Norwood Financial (NWFL) 8-K Announces 9.6% Earnings Increase for the Second Quarter

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES 9.6% EARNINGS INCREASE FOR THE SECOND QUARTER

July 23, 2008-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, 2008 of $1,721,000. This represents an increase of $151,000, or 9.6%, over the $1,570,000 earned in the similar period of 2007. Earnings per share (fully diluted) were $.62 in the 2008 period, a 12.7% increase over the $.55 earned in the similar period in 2007. Annualized return on average assets for the three months ended June 30, 2008 was 1.42% with an annualized return on average equity of 12.19% with both measures showing improvement over the prior year. Net income for the six months ended June 30, 2008 totaled $3,500,000, which represents a 15.4% increase over the $3,033,000 earned in the similar period of 2007. Earnings per share (fully diluted) for the six months ended June 30, 2008 reflected a 17.8% increase at $1.26 per share in the 2008 period compared to $1.07 in the same 2007 period. Earnings per share for both the six and three months ended June 30, 2008 benefited from the open market purchase of 69,200 shares since June 30, 2007.

Total assets as of June 30, 2008 were $491.9 million with loans receivable of $332.8 million, deposits of $365.3 million and stockholders’ equity of $55.9 million. Total assets have increased $17.9 million, compared to June 30, 2007.

Loans receivable increased $11.1 million from June 30, 2007. The increase was centered in the commercial loan portfolio principally real estate related, which increased

$11.3 million. In 2008, the Company sold $14.4 million of fixed rate residential mortgages for purposes of interest rate risk management.

Non-performing assets totaled $1,515,000 and represented .31% of total assets as of June 30, 2008 compared to $477,000 and .10% as of June 30, 2007. The increase is due to $1,200,000 of other real estate acquired through a Deed in Lieu of Foreclosure. The Company is actively pursuing a resolution for the property which consists of undeveloped residential building lots in Monroe County, Pennsylvania. Net charge-offs were $10,000 for the quarter and totaled $29,000 for the six months ended June 30, 2008 compared to $26,000 and $33,000 respectively for the similar periods in 2007. Even with a low level of charge-offs, the Company determined that it was appropriate to increase the provision for loan losses to $110,000 and $185,000 for the three and six month periods ended June 30, 2008, respectively compared to $55,000 and $105,000, respectively for the similar periods in 2007. The allowance for loan losses totaled $4,237,000 and represented 1.27% of total loans as of June 30, 2008, increasing from $3,900,000 and 1.21% as of June 30, 2007.

For the three months ended June 30, 2008, net interest income, on a fully taxable equivalent basis (fte), totaled $4,737,000, an increase of $287,000 or 6.5% over the similar period in 2007. Net interest margin (fte) for the 2008 period was 4.06% increasing from 4.00% for the similar period in 2007. The increase in net interest margin was principally due to a decrease of 96 basis points in the cost of funds. This was partially offset by a decline in loan yields as a result of the prime rate decrease to 5.00% as of June 30, 2008 compared to 8.25% as of June 30, 2007. Net interest income (fte) for the six months ended June 30, 2008 totaled $9,217,000, an increase of $547,000, or 6.3%, over the similar period in 2007. Net interest margin (fte) for the 2008 period was 3.98% compared to 3.93% in 2007.

Other income for the three months ended June 30, 2008 totaled $962,000 compared to $857,000 for the similar period in 2007. The increase was principally due to a $25,000 increase in deposit service charges and $52,000 increase in loan related fees. For the six months ended June 30, 2008, other income totaled $2,224,000 compared to $1,751,000 for the similar period in 2007. The increase was primarily due to the gain on the sale of $14.4 million of fixed rate 30 year residential mortgages of $396,000, compared to $8,000 in similar gains in the 2007 period.

Other expenses totaled $2,972,000 for the three months ended June 30, 2008, compared to $2,847,000 for the similar period in 2007. The increase was due in part to $52,000 of expense related to other real estate acquired through foreclosure. For the six months ended June 30, 2008, other expenses totaled $5,933,000, an increase of $225,000, or 3.9% over $5,708,000 for the similar period in 2007. The increase was due to a $109,000 increase in salaries and employee benefit costs and $52,000 of expense related to other real estate acquired through foreclosure.

Mr. Davis remarked, “We are pleased with our solid financial results through six months of 2008. Though Wayne Bank never participated in the sub-prime mortgage business, we certainly recognize the current stress on the economy and its impact on our customers. We are continually monitoring our credit quality and are aggressively addressing any issues as they arise. The Company has a strong capital position with all capital ratios at the top of our banking peer group. The Company continues to invest in technology. In 2008, we introduced our remote deposit capture product - Business Link – and deployed similar technology throughout our branches. This will improve customer service and internal efficiency. We are also working on enhancements to our website which will benefit our customers.”

