Norwood Financial (NWFL) 8-K Announces 18.7% Earnings Increase for the Third Quarter

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES 18.7% EARNINGS INCREASE FOR THE THIRD QUARTER

October 17, 2007-Honesdale, PA

William W. Davis, Jr. President and Chief Executive Officer of Norwood Financial Corp (Nasdaq-NWFL) and its subsidiary, Wayne Bank announced record earnings for the three months ended September 30, 2007 of $1,806,000. This represents an increase of $284,000, or 18.7%, over the $1,522,000 earned in the similar period of 2006. Earnings per share (fully diluted) were $.64 in the 2007 period, a 20.8% increase over the $.53 earned in the similar period in 2006. Annualized return on average assets for the three months ended September 30, 2007 was 1.53% and annualized return on average equity was 13.29%, both of which increased from the prior year. Net income for the nine months ended September 30, 2007 totaled $4,839,000, which represents an 11.7% increase over the $4,331,000 earned in the similar period of 2006. Earnings per share (fully diluted) reflected a 12.5% increase totaling $1.71 per share in the 2007 period compared to $1.52 in the 2006 period.

Total assets as of September 30, 2007 were $472.9 million with loans receivable of $328.6 million, total deposits of $367.6 million and stockholders’ equity of $54.7 million. Total assets have increased $19.7 million, compared to September 30, 2006.

Loans receivable have increased $14.9 million from a year ago. The increase in loans was centered in residential mortgage activity, including home equity lending and to a lesser extent, in the commercial real estate loan portfolio. The loan growth was funded in part by a $7.7 million increase in deposits and cash management accounts. Non-performing loans totaled $120,000, or .04% of total loans, as of September 30, 2007

compared to $395,000, or .13% as of September 30, 2006. The Company resolved its largest non-performing loan during the third quarter with full collection of principal, interest and fees. It should also be noted the Company never participated in the sub-prime mortgage market. The Company had net charge-offs of $44,000 for the nine months ended September 30, 2007 representing .02% of average loans, on an annualized basis, compared to $11,000 in net charge-offs for the similar period in 2006. Though loan quality indicators remain strong, the Company modestly increased its provision for loan losses to $195,000 for the nine months ended September 30, 2007 compared to $170,000 for the similar period in 2006, recognizing a slowing in the general economy. The allowance for loan losses increased $151,000 from September 30, 2006 to $3,979,000 and represented 1.21% of total loans as of September 30, 2007.

For the three months ended September 30, 2007, net interest income, on a fully taxable equivalent basis (fte), totaled $4,597,000, an increase of $364,000 or 8.6% over the similar period in 2006. Net interest margin (fte) for the 2007 period was 4.11% increasing from 3.98% 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, an increased amount of loans on the balance sheet and the collection of $54,000 of delinquent interest on non-performing loans. These increases were partially offset by a continued rise in the cost of deposits due in part to an increase in higher costing time deposits. Net interest income (fte) for the nine months ended September 30, 2007 totaled $13,267,000, an increase of $815,000, or 6.6%, over the similar period in 2006. Net interest margin (fte) for the 2007 period was 3.99% compared to 3.97% in 2006.

Other income for the three months ended September 30, 2007 totaled $913,000 compared to $894,000 for the similar period in 2006. An increase in service charges and fees of $19,000 and Wealth Management/Trust revenues of $28,000 were partially offset by a $45,000 decrease in gains on sales of securities. For the nine months ended September 30, 2007, other income totaled $2,664,000 compared to $2,721,000 for the similar period in 2006. The decrease was primarily due to the $110,000 gain on sales of mortgage loans and servicing rights in the 2006 period compared to $16,000 in such gains in the similar period of 2007. This was somewhat offset by a $74,000 increase in Wealth Management/Trust fees. Net realized gains on sales of securities also declined and totaled $15,000 for the 2007 period, compared to $66,000 for the similar period in 2006.

Other expenses totaled $2,787,000 for the three months ended September 30, 2007, compared to $2,730,000 for the similar period in 2006. An increase in occupancy costs related to the Company’s new branch in Tannersville was partially offset by lower employee benefit costs.

For the nine months ended September 30, 2007, other expenses totaled $8,495,000, an increase of $158,000, or 1.9% over $8,337,000 for the similar period in 2006 principally due to an increase in occupancy expense.

Mr. Davis remarked, “We are extremely pleased with our solid financial results through the first nine months of 2007, but do note our loan pipeline is a little softer than last year at this time as we can see a general slow down in the economy. We are continuing our Stock Repurchase Program and the Company bought back 39,300 shares during the year.”

