Q2 2026 Norwood Financial Corp Earnings Call

July 22, 2026

Operator: Welcome to the Norwood Financial Corp Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mackenzie Jackson, Corporate Secretary. Ma'am, please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press *11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, Mackenzie Jackson, Corporate Secretary. Ma'am, please go ahead.

Speaker #2: Thank you, Michelle. Good morning, everyone, and welcome to our Q2 2026 earnings conference call. With me today are Jim Donnelly, our President and CEO, and John McCaffery, our CFO.

Mackenzie Jackson: Thank you, Michelle. Good morning, everyone. Welcome to our Q2 2026 earnings conference call. With me today are James Donnelly, our President and CEO, and John McCaffery, our CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the investor relations section of our webpage. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements. During our discussion, we may refer to certain non-GAAP financial measures.

Mackenzie Jackson: Thank you, Michelle. Good morning, everyone. Welcome to our Q2 2026 earnings conference call. With me today are Jim Donnelly, our President and CEO, and John McCaffery, our CFO. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the investor relations section of our webpage. Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks and uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements. During our discussion, we may refer to certain non-GAAP financial measures.

Speaker #2: The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our web page.

Speaker #2: Comments made by any participant on today's call may include forward-looking statements. These statements are subject to various risks, uncertainties, and other factors that are difficult to predict.

Speaker #2: Actual results may differ materially from those expressed or implied, and we assume no obligation to update any forward-looking information. Please refer to our most recent Form 10-K and other subsequent reports filed with the SEC for more information about risks related to forward-looking statements.

Speaker #2: During our discussion, we may refer to certain non-GAAP financial measures. These measures are useful for analysts, investors, and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation.

Mackenzie Jackson: These measures are useful for analysts, investors, and management to evaluate ongoing performance. A reconciliation of these measures to GAAP financial results is provided in our presentation. I will now turn the call over to Jim.

Speaker #2: I will now turn the call over to Jim.

Speaker #3: Thank you, Mackenzie. And good morning, everyone. I'm pleased to report that the entire NORWOOD team performed well in the Q2. Continuing our strong performance as we build momentum and deliver another quarter of improving financial results.

James Donnelly: Thank you, Mackenzie. Good morning, everyone. I'm pleased to report that the entire Norwood team performed well in Q2, continuing our strong performance as we build momentum and deliver another quarter of improving financial results. Net income was $26.8 million, an increase of 41% compared with last year, another record for us as we continue to elevate our performance. Organic growth plus Presence Bank's acquisition contributed to the increase. Net interest margin expanded to 3.9%, an increase of 47 basis points compared with last year. Net income and earnings per share also increased, improving 48% and 25%, respectively, on an adjusted basis with higher adjusted returns on average assets and tangible equity. By nearly every metric, it was a great quarter as we continue to benefit from our repositioned portfolio, favorable interest rate movement, strong team performance, and the acquisition.

Jim Donnelly: Thank you, Mackenzie. Good morning, everyone. I'm pleased to report that the entire Norwood team performed well in Q2, continuing our strong performance as we build momentum and deliver another quarter of improving financial results. Net income was $26.8 million, an increase of 41% compared with last year, another record for us as we continue to elevate our performance. Organic growth plus Presence Bank's acquisition contributed to the increase. Net interest margin expanded to 3.9%, an increase of 47 basis points compared with last year. Net income and earnings per share also increased, improving 48% and 25%, respectively, on an adjusted basis with higher adjusted returns on average assets and tangible equity. By nearly every metric, it was a great quarter as we continue to benefit from our repositioned portfolio, favorable interest rate movement, strong team performance, and the acquisition.

Speaker #3: Net income was $26.8 million, an increase of 41% compared with last year, and another record for us as we continue to elevate our performance.

Speaker #3: Organic growth plus presence banks acquisition contributed to the increase. Net interest margin expanded to 3.9%, an increase of 47 basis points, compared with last year.

Speaker #3: Net income and earnings per share also increased, improving 48% and 25%, respectively, on an adjusted basis, with higher adjusted returns on average assets and tangible equity.

Speaker #3: By nearly every metric, it was a great quarter as we continue to benefit from our repositioned portfolio, favorable interest rate movement, strong team performance, and the acquisition.

Speaker #3: As we disclosed last month, on June 18, one of our customers' loans totaling $22,000 filed Chapter 11 bankruptcy. We have been involved in the process, engaging in discussions with all parties to achieve an agreeable outcome.

James Donnelly: As we disclosed last month, 18 June, one of our customer's loans totaling $22 million filed Chapter 11 bankruptcy. We have been involved in the process, engaging in discussions with all parties to achieve an agreeable outcome. Based on the process as it stands and the anticipated result, we have recorded a net charge-off of $700,000. I believe this is an acceptable outcome given the total exposure. The bankruptcy process is ongoing, and we are continuing to monitor its progress to understand the impact on us. I am proud of the team that has been leading this process for us, ensuring that the outcome is in the best interest of the bank and our shareholders. Next, I'd like to review our 2026 strategic priorities. This priority is to successfully complete the Presence Bank integration. I am pleased to report that we have completed all of our planned integration activities.

