Norwood Financial (NWFL) 8-K Norwood Financial Announces Earnings for the Fourth Quarter and Year

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL ANNOUNCES EARNINGS FOR THE FOURTH QUARTER AND YEAR

January 26, 2009-Honesdale, PA

William W. Davis, Jr. President and Chief Executive Officer of Norwood Financial Corp (Nasdaq – NWFL) and its subsidiary Wayne Bank today announced earnings for the three months ended December 31, 2008 of $1,585,000. This represents a decrease of $87,000 from the $1,672,000 earned in the similar period of 2007. Earnings per share (fully diluted) were $.58 in the 2008 period compared to $.60 earned in the similar period of 2007. The decrease was due to a higher level of provision for loan losses, which was $420,000 for the three months ended December 31, 2008, compared to $120,000 for the similar period in 2007. Annualized return on average assets for the quarter was 1.26% with a return on equity of 11.05%.

Net income totaled $6,677,000 for the year ended December 31, 2008, an increase of $166,000, or 2.6% over the prior year. Earnings per share on a fully diluted basis were $2.41 for 2008, compared to $2.30 in 2007. The return on average assets for the year was 1.36% with a return on average equity of 11.79%. Total assets exceeded $500 million for the first time in 2008 and reached $504.3 million at December 31, 2008. Loans receivable totaled $349.4 million at December 31, 2008, with total deposits of $359.6 million and stockholders’ equity of $58.7 million. The Company’s capital position remains strong and is at the top level of its peer group in all measures of capital. Total Tier 1 Capital to total risk-weighted assets was 16.22% as of December 31, 2008. Due to its strong capital

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position, the Company elected not to participate in the Treasury Department’s TARP Capital Purchase Program.

Loans receivable increased $18.1 million or 5.5% from the prior year-end. The increase in loans was centered in commercial real estate. As a result of the general slow down in the local economy and a softer real estate market, the Company did experience an increase in non-performing assets and net charge-offs in 2008. As of December 31, 2008, total non-performing assets were $2,747,000 and represented .54% of total assets compared to $163,000, or .03% as of December 31, 2007. The increase was principally due to two credit facilities to one borrower, both of which have been written-down to their net realizable value. For the three months ended December 31, 2008, net charge-offs totaled $518,000 which included a $380,000 charge-down of a non-performing loan. Net charge-offs for the year 2008 totaled $583,000 compared to $62,000 in 2007. With the increase in non-performing loans and charge-offs, the Company increased its provision for loan losses to $420,000 for the three months ended December 31, 2008 and $735,000 for the year 2008 compared to $120,000 in the similar quarter in 2007 and $315,000 for the year 2007. As of December 31, 2008, the allowance for loan losses was $4,233,000 increasing from $4,081,000 at December 31, 2007.

Net interest income (fully taxable equivalent) totaled $4,881,000 for the three months ended December 31, 2008, an increase of $337,000, and 7.4% over the similar period in 2007. Net interest margin for the 2008 period was 4.09% increasing from 3.95% for the similar period in 2007. The significant decrease in short-term interest rates which negatively impacted asset yields was offset by managing the cost of funds. For the year, net interest income (fte) totaled $19,030,000, an increase of $1,219,000 or 6.8% over 2007. The net interest margin increased 9 basis points to 4.07% in 2008. During 2008 a 400

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basis point decrease in prime rate from 7.25% to 3.25% was offset by managing the cost of funds and growing the loan portfolio.

Other income for the three months ended December 31, 2008 totaled $890,000 compared to $860,000 for the similar period in 2007. The increase was principally due to a higher level of revenue from the Wealth Management Division. Other income for 2008 totaled $4,087,000 compared to $3,524,000 in 2007. The increase was principally due to a $499,000 gain on the sale of $14.4 million of mortgage loans and servicing rights in 2008. Other expenses totaled $2,946,000 for the three months ended December 31, 2008, an increase of $100,000 or 3.5% over the similar period in 2007. The increase was due in part to higher FDIC deposit insurance premium expense. For the year, other expenses totaled $12,240,000, an increase of $899,000 or 7.9% over the prior year. The increase was principally due to a $582,000 foreclosed real estate write-down of the property to its current realizable value, as well as the costs to maintain the real estate. Excluding costs related to foreclosed real estate, other expenses increased 2.8%.