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

Forward Looking Statements

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.

Non-GAAP Financial Measures

This release references tax-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of interest income and net interest income on a tax-equivalent basis ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

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 June 30				Six Months Ended June 30
		2008		2007		2008		2007
INTEREST INCOME
Loans receivable, including fees	$	5,410	$	5,878	$	11,051	$	11,718
Securities		1,537		1,278		3,026		2,496
Other		6		90		25		111
Total Interest income		6,953		7,246		14,102		14,325
INTEREST EXPENSE
Deposits		1,963		2,474		4,334		4,960
Short-term borrowings		178		205		365		461
Long-term debt		238		281		505		527
Total Interest expense		2,379		2,960		5,204		5,948
NET INTEREST INCOME		4,574		4,286		8,898		8,377
PROVISION FOR LOAN LOSSES		110		55		185		105
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,464		4,231		8,713		8,272
OTHER INCOME
Service charges and fees		670		635		1,308		1,241
Income from fiduciary activities		110		93		202		218
Net realized gains on sales of securities		9		15		9		15
Gains on sale of loans		8		1		396		8
Other		165		113		309		269
Total other income		962		857		2,224		1,751
OTHER EXPENSES
Salaries and employee benefits		1,498		1,438		3,044		2,935
Occupancy, furniture and equipment		414		416		844		831
Data processing related		180		168		368		342
Taxes, other than income		131		121		257		239
Professional Fees		88		94		178		183
Other		661		610		1,242		1,178
Total other expenses		2,972		2,847		5,933		5,708
INCOME BEFORE TAX		2,454		2,241		5,004		4,315
INCOME TAX EXPENSE		733		671		1,504		1,282
NET INCOME	$	1,721	$	1,570	$	3,500	$	3,033
Basic earnings per share	$	0.63	$	0.56	$	1.28	$	1.09
Diluted earnings per share	$	0.62	$	0.55	$	1.26	$	1.07

NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

For the Three Months Ended June 30		2008			2007
Net interest income	$	4,574		$	4,286
Net income		1,721			1,570
Net interest spread (fully taxable equivalent)		3.50	%		3.31	%
Net interest margin (fully taxable equivalent)		4.06	%		4.00	%
Return on average assets		1.42	%		1.35	%
Return on average equity		12.19	%		11.77	%
Basic earnings per share	$	0.63		$	0.56
Diluted earnings per share		0.62			0.55
For the Six Months Ended June 30
Net interest income	$	8,898		$	8,377
Net income		3,500			3,033
Net interest spread (fully taxable equivalent)		3.37	%		3.23	%
Net interest margin (fully taxable equivalent)		3.98	%		3.93	%
Return on average assets		1.45	%		1.32	%
Return on average equity		12.44	%		11.52	%
Basic earnings per share	$	1.28		$	1.09
Diluted earnings per share		1.26			1.07
As of June 30
Total Assets	$	491,909		$	474,018
Total Loans receivable		332,754			321,654
Allowance for loan losses		4,237			3,900
Total deposits		365,271			373,744
Stockholders’ equity		55,931			53,134
Trust Assets under management		98,157			103,847
Book value per share	$	20.44		$	19.11
Equity to total assets		11.37	%		11.21	%
Allowance to total loans receivable		1.27	%		1.21	%
Nonperforming loans to total loans		0.09	%		0.15	%
Nonperforming assets to total assets		0.31	%		0.10	%

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets

(dollars in thousands, except share data)

(unaudited)

		June 30
		2008			2007
ASSETS
Cash and due from banks	$	9,664		$	9,321
Interest bearing deposits with banks		51			3,641
Federal funds sold		—			5,940
Cash and cash equivalents		9,715			18,902
Securities available for sale		130,811			116,299
Securities held to maturity, fair value 2008: $721 2007: $970		706			955
Loans receivable (net of unearned Income)		332,754			321,654
Less: Allowance for loan losses		4,237			3,900
Net loans receivable		328,517			317,754
Investment in FHLB Stock		2,657			1,933
Bank premises and equipment, net		5,702			5,853
Bank owned life insurance		7,916			7,621
Foreclosed real estate owned		1,200			—
Accrued interest receivable		2,221			2,298
Other assets		2,464			2,403
TOTAL ASSETS	$	491,909		$	474,018
LIABILITIES
Deposits:
Non-interest bearing demand	$	59,496		$	60,440
Interest-bearing		305,775			313,304
Total deposits		365,271			373,744
Short-term borrowings		42,060			19,147
Long-term debt		23,000			23,000
Accrued interest payable		2,686			2,802
Other liabilities		2,961			2,191
TOTAL LIABILITIES		435,978			420,884
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		10,043			10,155
Retained earnings		48,642			44,877
Treasury stock, at cost: 2008: 104,641 shares, 2007: 60,914 shares		(3,250	)		(1,863	)
Accumulated other comprehensive income (loss)		212			(319	)
TOTAL STOCKHOLDERS’ EQUITY		55,931			53,134
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	491,909		$	474,018