Jim Donnelly: As we disclosed last month, 18 June, one of our customer's loans totaling $22 million filed Chapter 11 bankruptcy. We have been involved in the process, engaging in discussions with all parties to achieve an agreeable outcome. Based on the process as it stands and the anticipated result, we have recorded a net charge-off of $700,000. I believe this is an acceptable outcome given the total exposure. The bankruptcy process is ongoing, and we are continuing to monitor its progress to understand the impact on us. I am proud of the team that has been leading this process for us, ensuring that the outcome is in the best interest of the bank and our shareholders. Next, I'd like to review our 2026 strategic priorities. This priority is to successfully complete the Presence Bank integration. I am pleased to report that we have completed all of our planned integration activities.

Speaker #3: Based on the process as it stands, and an anticipated result, we have recorded a net charge-off of $7,000. I believe this is an acceptable outcome given the total exposure.

Speaker #3: The bankruptcy process is ongoing, and we are continuing to monitor its progress to understand the impact on us. I am proud of the team that has been leading this process for us, ensuring that the outcome is in the best interest of the bank and our shareholders.

Speaker #3: Next, I'd like to review our 2026 strategic priorities. This priority is to successfully complete the presence bank integration. I am pleased to report that we have completed all of our planned integration activities.

Speaker #3: The integration team has done a great job leading us through this process, going above and beyond to achieve these milestones in addition to their normal daily responsibilities.

James Donnelly: The integration team has done a great job leading us through this process, going above and beyond to achieve these milestones in addition to their normal daily responsibilities. The experience we have gained from this integration will serve us well as we continue to explore and pursue acquisitions in the future. We have combined our systems to drive common operating practices across the organization with the completion of our core integration. We have completed the rollout and convergence of our brand across all entities and branches. While the integration is complete, we continue to engage in open conversations across all locations and functions to identify and adopt best-in-class practices and policies that will enable us to better serve our communities while improving our results.

Jim Donnelly: The integration team has done a great job leading us through this process, going above and beyond to achieve these milestones in addition to their normal daily responsibilities. The experience we have gained from this integration will serve us well as we continue to explore and pursue acquisitions in the future. We have combined our systems to drive common operating practices across the organization with the completion of our core integration. We have completed the rollout and convergence of our brand across all entities and branches. While the integration is complete, we continue to engage in open conversations across all locations and functions to identify and adopt best-in-class practices and policies that will enable us to better serve our communities while improving our results.

Speaker #3: The experience we have gained from this integration will serve us well as we continue to explore and pursue acquisitions in the future. We have combined our systems to drive common operating practices across the organization with the completion of our core integration.

Speaker #3: We have completed the rollout and convergence of our brand across all entities and branches. While the integration is complete, we continue to engage in open conversations across all locations and functions to identify and adopt best-in-class practices and policies that will enable us to better serve our communities while improving our results.

Speaker #3: I'm excited about this activity and looking forward to how the combined organizations will continue to drive operational excellence well beyond the integration, making us stronger together than we were before.

James Donnelly: I'm excited about this activity and looking forward to how the combined organizations will continue to drive operational excellence well beyond the integration, making us stronger together than we were before. Our second strategic priority is to increase operating efficiency and elevate customer experience through AI. I have previously shared how we are implementing the commercial credit system from Presence Bank broadly across our organization. This system uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed, and quality to the process. We anticipate the outcome of this system will be better reporting to provide our credit officers with helpful insights to make informed decisions. This is a great example of how we plan to implement AI tools to empower our employees to perform higher-value functions by automating activities where possible.

Jim Donnelly: I'm excited about this activity and looking forward to how the combined organizations will continue to drive operational excellence well beyond the integration, making us stronger together than we were before. Our second strategic priority is to increase operating efficiency and elevate customer experience through AI. I have previously shared how we are implementing the commercial credit system from Presence Bank broadly across our organization. This system uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed, and quality to the process. We anticipate the outcome of this system will be better reporting to provide our credit officers with helpful insights to make informed decisions. This is a great example of how we plan to implement AI tools to empower our employees to perform higher-value functions by automating activities where possible.

Speaker #3: On a second strategic priority is to increase operating efficiency and elevate customer experience through AI. I have previously shared how we are implementing the commercial credit system from presence bank broadly across our organization.

Speaker #3: The system uses embedded AI and machine learning to enhance the productivity of our talented credit officers by bringing automation, speed, and quality to the process.

Speaker #3: We anticipate the outcome of this system will be better reporting to provide our credit officers with helpful insights to make informed decisions. This is a great example of how we plan to implement AI tools to empower our employees to perform higher-value functions by automating activities where possible.

Speaker #3: We have put together a three-year plan for the rollout of AI in each department in the bank. We believe that this thoughtful and measured approach will allow our employees to fully engage AI agents to supplement their work and better serve our customers.