Mr. Davis commented, “Even in these unprecedented times, we are extremely pleased with our operating results. Our core earnings are strong, our net interest margin has improved and our loan pipeline is encouraging. We exceeded $500 million in assets for the first time. Also, 2008 marks the seventeenth consecutive year in which we increased our cash dividend which totaled $1.02 per share in 2008 compared to $0.94 per share in 2007. We should also emphasize Wayne Bank never participated in the sub-prime mortgage business, and has no exposure to the common or preferred stock of Fannie Mae or Freddie Mac. However, we are certainly aware that a slowing economy and increasing unemployment will continue to impact our customers in 2009. We are continually monitoring our credit quality and are aggressively addressing any issues as they arise.”

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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 net interest income, which is a non-GAAP financial measure. Tax-equivalent net interest income is derived from GAAP net interest income using an assumed tax rate of 34%. We believe the presentation of net interest income on a tax-equivalent basis ensures comparability of 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

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NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets

(dollars in thousands, except share data)

(Unaudited)

	December 31,
	2008			2007
ASSETS
Cash and due from banks	$	6,463		$	9,014
Interest bearing deposits with banks		17			50
Federal funds sold		0			0
Cash and cash equivalents		6,480			9,064
Securities available for sale		130,120			123,987
Securities held to maturity, fair value 2008: $720 2007: $721		707			705
Loans receivable (net of unearned Income)		349,404			331,296
Less: Allowance for loan losses		4,233			4,081
Net loans receivable		345,171			327,215
Investment in FHLB Stock		3,538			2,072
Bank premises and equipment, net		5,490			5,742
Bank owned life insurance		8,068			7,767
Foreclosed real estate owned		660			—
Accrued interest receivable		2,179			2,343
Other assets		1,883			1,715
TOTAL ASSETS	$	504,296		$	480,610
LIABILITIES
Deposits:
Non-interest bearing demand	$	56,839		$	60,061
Interest-bearing		302,796			309,939
Total deposits		359,635			370,000
Short-term borrowings		38,126			26,686
Long-term debt		43,000			23,000
Accrued interest payable		2,247			3,198
Other liabilities		2,598			1,907
TOTAL LIABILITIES		445,606			424,791
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		9,972			10,159
Retained earnings		50,398			47,030
Treasury stock, at cost: 2008: 104,310 shares, 2007: 87,256 shares		(3,243	)		(2,708	)
Accumulated other comprehensive income (loss)		1,279			1,054
TOTAL STOCKHOLDERS' EQUITY		58,690			55,819
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	504,296		$	480,610

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NORWOOD FINANCIAL CORP.

Consolidated Statements of Income

(dollars in thousands, except share data)

(Unaudited)

	Three Months Ended				Year Ended
	December 31,				December 31,
	2008		2007		2008			2007
INTEREST INCOME
Loans receivable, including fees	$	5,423	$	5,948	$	21,983		$	23,720
Securities		1,508		1,448		6,083			5,314
Other		3		77		29			221
Total Interest income		6,934		7,473		28,095			29,255
INTEREST EXPENSE
Deposits		1,659		2,518		7,773			9,967
Short-term borrowings		128		276		693			932
Long-term debt		420		276		1,228			1,084
Total Interest expense		2,207		3,070		9,694			11,983
NET INTEREST INCOME		4,727		4,403		18,401			17,272
PROVISION FOR LOAN LOSSES		420		120		735			315
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,307		4,283		17,666			16,957
OTHER INCOME
Service charges and fees		636		633		2,600			2,509
Income from fiduciary activities		111		88		404			423
Net realized gains (losses) on sales of securities		—		2		(18	)		17
Gains on sale of loans and servicing rights		13		7		499			23
Other		130		130		602			552
Total other income		890		860		4,087			3,524
OTHER EXPENSES
Salaries and employee benefits		1,525		1,458		6,046			5,825
Occupancy, furniture and equipment		378		409		1,625			1,640
Data processing related		202		175		753			690
Taxes, other than income		117		121		504			414
Professional Fees		81		91		331			349
Foreclosed real estate owned		11		—		582			—
Other		632		592		2,399			2,423
Total other expenses		2,946		2,846		12,240			11,341
INCOME BEFORE TAX		2,251		2,297		9,513			9,140
INCOME TAX EXPENSE		666		625		2,836			2,629
NET INCOME	$	1,585	$	1,672	$	6,677		$	6,511
Basic earnings per share	$	0.58	$	0.61	$	2.44		$	2.34
Diluted earnings per share	$	0.58	$	0.60	$	2.41		$	2.30

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NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except share data)