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

		30-Jun		31-Mar		31-Dec		30-Sep		30-Jun
		2008		2008		2007		2007		2007
ASSETS
Cash and due from banks	$	9,664	$	8,283	$	9,014	$	8,656	$	9,321
Interest bearing deposits with banks		51		33		50		218		3,641
Federal funds sold		—		—		—		—		5,940
Cash and cash equivalents		9,715		8,316		9,064		8,874		18,902
Securities available for sale		130,811		130,633		123,987		118,736		116,299
Securities held to maturity		706		706		705		705		955
Loans receivable (net of unearned Income)		332,754		329,377		331,296		328,582		321,654
Less: Allowance for loan losses		4,237		4,137		4,081		3,979		3,900
Net loans receivable		328,517		325,240		327,215		324,603		317,754
Investment in FHLB stock		2,657		2,124		2,072		1,989		1,933
Bank premises and equipment, net		5,702		5,668		5,742		5,764		5,853
Foreclosed real estate owned		1,200		—		—		—		—
Other assets		12,601		11,280		11,825		12,195		12,322
TOTAL ASSETS	$	491,909	$	483,967	$	480,610	$	472,866	$	474,018
LIABILITIES
Deposits:
Non-interest bearing demand	$	59,496	$	55,618	$	60,061	$	60,880	$	60,440
Interest- bearing deposits		305,775		315,535		309,939		306,673		313,304
Total deposits		365,271		371,153		370,000		367,553		373,744
Other borrowings		65,060		51,006		49,686		45,628		42,147
Other liabilities		5,647		5,234		5,105		4,965		4,993
TOTAL LIABILITIES		435,978		427,393		424,791		418,146		420,884
STOCKHOLDERS’ EQUITY		55,931		56,574		55,819		54,720		53,134
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	491,909	$	483,967	$	480,610	$	472,866	$	474,018

N    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		2008			2008			2007			2007			2007
INTEREST INCOME
Loans receivable, including fees	$	5,410		$	5,641		$	5,948		$	6,054		$	5,878
Securities		1,537			1,489			1,448			1,370			1,278
Other		6			19			77			33			90
Total Interest income		6,953			7,149			7,473			7,457			7,246
INTEREST EXPENSE
Deposits		1,963			2,371			2,518			2,489			2,474
Borrowings		416			454			552			476			486
Total Interest expense		2,379			2,825			3,070			2,965			2,960
NET INTEREST INCOME		4,574			4,324			4,403			4,492			4,286
PROVISION FOR LOAN LOSSES		110			75			120			90			55
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,464			4,249			4,283			4,402			4,231
OTHER INCOME
Service charges and fees		670			638			633			635			635
Income from fiduciary activities		110			92			88			117			93
Net realized gains on sales of securities		9			—			2			—			15
Gains on sale of loans		8			388			7			8			1
Other		165			144			130			153			113
Total other income		962			1,262			860			913			857
OTHER EXPENSES
Salaries and employee benefits		1,498			1,546			1,458			1,432			1,438
Occupancy, furniture and equipment , net		414			430			409			400			416
Other		1,060			985			979			955			993
Total other expenses		2,972			2,961			2,846			2,787			2,847
INCOME BEFORE TAX		2,454			2,550			2,297			2,528			2,241
INCOME TAX EXPENSE		733			771			625			722			671
NET INCOME	$	1,721		$	1,779		$	1,672		$	1,806		$	1,570
Basic earnings per share	$	0.63		$	0.65		$	0.61		$	0.65		$	0.56
Diluted earnings per share	$	0.62		$	0.64		$	0.60		$	0.64		$	0.55
Book Value per share	$	20.44		$	20.65		$	20.27		$	19.77		$	19.11
Return on average equity		12.19	%		12.71	%		12.02	%		13.29	%		11.77	%
Return on average assets		1.42	%		1.49	%		1.38	%		1.53	%		1.35	%
Net interest spread		3.50	%		3.24	%		3.24	%		3.39	%		3.31	%
Net interest margin		4.06	%		3.90	%		3.95	%		4.11	%		4.00	%
Allowance for loan losses to total loans		1.27	%		1.26	%		1.23	%		1.21	%		1.21	%
Net charge-offs/(recoveries) to average loans (annualized)		0.01	%		0.02	%		0.02	%		0.01	%		0.03	%
Nonperforming loans to total loans		0.09	%		0.09	%		0.05	%		0.04	%		0.15	%
Nonperforming assets to total assets		0.31	%		0.06	%		0.03	%		0.03	%		0.10	%