NWFL 10-Q Quarter ended March 31, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-28364

Norwood Financial Corp.

(Exact name of registrant as specified in its charter)

Pennsylvania		23-2828306
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
717 Main Street, Honesdale, Pennsylvania		18431
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (570) 253-1455

N/A

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.10 per share		NWFL		The Nasdaq Stock Market LLC

Indicate by check (x) whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐		Accelerated filer		☒
Non-accelerated filer		☐		Smaller reporting company		☒
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    ☐  Yes    ☒  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of May 1, 2020
Common stock, par value $0.10 per share		6,328,790

NORWOOD FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2020

				Page Number
PART I -		CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP.
Item 1.		Financial Statements (unaudited)			3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			44
Item 4.		Controls and Procedures			45
PART II -		OTHER INFORMATION
Item 1.		Legal Proceedings			45
Item 1A.		Risk Factors			46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3.		Defaults Upon Senior Securities			47
Item 4.		Mine Safety Disclosures			47
Item 5.		Other Information			47
Item 6.		Exhibits			47
Signatures					49

2

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets ( unaudited)

(dollars in thousands, except share and per share data)

		March 31,				December 31,
		2020				2019
ASSETS
Cash and due from banks		$	14,712			$	15,038
Interest-bearing deposits with banks			23,706				377
Cash and cash equivalents			38,418				15,415
Securities available for sale, at fair value			196,998				210,205
Loans receivable			928,565				924,581
Less: Allowance for loan losses			9,088				8,509
Net loans receivable			919,477				916,072
Regulatory stock, at cost			3,770				4,844
Bank premises and equipment, net			14,071				14,228
Bank owned life insurance			38,971				38,763
Accrued interest receivable			3,669				3,719
Foreclosed real estate owned			1,077				1,556
Goodwill			11,331				11,331
Other intangibles			212				235
Other assets			14,297				14,242
TOTAL ASSETS		$	1,242,291			$	1,230,610
LIABILITIES
Deposits:
Non-interest bearing demand		$	213,359			$	207,299
Interest-bearing			776,801				750,230
Total deposits			990,160				957,529
Short-term borrowings			40,656				62,256
Other borrowings			51,350				56,438
Accrued interest payable			2,895				2,432
Other liabilities			15,043				14,527
TOTAL LIABILITIES			1,100,104				1,093,182
STOCKHOLDERS’ EQUITY
Preferred stock, no par value per share, authorized: 5,000,000 shares; issued: none			—				—
Common stock, $0.10 par value per share, authorized: 20,000,000 shares, issued: 2020: 6,342,568 shares, 2019: 6,340,563 shares			634				634
Surplus			49,644				49,471
Retained earnings			88,032				86,536
Treasury stock at cost: 2020 and 2019: 12,007 shares			(400	)			(400	)
Accumulated other comprehensive income			4,277				1,187
TOTAL STOCKHOLDERS’ EQUITY			142,187				137,428
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,242,291			$	1,230,610

See accompanying notes to the unaudited consolidated financial statements.

3

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income ( unaudited)

(dollars in thousands, except per share data)

		Three Months Ended
		March 31,
		2020				2019
INTEREST INCOME
Loans receivable, including fees		$	10,683			$	9,970
Securities			1,179				1,441
Other			6				15
Total interest income			11,868				11,426
INTEREST EXPENSE
Deposits			1,790				1,729
Short-term borrowings			111				123
Other borrowings			302				303
Total interest expense			2,203				2,155
NET INTEREST INCOME			9,665				9,271
PROVISION FOR LOAN LOSSES			700				450
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			8,965				8,821
OTHER INCOME
Service charges and fees			1,063				1,031
Income from fiduciary activities			153				142
Net realized gains on sales of securities			38				—
Gain on sale of loans, net			56				42
Earnings and proceeds on bank owned life insurance			208				202
Other			136				143
Total other income			1,654				1,560
OTHER EXPENSES
Salaries and employee benefits			3,777				3,649
Occupancy, furniture & equipment, net			968				924
Data processing and related operations			437				448
Taxes, other than income			214				161
Professional fees			218				250
Federal Deposit Insurance Corporation insurance			—				71
Foreclosed real estate			16				23
Amortization of intangibles			23				29
Other			1,406				1,093
Total other expenses			7,059				6,648
INCOME BEFORE INCOME TAXES			3,560				3,733
INCOME TAX EXPENSE			481				543
NET INCOME		$	3,079			$	3,190
BASIC EARNINGS PER SHARE		$	0.49			$	0.51
DILUTED EARNINGS PER SHARE		$	0.49			$	0.51

See accompanying notes to the unaudited consolidated financial statements.