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 Statements of Income

(dollars in thousands, except per share data)

(unaudited)

		Three Months Ended September 30				Nine Months Ended September 30
		2007		2006		2007		2006
INTEREST INCOME
Loans receivable, including fees	$	6,054	$	5,506	$	17,772	$	15,651
Securities		1,370		1,105		3,866		3,221
Other		33		36		144		121
Total Interest income		7,457		6,647		21,782		18,993
INTEREST EXPENSE
Deposits		2,489		2,032		7,449		5,360
Short-term borrowings		195		235		656		585
Other borrowings		281		278		808		991
Total Interest expense		2,965		2,545		8,913		6,936
NET INTEREST INCOME		4,492		4,102		12,869		12,057
PROVISION FOR LOAN LOSSES		90		45		195		170
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,402		4,057		12,674		11,887
OTHER INCOME
Service charges and fees		635		616		1,876		1,850
Income from fiduciary activities		117		89		335		261
Net realized gains on sales of securities		—		45		15		66
Gains on sale of loans		8		3		16		110
Other		153		141		422		434
Total other income		913		894		2,664		2,721
OTHER EXPENSES
Salaries and employee benefits		1,432		1,482		4,367		4,344
Occupancy, furniture and equipment		400		329		1,231		1,078
Data processing related		173		185		515		511
Taxes, other than income		54		110		293		334
Professional Fees		75		62		258		279
Other		653		562		1,831		1,791
Total other expenses		2,787		2,730		8,495		8,337
INCOME BEFORE TAX		2,528		2,221		6,843		6,271
INCOME TAX EXPENSE		722		699		2,004		1,940
NET INCOME	$	1,806	$	1,522	$	4,839	$	4,331
Basic earnings per share	$	0.65	$	0.54	$	1.74	$	1.55
Diluted earnings per share	$	0.64	$	0.53	$	1.71	$	1.52

NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

Three Months Ended September 30	2007			2006
Net interest income	$	4,492		$	4,102
Net income		1,806			1,522
Net interest spread (fully taxable equivalent)		3.39	%		3.34	%
Net interest margin (fully taxable equivalent)		4.11	%		3.98	%
Return on average assets		1.53	%		1.35	%
Return on average equity		13.29	%		12.06	%
Basic earnings per share	$	0.65		$	0.54
Diluted earnings per share		0.64			0.53
Nine Months Ended September 30
Net interest income	$	12,869		$	12,057
Net income		4,839			4,331
Net interest spread (fully taxable equivalent)		3.29	%		3.40	%
Net interest margin (fully taxable equivalent)		3.99	%		3.97	%
Return on average assets		1.39	%		1.31	%
Return on average equity		12.12	%		11.76	%
Basic earnings per share	$	1.74		$	1.55
Diluted earnings per share		1.71			1.52
As of September 30
Total Assets	$	472,866		$	453,170
Total Loans receivable		328,582			313,678
Allowance for loan losses		3,979			3,828
Total deposits		367,553			364,606
Stockholders’ equity		54,720			51,059
Trust Assets under management		103,214			93,716
Book value per share	$	19.77		$	18.25
Equity to total assets		11.57	%		11.27	%
Allowance to total loans receivable		1.21	%		1.22	%
Nonperforming loans to total loans		0.04	%		0.13	%

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets

(dollars in thousands, except share data)

(unaudited)

	September 30
	2007			2006
ASSETS
Cash and due from banks	$	8,656		$	9,448
Interest bearing deposits with banks		218			141
Federal funds sold		—			1,525
Cash and cash equivalents		8,874			11,114
Securities available for sale		118,736			112,402
Securities held to maturity, fair value 2007: $723 2006: $976		705			954
Loans receivable (net of unearned Income)		328,582			313,678
Less: Allowance for loan losses		3,979			3,828
Net loans receivable		324,603			309,850
Investment in FHLB Stock		1,989			1,634
Bank premises and equipment, net		5,764			5,489
Bank owned life insurance		7,694			7,410
Accrued interest receivable		2,417			2,086
Other assets		2,084			2,231
TOTAL ASSETS	$	472,866		$	453,170
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,880		$	63,331
Interest-bearing		306,673			301,275
Total deposits		367,553			364,606
Short-term borrowings		22,628			15,086
Other borrowings		23,000			18,000
Accrued interest payable		2,590			2,277
Other liabilities		2,375			2,142
TOTAL LIABILITIES		418,146			402,111
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		10,203			10,123
Retained earnings		46,046			42,187
Treasury stock, at cost: 2007: 72,913 shares, 2006: 42,900 shares		(2,237	)		(1,246	)
Unearned ESOP Shares		—			—
Accumulated other comprehensive income/ (loss)		424			(289	)
TOTAL STOCKHOLDERS’ EQUITY		54,720			51,059
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	472,866		$	453,170

