At the Annual Meeting held on April 23, 2024, the Company’s stockholders approved the Norwood Financial Corp 2024 Equity Incentive Plan (the “Plan”). The maximum number of shares of common stock to be issued under the Plan is 500,000; provided that the maximum number of shares that may be delivered pursuant to the exercise of stock options (all of which may be granted in the form of incentive stock options) is 500,000 reduced by the number of shares issued as restricted stock and director retainer shares. The maximum number of shares of restricted stock that may be issued under the Plan is 125,000 shares and the maximum number of shares which may be issued as Director Retainer Shares is 50,000 shares. Any shares reserved under the 2014 Equity Incentive Plan which are not subject to an outstanding award as of the effective date of the Plan will no longer be eligible for award. As of the effective date of the Plan, 56,569 shares were authorized under the 2014 Equity Incentive Plan which were not subject to an outstanding award. The types of awards permitted by the Plan include stock options (both incentive stock options and non-statutory stock options), restricted stock, and director retainer shares.

Awards of restricted stock to Employees will generally be subject to a multi-year graded vesting period (such as one-fifth on each of the first five anniversaries of the date of grant). The vesting schedule for stock options and restricted stock awards for Employees will not be more quickly than at the rate of 100% of such Award on the one-year anniversary of the grant date of such Award, except in the event of the death or disability of the recipient or a change in control transaction occurring after the grant date. The maximum number of shares that may be awarded under the Plan in the aggregate as restricted stock to Employees as a group is 125,000 shares reduced by the number of shares of restricted stock awarded to all Outside Directors. The annual individual limit of restricted stock awards for an Employee is 11,200 shares, and the Plan limit for an individual Employee is 35,000 shares of restricted stock. The maximum number of shares that may be awarded upon the exercise of options to all Employees as a group is 325,000 shares reduced by the number of shares issued to Outside Directors upon the exercise of options. The annual individual limit of options that may be granted to an Employee is 15,000 options, and the Plan limit for the number of shares that may be awarded upon the exercise of options to an individual Employee is 50,000 options. Awards of restricted stock to non-employee directors will generally be subject to a 3-year graded vesting period (one-third on each of the first three anniversaries of the date of grant), subject to limited exceptions for death, disability, and change of control. The vesting schedule for stock options and restricted stock awards to Outside Directors will not be more quickly than at the rate of 100% of such Award on the one-year anniversary of the date of grant, subject to limited exceptions for death, disability, and change of control. Directors retainer shares which will be 100% earned and non-forfeitable upon the date of award. The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the company’s restricted stock plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award.

The maximum number of shares that may be awarded under the Plan in the aggregate as restricted stock to Outside Directors as a group is 50,000 shares. The annual individual limit of restricted stock awards for an Outside Director is 1,200 shares and the Plan limit for an individual Outside Director is 12,000 shares of restricted stock. The maximum number of shares that may be awarded upon the exercise of options to Outside Directors as a group is 52,000 shares. The annual individual limit of options that may be granted to an Outside Directors is 2,000 options, and the Plan limit for the number of shares that may be awarded upon the exercise of options to an individual Outside Director is 10,000 options.

As of December 31, 2024, there were 443,648 shares available for future awards under the Plan, which includes 292,000 shares available for officer awards and 0 shares available for awards to outside directors. Included in these totals are 102,652 shares available for restricted stock awards to officers and outside directors and 48,996 shares available for director retainer shares.

Total unrecognized compensation cost related to stock options was $249,000 as of December 31, 2024 and $346,000 as of December 31, 2023. Salaries and employee benefits expense includes $346,000 and $401,000 of compensation costs related to options for the years ended December 31, 2024 and 2023, respectively. Compensation costs related to restricted stock amounted to $375,000 and $429,000 for the years ended December 31, 2024 and 2023, respectively. The expected future compensation expense relating to non-vested restricted stock outstanding as of December 31, 2024 and 2023 was $1,534,000 and $1,356,000, respectively.

A summary of the Company’s stock option activity and related information for the years ended December 31 follows:



	2024					2023
		Weighted					Weighted
		Average					Average
		Exercise		Intrinsic			Exercise		Intrinsic
	Options	Price		Value		Options	Price		Value
Outstanding, beginning of year	215,725	$	29.81			218,975	$	26.70
Granted	33,000		27.25			41,000		29.66
Exercised	(12,375)		21.72			(38,000)		23.30
Forfeited	(15,750)		31.98			(6,250)		29.16

Outstanding, end of year	220,600	$	29.78	$	112	215,725	$	29.81	$	759

Exercisable, end of year	187,600	$	30.22	$	112	174,725	$	29.85	$	626

Exercise prices for options outstanding as of December 31, 2024 ranged from $19.03 to $36.02 per share. The weighted average remaining contractual life is 6.6 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	Years Ended December 31,
	2024		2023
Dividend yield		4.55%		3.59%
Expected life		10 years		10 years
Expected volatility		36.90%		35.09%
Risk-free interest rate		4.40%		3.88%
Weighted average fair value of options granted	$	7.54	$	8.90

The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Proceeds from stock option exercises totaled $269,000 in 2024, compared to $886,000 in 2023. Shares issued in connection with stock option exercises are issued from available treasury shares or from available authorized shares. During 2024 and 2023, for the shares issued in connection with stock option exercises, 12,000 shares in total for 2024 and 38,000 shares in total for 2023, all shares were issued from treasury shares.

A summary of the Company’s restricted stock activity and related information for the years ended December 31 is as follows:


	2024		2023
		Weighted-Average		Weighted-Average
	Number of	Grant Date	Number of	Grant Date
	Shares	Fair Value	Shares	Fair Value
Non-vested, beginning of year	45,966	$29.90	44,460	$30.12
Granted	25,177	27.25	19,446	29.66
Vested	(12,309)	30.24	(15,090)	30.20
Forfeited	(4,350)	29.98	(2,850)	30.15
Non-vested at December 31	54,484	$23.07	45,966	$29.90