4

NORWOOD FINANCIAL CORP.

Consolidated Statements of Comprehensive Income (unaudited)

(dollars in thousands)

		Three Months Ended
		March 31,
		2020				2019
Net income		$	3,079			$	3,190
Other comprehensive income:
Investment securities available for sale:
Unrealized holding gain			3,949				3,725
Tax effect			(829	)			(782	)
Reclassification of investment securities gains recognized in net income			(38	)			—
Tax effect			8				—
Other comprehensive income			3,090				2,943
Comprehensive Income		$	6,169			$	6,133

See accompanying notes to the unaudited consolidated financial statements.

5

NORWOOD FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2020 and 2019

(dollars in thousands, except share and per share data)

																										Accumulated
																										Other
		Common Stock												Retained				Treasury Stock								Comprehensive
		Shares				Amount				Surplus				Earnings				Shares				Amount				Income				Total
Balance, December 31, 2019			6,340,563			$	634			$	49,471			$	86,536				12,007			$	(400	)		$	1,187			$	137,428
Net Income			—				—				—				3,079				—				—				—				3,079
Other comprehensive income			—				—				—				—				—				—				3,090				3,090
Cash dividends declared ($0.25 per share)			—				—				—				(1,583	)			—				—				—				(1,583	)
Compensation expense related to restricted stock			—				—				84				—				—				—				—				84
Stock options exercised			2,005				—				38				—				—				—				—				38
Compensation expense related to stock options			—				—				51				—				—				—				—				51
Balance, March 31, 2020			6,342,568			$	634			$	49,644			$	88,032				12,007			$	(400	)		$	4,277			$	142,187

																										Accumulated
																										Other
		Common Stock												Retained				Treasury Stock								Comprehensive
		Shares				Amount				Surplus				Earnings				Shares				Amount				Loss				Total
Balance, December 31, 2018			6,295,113			$	630			$	48,322			$	78,434				2,470			$	(81	)		$	(5,020	)		$	122,285
Net Income			—				—				—				3,190				—				—				—				3,190
Other comprehensive loss			—				—				—				—				—				—				2,943				2,943
Cash dividends declared ($0.24 per share)			—				—				—				(1,509	)			—				—				—				(1,509	)
Compensation expense related to restricted stock			—				—				72				—				—				—				—				72
Acquisition of treasury stock			—				—				—				—				11,337				(374	)			—				(374	)
Stock options exercised			6,150				—				113				—				—				—				—				113
Compensation expense related to stock options			—				—				52				—				—				—				—				52
Balance, March 31, 2019			6,301,263			$	630			$	48,559			$	80,115				13,807			$	(455	)		$	(2,077	)		$	126,772

See accompanying notes to the unaudited consolidated financial statements.

6

NORWOOD FINANCIAL CORP.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

		Three Months Ended March 31,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income		$	3,079			$	3,190
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			700				450
Depreciation			281				241
Amortization of intangible assets			23				29
Deferred income taxes			(250	)			(40	)
Net amortization of securities premiums and discounts			320				371
Net realized gain on sales of securities			(38	)			—
Earnings and proceeds on life insurance policies			(208	)			(202	)
Gain on sales and write-downs of fixed assets and foreclosed real estate owned, net			(3	)			(8	)
Net gain on sale of loans			(56	)			(42	)
Loans originated for sale			(1,535	)			(732	)
Proceeds from sale of loans originated for sale			1,545				758
Compensation expense related to stock options			51				52
Compensation expense related to restricted stock			84				72
Decrease (increase) in accrued interest receivable			50				(313	)
Increase in accrued interest payable			463				651
Other, net			38				(201	)
Net cash provided by operating activities			4,544				4,276
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales			8,224				327
Proceeds from maturities and principal reductions on mortgage-backed securities			15,646				5,684
Purchases			(7,034	)			—
Purchase of regulatory stock			(1,305	)			(1,112	)
Redemption of regulatory stock			2,379				1,906
Net increase in loans			(4,208	)			(15,352	)
Purchase of premises and equipment			(124	)			(560	)
Proceeds from sales of foreclosed real estate owned			482				44
Net cash provided by (used in) investing activities			14,060				(9,063	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits			32,631				27,635
Net decrease in short-term borrowings			(21,600	)			(15,222	)
Repayments of other borrowings			(5,088	)			(4,329	)
Stock options exercised			38				113
Purchase of treasury stock			—				(374	)
Cash dividends paid			(1,582	)			(1,510	)
Net cash provided by financing activities			4,399				6,313
Increase in cash and cash equivalents			23,003				1,526
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			15,415				18,348
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	38,418			$	19,874

7

NORWOOD FINANCIAL CORP.