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

	30-Sep		30-Jun			31-Mar		31-Dec		30-Sep
	2007		2007			2007		2006		2006
ASSETS
Cash and due from banks	$	8,656	$	9,321		$	8,604	$	9,450	$	9,448
Interest bearing deposits with banks		218		3,641			141		67		141
Federal funds sold		—		5,940			3,130		—		1,525
Cash and cash equivalents		8,874		18,902			11,875		9,517		11,114
Securities available for sale		118,736		116,299			112,597		112,912		112,402
Securities held to maturity		705		955			955		954		954
Loans receivable (net of unearned Income)		328,582		321,654			320,744		315,567		313,678
Less: Allowance for loan losses		3,979		3,900			3,871		3,828		3,828
Net loans receivable		324,603		317,754			316,873		311,739		309,850
Investment in FHLB stock		1,989		1,933			1,923		1,687		1,634
Bank premises and equipment, net		5,764		5,853			5,935		6,020		5,489
Other assets		12,195		12,322			11,225		11,527		11,727
TOTAL ASSETS	$	472,866	$	474,018		$	461,383	$	454,356	$	453,170
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,880	$	60,440		$	54,046	$	53,856	$	63,331
Interest- bearing deposits		306,673		313,304			305,988		304,247		301,275
Total deposits		367,553		373,744			360,034		358,103		364,606
Other borrowings		45,628		42,147	��		42,986		35,736		33,086
Other liabilities		4,965		4,993			5,304		8,286		4,419
TOTAL LIABILITIES		418,146		420,884			408,324		402,125		402,111
STOCKHOLDERS’ EQUITY		54,720		53,134			53,059		52,231		51,059
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	472,866	$	474,018		$	461,383	$	454,356	$	453,170

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

	30-Sep			30-Jun			31-Mar			31-Dec			30-Sep
Three months ended	2007			2007			2007			2006			2006
INTEREST INCOME
Loans receivable, including fees	$	6,054		$	5,878		$	5,840		$	5,771		$	5,506
Securities		1,370			1,278			1,218			1,159			1,105
Other		33			90			21			26			36
Total Interest income		7,457			7,246			7,079			6,956			6,647
INTEREST EXPENSE
Deposits		2,489			2,474			2,486			2,358			2,032
Borrowings		476			486			502			472			513
Total Interest expense		2,965			2,960			2,988			2,830			2,545
NET INTEREST INCOME		4,492			4,286			4,091			4,126			4,102
PROVISION FOR LOAN LOSSES		90			55			50			50			45
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,402			4,231			4,041			4,076			4,057
OTHER INCOME
Service charges and fees		635			635			606			605			616
Income from fiduciary activities		117			93			125			94			89
Net realized gains on sales of securities		—			15			—			—			45
Gains on sale of loans		8			1			7			37			3
Other		153			113			156			126			141
Total other income		913			857			894			862			894
OTHER EXPENSES
Salaries and employee benefits		1,432			1,438			1,497			1,311			1,482
Occupancy, furniture and equipment , net		400			416			415			368			329
Other		955			993			949			941			919
Total other expenses		2,787			2,847			2,861			2,620			2,730
INCOME BEFORE TAX		2,528			2,241			2,074			2,318			2,221
INCOME TAX EXPENSE		722			671			611			739			699
NET INCOME	$	1,806		$	1,570		$	1,463		$	1,579		$	1,522
Basic earnings per share	$	0.65		$	0.56		$	0.52		$	0.56		$	0.54
Diluted earnings per share	$	0.64		$	0.55		$	0.51		$	0.55		$	0.53
Book Value per share	$	19.77		$	19.11		$	18.96		$	18.67		$	18.25
Return on average equity		13.29	%		11.77	%		11.26	%		12.09	%		12.06	%
Return on average assets		1.53	%		1.35	%		1.29	%		1.38	%		1.35	%
Net interest spread		3.39	%		3.31	%		3.16	%		3.25	%		3.34	%
Net interest margin		4.11	%		4.00	%		3.85	%		3.94	%		3.98	%
Allowance for loan losses to total loans		1.21	%		1.21	%		1.21	%		1.21	%		1.22	%
Net charge-offs/(recoveries) to average loans (annualized)		0.01	%		0.03	%		0.01	%		0.06	%		0.01	%
Nonperforming loans to total loans		0.04	%		0.15	%		0.13	%		0.13	%		0.13	%
Nonperforming assets to total assets		0.03	%		0.10	%		0.09	%		0.09	%		0.09	%