Company: NWFL
Filing Date: 2025-11-07
Form Type: 10-Q
Source: 0001013272-25-000004
Chunk: 7

Company: NORWOOD FINANCIAL CORP
Filing Date: 2025-11-07
Form: 10-Q
Item: Item 3
Chunk 7
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 loans (and therefore an increase in the average life of such loans), may result in a decrease in loan demand, and may make it more difficult for borrowers to repay adjustable rate loans.

We utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. Management routinely monitors simulated net interest income sensitivity over a rolling two-year horizon. The simulation model captures the impact of changing interest rates on the interest income received and the interest expense paid on all assets and liabilities reflected on our consolidated balance sheet. This sensitivity analysis is compared to the asset and liability policy limits that specify a maximum tolerance level for net interest income exposure over a one-year horizon given 100 through 300-basis point upward and 100 through 200 downward shifts in interest rates. A parallel and pro-rata shift in rates over a twelve-month period is assumed.

In addition to the above scenarios, we consider other non-parallel rate shifts that would also exert pressure on earnings.  During the three months ended September 30, 2025, the U.S. Treasury yield curve has flattened slightly.  During the nine months ended September 30, 2025, the yield on U.S. Treasury 5-year notes decreased 64 basis points from 4.38% to 3.74%, while the yield on 3-month Treasury bills decreased 51 basis points from 4.37% to 3.86%. The 3-month/5-year Treasury spread increased from a positive 1 basis point at December 31, 2024 to a negative 18 basis points at September 30, 2025. A continued flattening or inversion in the yield curve may adversely affect net interest income as reinvestment of cash flows may be at lower rates. However, there is no certainty on the direction of interest rates.  The Federal Reserve Open Market Committee has indicated that it will take a measured stance toward further lowering short-term rates.