Consolidated Statements of Cash Flows (Unaudited) (continued)

(dollars in thousands)

		Three Months Ended March 31,
		2020				2019
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits and borrowings		$	1,740			$	1,504
Income taxes paid, net of refunds		$	53			$	46
Supplemental Schedule of Noncash Investing Activities:
Transfers of loans to foreclosed real estate and repossession of other assets		$	99			$	822
Dividends payable		$	1,583			$	1,509
Right of use for operating leases		$	—			$	5,335
Lease liability for operating leases		$	—			$	5,335

See accompanying notes to the unaudited consolidated financial statements.

8

Notes to the Unaudited Consolidated Financial Statements

1.	Basis of Presentation

The unaudited consolidated financial statements include the accounts of Norwood Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and the Bank’s wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp., and WTRO Properties, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the consolidated financial position and results of operations of the Company. The operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other future interim period.

2.	Revenue Recognition

Under ASC Topic 606, management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans sold and earnings on bank-owned life insurance are not within the scope of this Topic.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31:

		Three months ended
		March 31,
(dollars in thousands)		2020				2019
Noninterest Income
In-scope of Topic 606:
Service charges on deposit accounts		$	96			$	67
ATM fees			95				90
Overdraft fees			344				351
Safe deposit box rental			29				26
Loan related service fees			100				129
Debit card fees			344				326
Fiduciary activities			153				142
Commissions on mutual funds and annuities			38				55
Other income			132				115
Noninterest Income ( in-scope of Topic 606 )			1,331				1,301
Out-of-scope of Topic 606:
Net realized gains on sales of securities			38				—
Loan servicing fees			21				15
Gains on sales of loans			56				42
Earnings on and proceeds from bank-owned life insurance			208				202
Noninterest Income ( out-of-scope of Topic 606 )			323				259
Total Noninterest Income		$	1,654			$	1,560

9

3.	Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and restricted stock, and are determined using the treasury stock method.

The following table sets forth the weighted average shares outstanding used in the computations of basic and diluted earnings per share.

		Three Months Ended
		March 31,
(in thousands)		2020				2019
Weighted average shares outstanding			6,330				6,293
Less: Unvested restricted shares			(36	)			(34	)
Basic EPS weighted average shares outstanding			6,294				6,259
Basic EPS weighted average shares outstanding			6,294				6,259
Add: Dilutive effect of stock options and restricted shares			29				50
Diluted EPS weighted average shares outstanding			6,323				6,309

For the three month period ended March 31, 2020, there were 82,600 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of Norwood common stock of $26.70 per share as of March 31, 2020.

As of March 31, 2019, there were 60,650 stock options that would be anti-dilutive to the earnings per share calculations based upon the closing price of Norwood common stock of $30.84 per share on March 31, 2019.

4.	Stock-Based Compensation

No awards were granted during the three-month period ended March 31, 2020. As of March 31, 2020, there was $153,000 of total unrecognized compensation cost related to non-vested options granted in 2019 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2020. Compensation costs related to stock options amounted to $51,000 and $52,000 during the three-month periods ended March 31, 2020 and 2019, respectively.

A summary of the Company’s stock option activity for the three-month period ended March 31, 2020 is as follows:

						Weighted
						Average Exercise				Weighted Average				Aggregate
						Price				Remaining				Intrinsic Value
		Options				Per Share				Contractual Term				($000)
Outstanding at January 1, 2020			199,825			$	24.78				5.9 Yrs.			$	2,822
Granted			—				—				—				—
Exercised			(2,005	)			19.25				5.8 Yrs.				33
Forfeited			—				—								—
Outstanding at March 31, 2020			197,820			$	24.83				5.7 Yrs.			$	370
Exercisable at March 31, 2020			171,070			$	23.08				5.0 Yrs.			$	620

10

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option. The market price was $26.70 per share as of March 31, 2020 and $38.90 per share as of December 31, 2019.

