Company: NWFL
Filing Date: 2025-10-08
Form Type: S-4/A
Source: 0001193125-25-234244
Chunk: 92

Company: NORWOOD FINANCIAL CORP
Filing Date: 2025-10-08
Form: S-4/A
Chunk 92
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. The level of the allowance is particularly sensitive to changes in the
actual and forecasted probability of default of benchmarked banks and changes in current conditions or reasonably expected future conditions affecting the collectability of loans.

Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate
given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolios. Determining the appropriateness of the allowance is
complex and requires judgment by management about the

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effect of matters that are inherently uncertain, including making significant estimates of current credit risks and trends using existing quantitative and qualitative information, and reasonable
and supportable forecasts of future economic conditions, which may undergo frequent and material changes. Subsequent evaluations of the then-existing loan portfolios, in light of changes in economic conditions, new information regarding existing
loans and other factors, may result in significant changes in the allowance for credit losses in those future periods. For example, changes to the Federal Open Market Committee’s (FOMC) forecasted civilian unemployment rate and year-over-year
U.S. GDP growth could have a material impact on the model’s estimation of the allowance for credit losses on loans. An immediate increase of 150 basis points in the FOMC’s projected rate of civilian unemployment and a decrease of 100
basis points in the FOMC’s projected rate of U.S. GDP growth would increase the model’s total calculated allowance for credit losses on loans by $43,000, or 1.0% as of June 30, 2025, assuming all other qualitative adjustments are
kept at current levels. While management’s current evaluation of the allowance for credit losses indicates the allowance is appropriate, the allowance may need to be increased under different conditions or assumptions. Additionally, changes in
those factors and inputs may not occur at the same rate and inputs may be directionally inconsistent, such that improvements in one factor may offset deterioration in others. The impact of utilizing an expected credit losses approach to estimate the
allowance for credit losses can and will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other
relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to our reported earnings.

Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the