Norwood Financial (NWFL) 8-K Announces Earnings Increase for the Second Quarter

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES EARNINGS INCREASE FOR THE SECOND QUARTER

July 18, 2007-Honesdale, PA

William W. Davis, Jr. President and Chief Executive Officer of Norwood Financial Corp (Nasdaq-NWFL) and its subsidiary, Wayne Bank announced earnings for the three months ended June 30, 2007 of $1,570,000. This represents an increase of $94,000, or 6.4%, over the $1,476,000 earned in the similar period of 2006. Earnings per share (fully diluted) were $.55 in the 2007 period, a 5.8% increase over the $.52 earned in the similar period in 2006. Annualized return on average assets for the three months ended June 30, 2007 was 1.35% with an annualized return on average equity of 11.77%. Net income for the six months ended June 30, 2007 totaled $3,033,000, which represents an 8.0% increase over the $2,809,000 earned in the similar period of 2006. Earnings per share (fully diluted) reflected a 9.2% increase at $1.07 per share in the 2007 period compared to $.98 in the 2006 period.

Total assets as of June 30, 2007 were $474.0 million with loans receivable of $321.7 million, deposits of $373.7 million and stockholders’ equity of $53.1 million. Total assets have increased $18.9 million, compared to June 30, 2006.

Loans receivable have increased $22.3 million, or 7.5%, from the prior year. The increase in loans was centered in residential mortgage activity, including home equity lending and in the commercial real estate loan portfolio. The loan growth was funded principally by a $20.3 million increase in deposits. Non-performing loans totaled $477,000, or .15% of total loans, as of June 30, 2007 compared to $314,000, or .10% as of June 30, 2006. The increase is principally due to one loan relationship secured by real estate for which the Company is actively pursuing a resolution. The Company had net charge-offs of $33,000 for the six months ended June 30, 2007 representing only .02% of average loans, on an annualized basis. As a result of the strong loan

quality indicators the Company was able to reduce its provision for loan losses to $105,000 for the six months ended June 30, 2007 compared to $125,000 for the similar period in 2006. Notwithstanding the lower loan loss provision, the allowance for loan losses increased $106,000 from June 30, 2006 to $3,900,000 and represented 1.21% of total loans as of June 30, 2007.

For the three months ended June 30, 2007, net interest income, on a fully taxable equivalent basis (fte), totaled $4,450,000, an increase of $307,000 or 7.4% over the similar period in 2006. Net interest margin (fte) for the 2007 period was 4.00% increasing from 3.95% for the similar period in 2006. The increase in net interest margin was principally due to an increase in the yield on the investment securities portfolio and an increased amount of loans on the balance sheet. This was partially offset by the continued increase in the cost of deposits. Net interest income (fte) for the six months ended June 30, 2007 totaled $8,670,000, an increase of $451,000, or 5.5%, over the similar period in 2006. Net interest margin (fte) for the 2007 period was 3.93% compared to 3.96% in 2006.

Other income for the three months ended June 30, 2007 totaled $857,000 compared to $1,003,000 for the similar period in 2006. The decrease was principally due to a $107,000 gain on sales of mortgage loans and servicing rights in the 2006 period compared to only $1,000 in such gains in the similar period in 2007. For the six months ended June 30, 2007, other income totaled $1,751,000 compared to $1,827,000 for the similar period in 2006. The decrease was also primarily due to the $107,000 gain on sales of mortgage loans and servicing rights in the 2006 period compared to $8,000 in such gains in the similar period of 2007. This was somewhat offset by a $46,000 increase in Wealth Management/Trust fees. Net realized gains on sales of securities totaled $15,000 for the 2007 period, compared to $21,000 for the similar period in 2006.

Other expenses totaled $2,847,000 for the three months ended June 30, 2007, compared to $2,841,000 for the similar period in 2006. An increase in occupancy costs related to the Company’s new branch in Tannersville was substantially offset by lower employee benefit costs.

For the six months ended June 30, 2007, other expenses totaled $5,708,000, an increase of $101,000, or 1.8% over $5,607,000 for the similar period in 2006.

Mr. Davis remarked, “We are pleased with our solid financial results through six months of 2007. Our loan pipeline is a little softer than last year at this time but loan quality remains excellent. We are continuing our Stock Repurchase Program and the Company bought back 22.300 shares during the second quarter.”

Norwood Financial Corp, through its subsidiary Wayne Bank, operates twelve offices in Wayne, Pike and Monroe Counties. The Company’s stock is traded on the Nasdaq Global Market, under the symbol, “NWFL”.

