Norwood Financial NASDAQ: NWFL executives told investors the company opened 2026 with record net interest income and continued momentum from last year, while progressing through the integration of its recently acquired Presence Bank franchise.
Record net interest income and margin expansion
President and CEO Jim Donnelly said first-quarter net interest income reached a record $24.6 million, up 38% from the first quarter of 2025. Donnelly added that net interest margin expanded 38 basis points to 3.68%, calling it “a great quarter for the bank” as the company benefited from its repositioned bond portfolio and favorable interest-rate movements.
Chief Financial Officer John McCaffery said net interest income increased $3.6 million on a linked-quarter basis, driven by higher interest-earning assets. He attributed margin improvement during the quarter to “a slight decline in deposit costs” and a 7 basis point increase in interest-earning asset yields.
During Q&A, McCaffery said purchase accounting also contributed to results, noting the “total pre-tax impact of purchase accounting was 435,” which he said was “substantially margin related.” Looking ahead, he said total margin accretion from yield accretion is expected to be about $2.2 million for 2026, falling to roughly $2.0 million in 2027.
Presence Bank integration update and strategic priorities
Donnelly said the first quarter was the first to include results from the Presence Bank acquisition, which he said increased the company’s assets, loan portfolio, geographic presence, and “earnings power.” He also said the company is ahead of its original expectations on certain acquisition benefits. “We are also realizing the strategic and financial benefits of our acquisition more quickly than planned,” Donnelly said, adding that the company now expects accretion to shareholder value ahead of initial projections and anticipates tangible book value payback will occur sooner than planned.
As part of an update to the company’s 2026 strategic priorities, Donnelly highlighted progress on integration efforts and operational initiatives, including:
- Integration progress: Donnelly said the company has completed its “core integration,” unifying IT and HR systems, and has begun rebranding acquired locations with new signage and logos.
- Efficiency and customer experience initiatives: Donnelly said Norwood is deploying Presence Bank systems and processes across the combined organization, including a commercial credit system using “embedded AI and machine learning,” which he said is scheduled to be integrated in July.
- Talent and leadership: Donnelly said the organization “became bigger and stronger” with the addition of former Presence Bank employees, including new executives joining the Wayne Bank team.
- Shareholder value: Donnelly pointed to the company’s quarter-one performance and prior balance sheet actions, including portfolio rebalancing completed in 2024, as contributors to improved results.
Expenses, merger charges, and investment in technology
McCaffery noted the quarter continued to include merger-related costs. “We had about $5 million in merger charges in the quarter,” he said, adding that the company provided adjusted returns to help investors evaluate performance excluding those expenses. He also said adjusted pre-provision net revenue increased about 11% on a linked-quarter basis, helped by improved margin on a larger balance sheet but “offset by higher expenses.”
McCaffery said quarterly expenses rose as a percentage of average assets compared with the fourth quarter of 2025, with much of the increase tied to technology. He described the higher costs as investments in “new systems that will ultimately drive efficiency in the future,” specifically mentioning “the Abrigo system and our new accounting system.”
In response to a question about the operating expense run rate, McCaffery said the company attempted to exclude “conversion and other charges” that were one-time in nature and indicated that the current level is “probably a pretty good run rate,” while also expressing a desire for expenses to come down modestly. He said he would not expect quarterly operating expenses to drop “more than … below 15.8” for the quarter.
Loan and deposit trends and credit commentary
McCaffery said loan and deposit growth has been strong since the acquisition closed. He reported that since January 5, loans grew by approximately $46 million, or 8.4% annualized, while deposits grew about $70 million, or 11.6% annualized.
On credit, McCaffery said the provision for credit losses increased versus the fourth quarter of 2025, in part due to annual updates of historical factors in the model and integration of the Presence Bank portfolio. He said the allowance coverage ratio stood at 1.09%, up from 1.07% at year-end. McCaffery also noted the company elected early adoption of ASU 2025-08 and therefore “did not experience a CECL double count” on acquired non-PCD loans.
Asked about non-performing assets, McCaffery said he did not believe Presence contributed non-performing loans and that non-performance was “mostly us,” adding he was not aware of any large new issue. Donnelly said the increase was “largely on [the] commercial side,” while indirect and consumer portfolios were “about the same” as the prior quarter.
Deposit competition, margin outlook, and fee income drivers
On deposit competition, McCaffery said the company continued lowering deposit costs based on the December rate cut and was “not talking about raising any of our specials on CDs at all.” Donnelly characterized competitive promotional rates as “spotty” and tied to institutions with high loan-to-deposit ratios or unique strategies, adding Norwood has not seen significant upward pressure in its markets and has observed some competitors lowering rates.
McCaffery said the company is working to bring CDs below 40% of deposits and expects better visibility into the full deposit portfolio following the April 5 completion of the core conversion. Donnelly added that further benefit from deposit repricing may be “smaller than it had been,” though still present.
On loan pricing and the pipeline, Donnelly said the pipeline is “very healthy,” with 30-, 60-, and 90-day views “ahead of our general pipeline.” He said recent closings averaged 7.05% on “the last 18.5 million we booked,” while McCaffery added that most new rates remain higher than the current portfolio yield.
Regarding margin expectations, McCaffery said the margin could continue to improve but not at the same pace as in the first quarter. He suggested potential for “maybe three to four, five basis points” of improvement, and Donnelly later clarified that comment referred to the “next couple quarters.”
Non-interest income increased year-over-year, which McCaffery attributed to higher service charges and debit card income. Donnelly said debit revenue improvement reflects changes made in strategy, including getting “more debit cards in more people's hands” and increasing usage. He also said the company sees room to expand fee businesses—such as brokerage, trust, and mortgage—though growth depends on staffing, and added that treasury management is “geared up for the second half of the year.”
In closing remarks, Donnelly said the company’s “disciplined approach, high quality credit metrics, and careful execution” are enabling improved financial results and “lasting value” for shareholders as integration continues.
About Norwood Financial NASDAQ: NWFL
Norwood Financial Corp. operates as the bank holding company for Wayne Bank that provides various banking products and services. The company accepts a range of deposit products, including interest-bearing and non-interest-bearing transaction accounts, and statement savings and money market accounts, as well as certificate of deposits. It also provides commercial loans comprising lines of credit, revolving credit, term loans, mortgages, secured lending products, and letter of credit facilities; municipal finance lending; construction loans for commercial construction projects and single-family residences; land loans; construction financing; consumer loans; mortgage lending to finance principal residences and second home dwellings; and indirect dealer financing of new and used automobiles, boats, and recreational vehicles.
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