A summary of the Company’s restricted stock activity for the three-month periods ended March 31, 2020 and 2019 is as follows:

		2020								2019
						Weighted-Average								Weighted-Average
		Number of				Grant Date				Number of				Grant Date
		Restricted Stock				Fair Value				Restricted Stock				Fair Value
Non-vested, January 1,			36,195			$	36.23				34,615			$	27.82
Granted			—				—				—				—
Vested			—				—				—				—
Forfeited			—				—				—				—
Non-vested, March 30,			36,195			$	36.23				34,615			$	27.82

The expected future compensation expense relating to the 36,195 shares of non-vested restricted stock outstanding as of March 31, 2020 is $1,062,000. This cost will be recognized over the remaining vesting period of 4.75 years. Compensation costs related to restricted stock amounted to $84,000 and $72,000 during the three-month periods ended March 31, 2020 and 2019, respectively.

5.	Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) (in thousands) by component net of tax for the three months ended March 31, 2020 and 2019:

		Unrealized gains (losses) on
		available for sale
		securities (a)
Balance as of December 31, 2019		$	1,187
Other comprehensive income before reclassification			3,120
Amount reclassified from accumulated other comprehensive income			(30	)
Total other comprehensive income			3,090
Balance as of March 31, 2020		$	4,277

		Unrealized gains (losses) on
		available for sale
		securities (a)
Balance as of December 31, 2018		$	(5,020	)
Other comprehensive loss before reclassification			2,943
Amount reclassified from accumulated other comprehensive loss			—
Total other comprehensive loss			2,943
Balance as of March 31, 2019		$	(2,077	)

(a)	All amounts are net of tax. Amounts in parentheses indicate debits.

11

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three months ended March 31, 2020 and 2019:

		Amount Reclassified
		From Accumulated								Affected Line Item in
		Other								Consolidated
		Comprehensive								Statements
Details about other comprehensive income		Income (Loss) (a)								of Income
		Three months ended
		March 31,
		2020				2019
Unrealized gains on available for sale securities		$	38			$	—			Net realized gains on sales of securities
			(8	)			—			Income tax expense
		$	30			$	—

(a)	Amounts in parentheses indicate debits to net income

6.	Off-Balance Sheet Financial Instruments and Guarantees

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the Bank’s financial instrument commitments is as follows:

		March 31,
(in thousands)		2020				2019
Commitments to grant loans		$	55,036			$	40,322
Unfunded commitments under lines of credit			68,530				77,573
Standby letters of credit			4,065				4,183
		$	127,631			$	122,078

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.

12

The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank, generally, holds collateral and/or personal guarantees supporting these commitments. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of March 31, 2020 for guarantees under standby letters of credit issued is not material.

7.	Securities

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale were as follows:

		March 31, 2020
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In Thousands)
Available for Sale:
States and political subdivisions		$	58,182			$	1,340			$	(1	)		$	59,521
Corporate obligations			3,076				—				(11	)			3,065
Mortgage-backed securities-government sponsored entities			131,382				3,030				—				134,412
Total debt securities		$	192,640			$	4,370			$	(12	)		$	196,998

		December 31, 2019
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In Thousands)
Available for Sale:
States and political subdivisions		$	70,015			$	1,293			$	(3	)		$	71,305
Corporate obligations			4,097				3				—				4,100
Mortgage-backed securities-government sponsored entities			135,646				238				(1,084	)			134,800
Total debt securities		$	209,758			$	1,534			$	(1,087	)		$	210,205

13

The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by length of time that individual securities have been in a continuous unrealized loss position (in thousands):

		March 31, 2019
		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
States and political subdivisions		$	1,195			$	(1	)		$	—			$	—			$	1,195			$	(1	)
Corporate obligations			3,065				(11	)			—				—				3,065				(11	)
		$	4,260			$	(12	)		$	—			$	—			$	4,260			$	(12	)

		December 31, 2019
		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
States and political subdivisions		$	1,296			$	(2	)		$	481			$	(1	)		$	1,777			$	(3	)
Mortgage-backed securities-government sponsored entities			32,415				(241	)			61,096				(843	)			93,511				(1,084	)
		$	33,711			$	(243	)		$	61,577			$	(844	)		$	95,288			$	(1,087	)

At March 31, 2020, the Company had five debt securities in an unrealized loss position in the less than twelve months category and no debt securities in the twelve months or more category. In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities. No other-than-temporary-impairment charges were recorded in 2020. Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

The amortized cost and fair value of debt securities as of March 31, 2020 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

		Available for Sale
		Amortized Cost				Fair Value
		(In Thousands)
Due in one year or less		$	2,742			$	2,747
Due after one year through five years			10,370				10,377
Due after five years through ten years			20,876				21,091
Due after ten years			27,270				28,371
			61,258				62,586
Mortgage-backed securities-government sponsored entities			131,382				134,412
		$	192,640			$	196,998