James Donnelly: We have put together a three-year plan for the rollout of AI in each department in the bank. We believe that this thoughtful and measured approach will allow our employees to fully engage AI agents to supplement their work and better serve our customers. Our third objective is to strengthen our talent pool and deepen our leadership bench. This begins with our executive team and extends throughout the organization. Now that our team has expanded with the addition of the talented employees from Presence Bank, we are refocusing our initiatives to develop our workforce, investing in our people to empower them to serve our communities. We have been working on our succession planning and employee development for more than three years.

Jim Donnelly: We have put together a three-year plan for the rollout of AI in each department in the bank. We believe that this thoughtful and measured approach will allow our employees to fully engage AI agents to supplement their work and better serve our customers. Our third objective is to strengthen our talent pool and deepen our leadership bench. This begins with our executive team and extends throughout the organization. Now that our team has expanded with the addition of the talented employees from Presence Bank, we are refocusing our initiatives to develop our workforce, investing in our people to empower them to serve our communities. We have been working on our succession planning and employee development for more than three years.

Speaker #3: Our third objective is to strengthen our talent pool and deepen our leadership bench. This begins with our executive team and extends throughout the organization.

Speaker #3: Now that our team has expanded with the addition of the talented employees from Presence Bank, we are refocusing our initiatives to develop our workforce.

Speaker #3: Investing in our people to empower them to serve our communities—we have been working on our succession planning and employee development for more than three years.

Speaker #3: The newest announcement of change in our senior leadership team is an example of investing in talented employees and planning for the retirement of a valued leader well before the event.

James Donnelly: The newest announcement of change in our Senior Leadership Team is an example of investing in a talented employee and planning for the retirement of a valued leader well before the event. This allows for a smooth transition. One update I would like to share with you is the appointment of Steven Daniels as Chief Lending Officer. Steve has been a dedicated member of the team since joining us in 2011, holding various positions over that time, including his most recent role as Chief Consumer Officer. Steve is stepping into this role following the announced retirement of Vinnie O'Bell. Vinnie will retire this fall, providing an opportunity to work with Steve during the transition. Vinnie is ending a successful 47-year career in banking, including the last 10 years at Wayne Bank, where he's helped shape the commercial lending division into what it is today.

Jim Donnelly: The newest announcement of change in our Senior Leadership Team is an example of investing in a talented employee and planning for the retirement of a valued leader well before the event. This allows for a smooth transition. One update I would like to share with you is the appointment of Steven Daniels as Chief Lending Officer. Steve has been a dedicated member of the team since joining us in 2011, holding various positions over that time, including his most recent role as Chief Consumer Officer. Steve is stepping into this role following the announced retirement of Vinnie O'Bell. Vinnie will retire this fall, providing an opportunity to work with Steve during the transition. Vinnie is ending a successful 47-year career in banking, including the last 10 years at Wayne Bank, where he's helped shape the commercial lending division into what it is today.

Speaker #3: This allows for a smooth transition. One update I would like to share with you is the appointment of Steve Daniels as Chief Lending Officer.

Speaker #3: Steve has been a dedicated member of the team since joining us in 2011, holding various positions over that time, including his most recent role as Chief Consumer Officer.

Speaker #3: Steve is stepping into this role following the announced retirement of Ineo Bell. Vinnie will retire this fall, providing an opportunity to work with Steve during the transition.

Speaker #3: Vinnie is ending a successful 47-year career in banking, including the last 10 years at Wayne Bank, where he's helped shape the commercial lending division into what it is today.

Speaker #3: We wish Vinnie all the best in his retirement and look forward to seeing Steve and what he will achieve in this new role. Steve's promotion gives us an opportunity to promote Deb Kennedy to Director of Retail Banking.

James Donnelly: We wish Vinnie all the best in his retirement and look forward to seeing Steve and what he will achieve in this new role. Steve's promotion gives us an opportunity to promote Deb Kennedy to the Director of Retail Banking. She currently oversees our Pennsylvania franchise and will now oversee all branches both in New York and Pennsylvania. These organizational changes are part of our succession planning and a great testament to the strong and deep leadership we have at Norwood. Our fourth and final priority is to ensure that everything we do increases shareholder value. This is evident in our Q2 results. When combined with our Q1 results, we have delivered very strong results during the H1 of 2026. Year to date, net interest income has improved 39% and adjusted net income has improved 42%. Our average tangible equity increased by approximately 15%.

Jim Donnelly: We wish Vinnie all the best in his retirement and look forward to seeing Steve and what he will achieve in this new role. Steve's promotion gives us an opportunity to promote Deb Kennedy to the Director of Retail Banking. She currently oversees our Pennsylvania franchise and will now oversee all branches both in New York and Pennsylvania. These organizational changes are part of our succession planning and a great testament to the strong and deep leadership we have at Norwood. Our fourth and final priority is to ensure that everything we do increases shareholder value. This is evident in our Q2 results. When combined with our Q1 results, we have delivered very strong results during the H1 of 2026. Year to date, net interest income has improved 39% and adjusted net income has improved 42%. Our average tangible equity increased by approximately 15%.

Speaker #3: She currently oversees our Pennsylvania franchise and will now oversee all branches, both in New York and Pennsylvania. These organizational changes are part of our succession planning and are a great testament to the strong and deep leadership we have at Norwood.