The foregoing material may contain forward-looking statements. We caution that such statements may be subject to a number of uncertainties and actual results could differ materially and therefore readers should not place undue reliance on any forward looking statements. Those risks and uncertainties include changes in the absolute and relative levels of interest rates, risks associated with the effect of opening a new branch, the ability to control costs and expenses, demand for real estate and general economic conditions. Norwood Financial Corp. does not undertake and specifically disclaims any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Contact: Lewis J. Critelli

Executive Vice President &

Chief Financial Officer

NORWOOD FINANCIAL CORP.

570-253-8512

www.waynebank.com

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
		June 30
		2007			2006
ASSETS
Cash and due from banks	$	9,321		$	10,509
Interest bearing deposits with banks		3,641			179
Federal funds sold		5,940			13,615
Cash and cash equivalents		18,902			24,303
Securities available for sale		116,299			114,441
Securities held to maturity, fair value 2007: $970 2006: $971		955			954
Loans receivable (net of unearned Income)		321,654			299,366
Less: Allowance for loan losses		3,900			3,794
Net loans receivable		317,754			295,572
Investment in FHLB Stock		1,933			2,294
Bank premises and equipment, net		5,853			5,457
Accrued interest receivable		2,298			1,965
Other assets		10,024			10,173
TOTAL ASSETS	$	474,018		$	455,159
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,440		$	59,538
Interest-bearing		313,304			293,929
Total deposits		373,744			353,467
Short-term borrowings		19,147			13,687
Other borrowings		23,000			35,000
Accrued interest payable		2,802			1,760
Other liabilities		2,191			2,053
TOTAL LIABILITIES		420,884			405,967
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		10,155			9,997
Retained earnings		44,877			41,249
Treasury stock, at cost: 2007: 60.914 shares, 2006: 40,975 shares		(1,863	)		(1,205	)
Unearned ESOP Shares		0			(27	)
Accumulated other comprehensive loss		(319	)		(1,106	)
TOTAL STOCKHOLDERS’ EQUITY		53,134			49,192
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	474,018		$	455,159

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended June 30				Six Months Ended June 30
	2007		2006		2007		2006
INTEREST INCOME
Loans receivable, including fees	$	5,878	$	5,201	$	11,718	$	10,145
Securities		1,278		1,066		2,496		2,116
Other		90		83		111		85
Total Interest income		7,246		6,350		14,325		12,346
INTEREST EXPENSE
Deposits		2,474		1,738		4,960		3,328
Short-term borrowings		205		163		461		350
Other borrowings		281		420		527		713
Total Interest expense		2,960		2,321		5,948		4,391
NET INTEREST INCOME		4,286		4,029		8,377		7,955
PROVISION FOR LOAN LOSSES		55		55		105		125
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,231		3,974		8,272		7,830
OTHER INCOME
Service charges and fees		635		644		1,241		1,234
Income from fiduciary activities		93		95		218		172
Net realized gains on sales of securities		15		14		15		21
Gains on sale of loans		1		107		8		107
Other		113		143		269		293
Total other income		857		1,003		1,751		1,827
OTHER EXPENSES
Salaries and employee benefits		1,438		1,456		2,935		2,862
Occupancy, furniture and equipment		416		369		831		749
Data processing related		168		170		342		326
Taxes, other than income		121		111		239		224
Professional Fees		94		104		183		217
Other		610		631		1,178		1,229
Total other expenses		2,847		2,841		5,708		5,607
INCOME BEFORE TAX		2,241		2,136		4,315		4,050
INCOME TAX EXPENSE		671		660		1,282		1,241
NET INCOME	$	1,570	$	1,476	$	3,033	$	2,809
Basic earnings per share	$	0.56	$	0.53	$	1.09	$	1.00
Diluted earnings per share	$	0.55	$	0.52	$	1.07	$	0.98