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Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):

		Three Months
		Ended March 31,
		2020				2019
Gross realized gains		$	38			$	—
Gross realized losses			—				—
Net realized gain		$	38			$	—
Proceeds from sales of securities		$	8,224			$	327

Securities with a carrying value of $177,342,000 and $196,137,000 at March 31, 2020 and 2019, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

8.	Loans Receivable and Allowance for Loan Losses

Set forth below is selected data relating to the composition of the loan portfolio at the dates indicated (dollars in thousands):

		March 31, 2020								December 31, 2019
Real Estate Loans:
Residential		$	227,373				24.5	%		$	229,781				24.9	%
Commercial			398,492				42.9				391,327				42.3
Construction			16,622				1.8				17,732				1.9
Commercial, financial and agricultural			132,716				14.3				134,150				14.5
Consumer loans to individuals			153,394				16.5				151,686				16.4
Total loans			928,597				100.0	%			924,676				100.0	%
Deferred fees, net			(32	)							(95	)
Total loans receivable			928,565								924,581
Allowance for loan losses			(9,088	)							(8,509	)
Net loans receivable		$	919,477							$	916,072

The following table presents information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

		March 31, 2020				December 31, 2019
Outstanding Balance		$	777			$	793
Carrying Amount		$	680			$	696

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As a result of the acquisition of Delaware Bancshares, Inc. (“Delaware”), the Company added $1,397,000 of loans that were accounted for in accordance with ASC 310-30. Based on a review of the loans acquired by senior lending management, which included an analysis of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $499,000. For loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction of the specific reserve and will not impact the allowance for loan losses until actual losses exceed the allotted reserves. For loans acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the allowance for loan loss adequacy calculation.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. We do not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, foreclosed real estate owned totaled $1,077,000 and $1,556,000, respectively. During the three months ended March 31, 2020, there were no additions to the foreclosed real estate category. The Company partially disposed of one property that was previously transferred to foreclosed real estate owned with a carrying value of $479,000 through the sale of the property. The remaining proceeds from the sale of this property are being held in escrow pending final disposition. As of March 31, 2020, the Company has initiated formal foreclosure proceedings on three properties classified as consumer residential mortgages with an aggregate carrying value of $296,000.

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

		Real Estate Loans
														Commercial				Consumer
		Residential				Commercial				Construction				Loans				Loans				Total
		(In thousands)
March 31, 2020
Individually evaluated for impairment		$	—			$	2,096			$	—			$	—			$	—			$	2,096
Loans acquired with deteriorated credit quality			467				213				—				—				—				680
Collectively evaluated for impairment			226,906				396,183				16,622				132,716				153,394				925,821
Total Loans		$	227,373			$	398,492			$	16,622			$	132,716			$	153,394			$	928,597

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		Real Estate Loans
														Commercial				Consumer
		Residential				Commercial				Construction				Loans				Loans				Total
		(In thousands)
December 31, 2019
Individually evaluated for impairment		$	—			$	2,144			$	—			$	—			$	—			$	2,144
Loans acquired with deteriorated credit quality			476				220				—				—				—				696
Collectively evaluated for impairment			229,305				388,963				17,732				134,150				151,686				921,836
Total Loans		$	229,781			$	391,327			$	17,732			$	134,150			$	151,686			$	924,676

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.

						Unpaid
		Recorded				Principal				Associated
		Investment				Balance				Allowance
		(in thousands)
March 31, 2020
With no related allowance recorded:
Real Estate Loans:
Commercial		$	173			$	173			$	—
Subtotal			173				173				—
With an allowance recorded:
Real Estate Loans
Commercial			1,923				1,923				392
Subtotal			1,923				1,923				392
Total:
Real Estate Loans:
Commercial			2,096				2,096				392
Total Impaired Loans		$	2,096			$	2,096			$	392

						Unpaid
		Recorded				Principal				Associated
		Investment				Balance				Allowance
		(in thousands)
December 31, 2019
With no related allowance recorded:
Real Estate Loans:
Commercial		$	143			$	394			$	—
Subtotal			143				394				—
With an allowance recorded:
Real Estate Loans
Commercial			2,001				2,001				417
Subtotal			2,001				2,001				417
Total:
Real Estate Loans:
Commercial			2,144				2,395				417
Total Impaired Loans		$	2,144			$	2,395			$	417

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