Speaker #3: Our fourth and final priority is to ensure that everything we do increases shareholder value. This is evident in our second quarter results; when combined with our first quarter results, we have delivered very strong performance during the first half of 2026.

Speaker #3: Year to date, net interest come income has improved 39%, and adjusted net income has improved 42%. Our average tangible equity increased by approximately 15%.

Speaker #3: We have now earned back the shareholder dilution that occurred with the purchase of Presence Bank shares with this increase in tangible book value. This is two years ahead of estimates and is a testament to the earnings power of the combined organization, our smooth integration, and our disciplined approach to M&A.

James Donnelly: We have now earned back the shareholder dilution that occurred with the purchase of Presence Bank shares with this increase in tangible book value. This is two years ahead of estimates and is a testament to the earnings power of the combined organization, our smooth integration, and our disciplined approach to M&A. Our employees are performing well, serving our customers and communities to enable them to achieve their financial goals. This has resulted in improved returns, which creates value for our shareholders. We are well-positioned to continue the strong performance for the rest of 2026 and beyond. I will now turn the call over to John to walk us through our Q2 results.

Jim Donnelly: We have now earned back the shareholder dilution that occurred with the purchase of Presence Bank shares with this increase in tangible book value. This is two years ahead of estimates and is a testament to the earnings power of the combined organization, our smooth integration, and our disciplined approach to M&A. Our employees are performing well, serving our customers and communities to enable them to achieve their financial goals. This has resulted in improved returns, which creates value for our shareholders. We are well-positioned to continue the strong performance for the rest of 2026 and beyond. I will now turn the call over to John to walk us through our Q2 results.

Speaker #3: Our employees are performing well, serving our customers and communities to enable them to achieve their financial goals. This has resulted in improved returns, which creates value for our shareholders.

Speaker #3: We are well positioned to continue the strong performance for the rest of 2026 and beyond. I will now turn the call over to John to walk us through our second quarter results.

Speaker #2: Thank you, Jim, and good morning, everyone. Building on Jim's comments, I'll focus on the financial results and key performance metrics for the quarter. Second quarter represented an important milestone for NORWOOD as we begin to realize more of the earnings power from the presence bank shares acquisition while successfully completing our core system conversion and continuing to execute on our strategic priorities.

John McCaffery: Thank you, Jim, and good morning, everyone. Building on Jim's comments, I'll focus on the financial results and key performance metrics for the quarter. Q2 represented an important milestone for Norwood as we begin to realize more of the earnings power from the Presence Bank shares acquisition while successfully completing our core system conversion and continuing to execute on our strategic priorities. Most important, net income for the quarter was a record $9.3 million or $0.86 per diluted share, compared to $6.2 million or $0.67 per diluted share in the same period last year. Return on average assets improved to 1.28%. Our return on average tangible equity increased to approximately 15%. The net interest margin expanded 3.9%, up 47 basis points from a year ago and 22 basis points from the Q1.

Speaker #2: Most important, net income for the quarter was a record 9.3 million or 86 cents per diluted share, compared to 6.2 million or 67 cents per diluted share in the same period last year.

Speaker #2: Return on average assets improved to 1.28%, while return on average tangible equity increased to approximately 15%. The net interest margin expanded to 3.9%, up 47 basis points from a year ago and 22 basis points from the first quarter.

Speaker #2: For modeling purposes, approximately $241,000 of interest income was non-recurring, resulting from bond calls and the acceleration of credit mark associated with a PCD loan acquired from Presence Bank.

John McCaffery: For modeling purposes, approximately $241,000 of interest income was non-recurring, resulting from bond calls and the acceleration of a credit mark associated with a PCD loan acquired from Presence Bank. Excluding those items, our margin performance would still show a meaningful improvement on both a linked quarter and year-over-year basis. Another important metric that Jim mentioned was that we are particularly pleased with is our tangible book value per share. At quarter end, tangible book value per share was $22.96, which is not only an increase from Q1, but also higher than the $22.90 level reported at 31 December, immediately before the Presence Bank acquisition closed. From an operating performance perspective, pre-provision net revenue reached $13.6 million, a 55% increase from the prior year quarter and more than doubled compared to Q1 2026.

Speaker #2: Excluding those items, our margin performance would still have to show a meaningful improvement on both a linked quarter and year-over-year basis. Another important metric that Jim mentioned, which we are particularly pleased with, is our tangible book value per share.

Speaker #2: At quarter end, tangible book value per share was 22 dollars and 96 cents, which is not only an increase in the first quarter, but also higher than the 22 dollars and 90 cent level reported at December 31st immediately before the presence bank acquisition closed.

Speaker #2: From an operating performance perspective, pre-provision net revenue reached $13.6 million, a 55% increase from the prior year quarter, and more than doubled compared to the first quarter of 2026.

Speaker #2: The improvement reflects benefits of a larger balance sheet, stronger net interest income, generation, and continued operating leverage across the franchise. Turning to credit quality, Jim spoke about the ongoing impact of the bankruptcy filing of one of our customers.

