 2026. With a larger asset base, expanded geographic coverage, and a stronger team to serve our customers and our communities, I believe that our best days are ahead, and I look forward to updating you as we continue to make progress. Have a great day.

Ross Haberman: This concludes today's conference call. Thank you for participating, and you may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.