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
	2007			2006
Three Months Ended June 30
Net interest income	$	4,286		$	4,029
Net income		1,570			1,476
Net interest spread (fully taxable equivalent)		3.31	%		3.39	%
Net interest margin (fully taxable equivalent)		4.00	%		3.95	%
Return on average assets		1.35	%		1.34	%
Return on average equity		11.77	%		12.06	%
Basic earnings per share	$	0.56		$	0.53
Diluted earnings per share		0.55			0.52
Six Months Ended June 30
Net interest income	$	8,377		$	7,955
Net income		3,033			2,809
Net interest spread (fully taxable equivalent)		3.23	%		3.44	%
Net interest margin (fully taxable equivalent)		3.93	%		3.96	%
Return on average assets		1.32	%		1.30	%
Return on average equity		11.52	%		11.60	%
Basic earnings per share	$	1.09		$	1.00
Diluted earnings per share		1.07			0.98
As of June 30
Total Assets	$	474,018		$	455,159
Total Loans receivable		321,654			299,366
Allowance for loan losses		3,900			3,794
Total deposits		373,744			353,467
Stockholders’ equity		53,134			49,192
Trust Assets under management		103,847			89,075
Book value per share	$	19.11		$	17.57
Equity to total assets		11.21	%		10.81	%
Allowance to total loans receivable		1.21	%		1.27	%
Nonperforming loans to total loans		0.15	%		0.10	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	30-Jun		31-Mar		31-Dec		30-Sep		30-Jun
	2007		2007		2006		2006		2006
ASSETS
Cash and due from banks	$	9,321	$	8,604	$	9,450	$	9,448	$	10,509
Interest bearing deposits with banks		3,641		141		67		141		179
Federal funds sold		5,940		3,130		-		1,525		13,615
Cash and cash equivalents		18,902		11,875		9,517		11,114		24,303
Securities available for sale		116,299		112,597		112,912		112,402		114,441
Securities held to maturity		955		955		954		954		954
Loans receivable (net of unearned Income)		321,654		320,744		315,567		313,678		299,366
Less: Allowance for loan losses		3,900		3,871		3,828		3,828		3,794
Net loans receivable		317,754		316,873		311,739		309,850		295,572
Investment in FHLB stock		1,933		1,923		1,687		1,634		2,294
Bank premises and equipment, net		5,853		5,935		6,020		5,489		5,457
Other assets		12,322		11,225		11,527		11,727		12,138
TOTAL ASSETS	$	474,018	$	461,383	$	454,356	$	453,170	$	455,159
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,440	$	54,046	$	53,856	$	63,331	$	59,538
Interest- bearing deposits		313,304		305,988		304,247		301,275		293,929
Total deposits		373,744		360,034		358,103		364,606		353,467
Other borrowings		42,147		42,986		35,736		33,086		48,687
Other liabilities		4,993		5,304		8,286		4,419		3,813
TOTAL LIABILITIES		420,884		408,324		402,125		402,111		405,967
STOCKHOLDERS’ EQUITY		53,134		53,059		52,231		51,059		49,192
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	474,018	$	461,383	$	454,356	$	453,170	$	455,159

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	30-Jun			31-Mar			31-Dec			30-Sep			30-Jun
Three months ended	2007			2007			2006			2006			2006
INTEREST INCOME
Loans receivable, including fees	$	5,878		$	5,840		$	5,771		$	5,506		$	5,201
Securities		1,278			1,218			1,159			1,105			1,066
Other		90			21			26			36			83
Total Interest income		7,246			7,079			6,956			6,647			6,350
INTEREST EXPENSE
Deposits		2,474			2,486			2,358			2,032			1,738
Borrowings		486			502			472			513			583
Total Interest expense		2,960			2,988			2,830			2,545			2,321
NET INTEREST INCOME		4,286			4,091			4,126			4,102			4,029
PROVISION FOR LOAN LOSSES		55			50			50			45			55
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,231			4,041			4,076			4,057			3,974
OTHER INCOME
Service charges and fees		635			606			605			616			644
Income from fiduciary activities		93			125			94			89			95
Net realized gains on sales of securities		15			-			-			45			14
Gains on sale of loans		1			7			37			3			107
Other		113			156			126			141			143
Total other income		857			894			862			894			1,003
OTHER EXPENSES
Salaries and employee benefits		1,438			1,497			1,311			1,482			1,456
Occupancy, furniture and equipment , net		416			415			368			329			369
Other		993			949			941			919			1,016
Total other expenses		2,847			2,861			2,620			2,730			2,841
INCOME BEFORE TAX		2,241			2,074			2,318			2,221			2,136
INCOME TAX EXPENSE		671			611			739			699			660
NET INCOME	$	1,570		$	1,463		$	1,579		$	1,522		$	1,476
Basic earnings per share	$	0.56		$	0.52		$	0.56		$	0.54		$	0.53
Diluted earnings per share	$	0.55		$	0.51		$	0.55		$	0.53		$	0.52
Book Value per share	$	19.11			18.96		$	18.67		$	18.25		$	17.57
Return on average equity		11.77	%		11.26	%		12.09	%		12.06	%		12.06	%
Return on average assets		1.35	%		1.29	%		1.38	%		1.35	%		1.34	%
Net interest spread		3.31	%		3.16	%		3.25	%		3.34	%		3.39	%
Net interest margin		4.00	%		3.85	%		3.94	%		3.98	%		3.95	%
Allowance for loan losses to total loans		1.21	%		1.21	%		1.21	%		1.22	%		1.27	%
Net charge-offs/(recoveries) to average loans (annualized)		0.03	%		0.01	%		0.06	%		0.01	%		0.01	%
Nonperforming loans to total loans		0.15	%		0.13	%		0.13	%		0.13	%		0.10	%
Nonperforming assets to total assets		0.10	%		0.09	%		0.09	%		0.09	%		0.07	%