John McCaffery: The improvement reflects benefits of a larger balance sheet, stronger net interest income generation, and continued operating leverage across the franchise. Turning to credit quality, Jim spoke about the ongoing impact of the bankruptcy filing of one of our customers. This pushed our provision higher due to the $700,000 charge-off and the impact on quantitative factors in the CECL model. Our allowance for credit losses totaled $25.6 million at quarter end, or approximately 1.13% of total loans. On the balance sheet, total assets were approximately $2.9 billion at quarter end. Loans increased to $2.26 billion and deposits totaled approximately $2.51 billion. Below the margin line, merger-related expenses were largely behind us. During the quarter, we recorded only about $53,000 of merger expenses, compared to nearly $5 million in Q1. We also recognized a one-time BOLI restructuring fee of approximately $225,000 in Q1.

Speaker #2: This pushed our provision higher due to the $700,000 charge-off and the impact on quantitative factors in the CECL model. Our allowance for credit losses totals $25.6 million.

Speaker #2: At quarter end, we're approximately 1.13% of total loans. On the balance sheet, total assets were approximately $2.9 billion at quarter end. Loans increased to $2.26 billion and deposits totaled approximately $2.51 billion.

Speaker #2: Below the margin line, merger-related expenses were largely behind us during the quarter we recorded only about 53,000 dollars of merger expenses compared to nearly 5 million in the first quarter, we also recognized a one-time bully restructuring fee of approximately 225,000 dollars in the first quarter.

Speaker #2: The second quarter did include some $75,000 in legal bills related to the loan workout previously mentioned. Yes, there was a credit event. Yes, there was some modest non-recurring income, but the bigger story is that we've already earned back the tangible book value dilution from the acquisition, and we are now creating incremental shareholder value.

John McCaffery: Q2 did include some $75,000 in legal bills related to the loan workout previously mentioned. Yes, there was a credit event. Yes, there was some modest non-recurring income, but the bigger story is that we've already earned back the tangible book value dilution from the acquisition, and we are now creating incremental shareholder value. Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking a question.

Speaker #2: Jim and I will now be happy to answer any questions you may have. Operator, please provide instructions for asking your question.

Speaker #1: Thank you. To ask a question at this time, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again.

Operator: Thank you. To ask a question at this time, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment while we compile our Q&A roster.

Speaker #1: One moment while we compile our Q&A roster. Our first question is going to come from the line of Matthew Pries with Stevens, Inc. Your line is open.

John McCaffery: Is that for me?

James Donnelly: Yeah

Jim Donnelly: Yeah

Operator: Our first question is going to come from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead.

Speaker #1: Please go ahead.

Speaker #3: Hey, good morning, guys.

Matthew Breese: Hey, good morning, guys.

Speaker #4: Good morning.

James Donnelly: Good morning.

Jim Donnelly: Good morning.

John McCaffery: Good morning.

Matthew Breese: Hey, I just wanted to start on the NIM. Up 22 basis points. John, you moved a little quick there. How much of that was one time, and how is that spread across bonds and loans? I'm sorry, your comments were just a little quick.

Speaker #3: Hey, I just wanted to start on the NIM. So, of the 22 basis points, John, you moved a little quick there. How much of that was one-time, and how is that spread across bonds and loans?

Speaker #3: I'm sorry, your comments were just a little quick.

Speaker #2: Sure, I'm sorry. Yeah, there was $241,000 in non-recurring, which is about three or four basis points in the NIM for the quarter. There was about $170,000 in loans and $65,000 in bonds.

John McCaffery: Sure. I'm sorry. Yeah, there was $241,000 in non-recurring, which is about 3 or 4 basis points in the NIM for the quarter. There was about $170 in loans and $65 in bonds.

Speaker #3: Okay. Okay. So still, I mean, the guide was NIM up three to five basis points. So quite a bit higher than that. Maybe recalibrate for us near-term expectations.

Matthew Breese: Okay. Still, the guide was NIM up 3 to 5 basis points, quite a bit higher than that. Maybe recalibrate for us near-term expectations. I think last quarter you talked about the pipeline. Pipeline yields were in and around 7%. Maybe update us on that as well.

Speaker #3: And then I think last quarter you talked about the pipeline, pipeline yields were in and around 7%, maybe update us on that as well.

Speaker #2: I would say pipeline yields are probably in the high to mid-sixes. The pickup in NIM in Q2—a lot of it was related to deposit costs.

John McCaffery: I would say pipeline yields are probably in the high to mid-sixes. The pickup in NIM in Q2, a lot of it was related to deposit costs. We were able to manage down money market costs, money market yields to a bit. CDs, we've been running specials on CDs over the last couple of years, we had kind of a wave event in Q2 where some of the specials matured. A lot of them rolled into additional other specials, but not as at higher rate. Again, most of the margin improvement away from the one-timers was in the deposit cost line. You can see that in the NIM table.

Speaker #2: We were able to manage down money market costs, money market yields a bit, and CDs. Yeah, we've been running specials on CDs over the last couple of years, and so we had kind of a wave event in Q2 where some of the specials matured.

Speaker #2: A lot of them rolled into additional other specials, but not at as high a rate. So again, most of the margin improvement, away from the one-timers, was in the deposit cost line.

Speaker #2: And you can see that in the NIM table.

Matthew Breese: Yep. We've been hearing from a lot of folks, especially in the Northeast mid-Atlantic, that competitive dynamics around deposits are starting to pick up. For a lot of folks, this quarter might be the turning point in terms of seeing higher deposit costs. Do you feel like that's the case for you? Maybe if you have it-

Speaker #3: from a lot of folks, especially in Northeast Mid-Atlantic, that competitive dynamics around deposits are starting to pick up and for a lot of folks, this quarter might be the turning point in terms of seeing higher deposit costs.

Speaker #3: Do you feel like that's the case for you? And maybe if you have it, what would spot deposits cost at the end of the quarter?

John McCaffery: I mean-

Matthew Breese: what was spot deposits costs at the end of Q2?

John McCaffery: I don't get spot deposit costs for you. I would say that we do hear from the branches that I guess for the month of June, spot deposit costs were about two basis points higher than the quarterly average. Again, that's for the whole month. I couldn't tell you at 30 June of what they were right now. We are hearing anecdotally that there's competition. We're getting a few more inbound calls on larger deposits to get special rates. I think going forward, I wouldn't expect us to repeat the same Q2 experience in the CDs. I think loans are maintaining given where the pipeline is. We did have the production of loans in Q2 was good. We just had a few higher-than-expected payoffs happen during the quarter, which is why the growth wasn't what we expected it to be.

Speaker #2: I don't—I could get spot deposit cost for you, but I would say that, yeah, we do hear from the branches that it's—I guess for the month of June, spot deposit costs were about two basis points higher than the quarterly average. But again, that's for the whole month.

Speaker #2: I couldn't tell you at June 30th where they were right now, but we are hearing anecdotally that there is competition we're getting a few more inbound calls on larger deposits to get special rates.

Speaker #2: So I think going forward, I wouldn't expect us to repeat the same Q2 experience in the CDs. So I think loans are maintaining given where the pipeline is.

Speaker #2: We did have the production of loans in Q2, which was good. We just had a few higher than expected payoffs happen during the quarter, which is why the growth wasn't what we expected it to be.

Speaker #2: But yeah, the other good news...

James Donnelly: The good news on deposits that's in there is our DDAs continue to grow at a good rate. The number of accounts and the number of dollars in those, which should help temper a little bit the higher costs on money markets and CDs.

Jim Donnelly: The good news on deposits that's in there is our DDAs continue to grow at a good rate. The number of accounts and the number of dollars in those, which should help temper a little bit the higher costs on money markets and CDs.

Speaker #4: news on deposits that's in there is we've are DDAs continue to grow at a good rate. So the number of accounts and the number of dollars in those which should help temper a little bit the higher costs on money markets and CDs.

Speaker #3: Okay. And then last one for me and I'll hop out. Maybe just talk about M&A from here, the appetite. Your opening commentary suggests that you're open and willing.

Matthew Breese: Okay. Last one from me, and I'll hop out. Maybe just talk about M&A from here, deal appetite. Your opening commentary suggests that you're open and willing. Hasn't been that many deals in our neck of the woods this year. I'm curious if deal announcements mimic kind of conversations behind the scenes. How is that all going? Thank you.

Speaker #3: There haven't been that many deals in our neck of the woods this year. I'm curious if deal announcements mimic the kind of conversations happening behind the scenes.

Speaker #3: How is that all going? Thank you.

Speaker #4: Yeah, I mean, we're still out meeting and talking to people. The urgency for some of those deals seems a little bit less. The banking environment is better.

James Donnelly: Yeah, we're still out meeting and talking to people. The urgency for some of those deals seems a little bit less. The banking environment is better. The pressure that people were feeling maybe a year ago. A better regulatory environment, better earning season, credit quality holding up maybe is taking away some of the urgency for people that are otherwise sellers. We're continuing our discipline of going out and talking and making sure people understand that we're a good acquirer. We're good to their employees, we're good for their shareholders, and it's a good opportunity to join a high-quality community bank.

Jim Donnelly: Yeah, we're still out meeting and talking to people. The urgency for some of those deals seems a little bit less. The banking environment is better. The pressure that people were feeling maybe a year ago. A better regulatory environment, better earning season, credit quality holding up maybe is taking away some of the urgency for people that are otherwise sellers. We're continuing our discipline of going out and talking and making sure people understand that we're a good acquirer. We're good to their employees, we're good for their shareholders, and it's a good opportunity to join a high-quality community bank.

Speaker #4: So, the pressure that people were feeling maybe a year ago—so, a better regulatory environment, better earnings season, credit quality holding up—maybe is taking away some of the urgency for people that are otherwise sellers.

Speaker #4: But we're continuing our discipline of going out and talking, and making sure people understand that we're a good acquirer—we're good to their employees.

Speaker #4: We're good for their shareholders, and it's a good opportunity to join a high-quality community bank.

Matthew Breese: Great. I appreciate that. I'll leave it there. Thank you.

Speaker #3: Great. I appreciate that. I'll leave it there. Thank you.

Speaker #4: Thanks, Matt.

James Donnelly: Thanks, Matt.

Jim Donnelly: Thanks, Matt.

John McCaffery: Thanks, Matt.

Speaker #2: Thanks, Matt.

Speaker #1: Thank you. In one moment for our next question. And our next question is going to come from the line of Daniel Cardenas with Barron Capital.

Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Daniel Cardenas with Brean Capital. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Daniel Cardenas: Good morning.

Speaker #5: Good morning.

James Donnelly: Hi, Dan.

Jim Donnelly: Hi, Dan.

Speaker #2: Hi, Dan.

Speaker #5: Hey, Dan. So, a couple of quick questions here. For non-performing assets, what was the total dollar amount this quarter?

John McCaffery: Hey, Dan.

Daniel Cardenas: A couple quick questions here. For non-performing assets, what was the total dollar amount this quarter?

John McCaffery: The total dollar amount was, I believe, around $23 million or $24 million at the end of the quarter.

Speaker #2: The total dollar amount was, I believe, around $23 or $24 million at the end of the quarter.

Speaker #4: So, that one credit was the lion's share of it.

James Donnelly: That one credit was the lion's share of it.

Jim Donnelly: That one credit was the lion's share of it.

Daniel Cardenas: Absent that one credit, we would've seen some pretty strong improvement on a sequential quarter basis.

Speaker #5: So absent that one credit, we would have seen some pretty strong improvement on the sequential quarter basis.

Daniel Cardenas: Absent that one credit, we would've seen some pretty strong improvement on a sequential quarter basis.

Speaker #2: Yeah, I think something else got cleared up there in the quarter. I don't have the breakout in front of me right now.

John McCaffery: Yeah. I think something else got cleared up during the quarter. I don't have the breakout in front of me right now.

James Donnelly: Yeah. It might be a little higher than that. Yeah. Loan quality, when you take that one out, is still pretty good.

Jim Donnelly: Yeah. It might be a little higher than that. Yeah. Loan quality, when you take that one out, is still pretty good.

Speaker #5: Yeah.

Speaker #4: It might be a little higher than that, but yeah. So, loan quality, when you take that one out, is still pretty good.

Speaker #5: Okay. Yeah, it's kind of one of our favorites. I just wanted to make sure. And then, kind of going back to the margins—so the 3.90% margin that you guys reported, there was roughly four basis points of non-recurring. What was your yield accretion this quarter?

Daniel Cardenas: That's kind of what I figured. Just wanted to make sure. Going back to the margins. The 390 margin that you guys reported, there was roughly 4 basis points of non-recurring. What was your yield accretion this quarter, and how should we be thinking about that on a go-forward basis?

Speaker #5: And how should we be thinking about that on a go-forward basis?

Speaker #2: Do you mean from the purchase accounting?

John McCaffery: You mean from the purchase accounting?

Speaker #5: Yes, sir.

Daniel Cardenas: Yes, sir.

Speaker #2: For the quarter, there was—so above the line in loans, there was, I would say, probably $700,000 in loan accretion, and then, yeah, and then below the line there's—what is it?

John McCaffery: Above the line in loans, there was, I would say, probably $700,000 in loan accretion. Below the line, there's mostly CDI, which I would put it about $300,000 in CDI.

Speaker #2: There's mostly CDI, which I would put at about $300,000 in CDI.

Daniel Cardenas: Okay. Is that kind of a good run rate then for both those numbers on a go-forward basis?

Speaker #5: Okay. Is that kind of a good run rate then for both those numbers on a go-forward basis? Let's see.

John McCaffery: CDI, yeah, because I think we're keeping that flat for the year. On loans, yeah, it's going to be about the same for the loans on the next six months, I'd say.

Speaker #2: So, CDI, yeah, because we're kind of—I think we're keeping that flat for the year. On loans, yeah, it's going to be about the same for the loans for the rest of the next six months, I'd say.

John McCaffery: CDI, yeah, because I think we're keeping that flat for the year. On loans, yeah, it's going to be about the same for the loans on the next six months, I'd say.

Speaker #5: Okay. Perfect. Perfect. And then, in the loan growth that we saw—

Daniel Cardenas: Okay. Perfect. The loan growth that we saw-

John McCaffery: Barring any other payoffs or whatever. Yeah, sorry. Go ahead, Dan.

Speaker #2: Barring any other payoffs or whatever, but yeah. Sorry. Go ahead, Dan.

Daniel Cardenas: Gotcha. No worries. The loan growth we saw this quarter, categorically, where was that coming from?

Speaker #5: Gotcha. No worries. And then the loan growth we saw this quarter categorically, where was that coming from?

John McCaffery: The loan growth was in commercial real estate, and it was in indirect. I mean, seasonally indirect is usually pretty busy this time of year. We had a slight pay-down in C&I. It was CRE and consumer.

Speaker #2: The loan growth was so it was in commercial real estate and it was in indirect. I mean, seasonally indirect is usually pretty busy this time of year.

Speaker #2: We had a little bit of we had a slight paydown in CNI. So it was, again, CRE and consumer.

Speaker #5: Okay. And what are competitive factors looking like on the lending side? I mean, it sounds like it's still kind of a bit of a fistfight on the deposit front, but what are competitive factors like on the lending front?

Daniel Cardenas: Okay. What are competitive factors looking like on the lending side? I mean, it sounds like it's still kind of a bit of a fistfight on the deposit front, but what are competitive factors like on the lending front?

Speaker #4: It's a competitive market. I mean, in each one of the markets we serve, we have good competitors. But we can compete with anybody that's rational.

James Donnelly: It's a competitive market. I mean, in each one of the markets we serve, we have good competitors. We can compete with anybody that's rational. I think it's competitive but rational.

Jim Donnelly: It's a competitive market. I mean, in each one of the markets we serve, we have good competitors. We can compete with anybody that's rational. I think it's competitive but rational.

Speaker #4: So, I think it's competitive but rational.

Speaker #5: Okay, great. I'll step back from that.

Daniel Cardenas: Okay, great. I'll step back then.

James Donnelly: Our pipe looks good still. We're probably losing the same % of loans that we normally would lose to rate or terms. There's nothing that's showing that it's overheated anywhere from a competitor standpoint. It's still looking pretty good.

Jim Donnelly: Our pipe looks good still. We're probably losing the same % of loans that we normally would lose to rate or terms. There's nothing that's showing that it's overheated anywhere from a competitor standpoint. It's still looking pretty good.

Speaker #4: Our pipe still looks good. We're probably losing the same percentage of loans that we normally would lose to rate or terms, so there's nothing that's showing that it's overheated anywhere from a competitor standpoint.

Speaker #4: So it's still looking pretty good.

Daniel Cardenas: Most of the competition, is that coming from similar-sized institutions or bigger guys?

Speaker #5: And most of the competition— is that coming from similar-size institutions or bigger guys?

Daniel Cardenas: Most of the competition, is that coming from similar-sized institutions or bigger guys?

James Donnelly: Both. We run mostly in that community bank space, but some of our larger competitors are active as well.

Jim Donnelly: Both. We run mostly in that community bank space, but some of our larger competitors are active as well.

Speaker #4: Both. Mostly, we run in that community bank space, but some of our larger competitors are active as well.

Daniel Cardenas: Okay. Great.

Speaker #5: Okay. Great.

Speaker #2: To get back to the non-accrual, the total amount, Dan, the total amount of accrual at the end of the quarter was $22.5 million. It was like $18 million was the...

John McCaffery: Just back to the non-accrual. Dan, total non-accrual at the end of the quarter was 22.5. Was it 18 was the-

James Donnelly: Yeah

Jim Donnelly: Yeah

John McCaffery: was the total. Really, it's about flat from Q1.

Speaker #2: That was the total, so really, it's about flat from Q1.

Speaker #5: Okay.

Daniel Cardenas: Okay.

Speaker #2: As far as dollars go.

John McCaffery: As far as dollars go.

Speaker #5: As far as dollars, okay. Perfect. Thank you.

Daniel Cardenas: As far as dollars. Okay, perfect. Thank you.

Daniel Cardenas: Okay, perfect. Thank you.

Speaker #1: Thank you. I'm showing no further questions at this time, so I would like to end the conference and turn it back over to Jim Donnelly for closing remarks.

Operator: Thank you. I'm showing no further questions at this time, and I would like to hand the conference back over to James Donnelly for closing remarks.

Speaker #4: Thank you once again for joining us this morning. We continue our strong performance in the second quarter, further building momentum with the strengthening of our financial position. Organic growth, plus the Presence Bank acquisition, contributed to our success.

James Donnelly: Thank you once again for joining us this morning. We continued our strong performance in Q2, further building momentum with strengthening our financial position. Organic growth plus the Presence Bank acquisition contributed to our success. We are a stronger organization and well-positioned to deliver a brighter future as we serve our communities, moving forward with disciplined execution to deliver improved financial results and lasting value for our shareholders. I look forward to updating you on our progress as we go. Have a great day. Thank you for joining us.

Jim Donnelly: Thank you once again for joining us this morning. We continued our strong performance in Q2, further building momentum with strengthening our financial position. Organic growth plus the Presence Bank acquisition contributed to our success. We are a stronger organization and well-positioned to deliver a brighter future as we serve our communities, moving forward with disciplined execution to deliver improved financial results and lasting value for our shareholders. I look forward to updating you on our progress as we go. Have a great day. Thank you for joining us.

Speaker #4: We are a stronger organization and well-positioned to deliver a brighter future as we serve our communities. Moving forward with discipline, execution, to deliver improved financial results and lasting value for our shareholders.

Speaker #4: I look forward to updating you on our progress as we go. Have a great day, and thank you for joining us.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Q2 2026 Norwood Financial Corp Earnings Call

Request DemoDemo

Norwood Financial

Earnings