________________________________

For the Three Months Ended December 31,	2008			2007
Net interest income	$	4,727		$	4,403
Net income		1,585			1,672
Net interest spread (fully taxable equivalent)		3.61	%		3.24	%
Net interest margin (fully taxable equivalent)		4.09	%		3.95	%
Return on average assets		1.26	%		1.38	%
Return on average equity		11.05	%		12.02	%
Basic earnings per share	$	0.58		$	0.61
Diluted earnings per share		0.58			0.60
For the Year Ended December 31
Net interest income	$	18,401		$	17,272
Net income		6,677			6,511
Net interest spread (fully taxable equivalent)		3.51	%		3.27	%
Net interest margin (fully taxable equivalent)		4.07	%		3.98	%
Return on average assets		1.36	%		1.39	%
Return on average equity		11.79	%		12.10	%
Basic earnings per share	$	2.44			2.34
Diluted earnings per share		2.41			2.30
As of December 31
Total Assets	$	504,296		$	480,610
Total Loans receivable		349,404			331,296
Allowance for loan losses		4,233			4,081
Total deposits		359,635			370,000
Stockholders' equity		58,690			55,819
Trust Assets under management		90,069			101,714
Book value per share	$	21.45		$	20.27
Equity to total assets		11.64	%		11.61	%
Allowance to total loans receivable		1.21	%		1.23	%
Nonperforming loans to total loans		0.60	%		0.05	%
Nonperforming assets to total assets		0.54	%		0.03	%

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NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

	31-Dec		30-Sep		30-Jun		31-Mar		31-Dec
	2008		2008		2008		2008		2007
ASSETS
Cash and due from banks	$	6,463	$	9,277	$	9,664	$	8,283	$	9,014
Interest bearing deposits with banks		17		74		51		33		50
Federal funds sold		—		450		—		—		—
Cash and cash equivalents		6,480		9,801		9,715		8,316		9,064
Securities available for sale		130,120		128,287		130,811		130,633		123,987
Securities held to maturity		707		706		706		706		705
Loans receivable (net of unearned Income)		349,404		341,217		332,754		329,377		331,296
Less: Allowance for loan losses		4,233		4,331		4,237		4,137		4,081
Net loans receivable		345,171		336,886		328,517		325,240		327,215
Investment in FHLB stock		3,538		3,545		2,657		2,124		2,072
Bank premises and equipment, net		5,490		5,601		5,702		5,668		5,742
Foreclosed real estate owned		660		660		1,200		—		—
Other assets		12,130		13,149		12,601		11,280		11,825
TOTAL ASSETS	$	504,296	$	498,635	$	491,909	$	483,967	$	480,610
LIABILITIES
Deposits:
Non-interest bearing demand	$	56,839	$	63,474	$	59,496	$	55,618	$	60,061
Interest- bearing deposits		302,796		297,083		305,775		315,535		309,939
Total deposits		359,635		360,557		365,271		371,153		370,000
Other borrowings		81,126		76,575		65,060		51,006		49,686
Other liabilities		4,845		5,389		5,647		5,234		5,105
TOTAL LIABILITIES		445,606		442,521		435,978		427,393		424,791
STOCKHOLDERS' EQUITY		58,690		56,114		55,931		56,574		55,819
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	504,296	$	498,635	$	491,909	$	483,967	$	480,610

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NORWOOD FINANCIAL CORP.

Consolidated Statements of Income (Unaudited)

(dollars in thousands)

	31-Dec			30-Sep			30-Jun			31-Mar			31-Dec
Three months ended	2008			2008			2008			2008			2007
INTEREST INCOME
Loans receivable, including fees	$	5,423		$	5,509		$	5,410		$	5,641		$	5,948
Securities		1,508			1,549			1,537			1,489			1,448
Other		3			1			6			19			77
Total Interest income		6,934			7,059			6,953			7,149			7,473
INTEREST EXPENSE
Deposits		1,659			1,780			1,963			2,371			2,518
Borrowings		548			503			416			454			552
Total Interest expense		2,207			2,283			2,379			2,825			3,070
NET INTEREST INCOME		4,727			4,776			4,574			4,324			4,403
PROVISION FOR LOAN LOSSES		420			130			110			75			120
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,307			4,646			4,464			4,249			4,283
OTHER INCOME
Service charges and fees		636			656			670			638			633
Income from fiduciary activities		111			91			110			92			88
Net realized gains (losses) on sales of securities		—			(27	)		9			—			2
Gains on sale of loans and servicing rights		13			90			8			388			7
Other		130			163			165			144			130
Total other income		890			973			962			1,262			860
OTHER EXPENSES
Salaries and employee benefits		1,525			1,477			1,498			1,546			1,458
Occupancy, furniture and equipment , net		378			403			414			430			409
Foreclosed real estate owned		11			519			52			—			—
Other		1,032			962			1,008			985			979
Total other expenses		2,946			3,361			2,972			2,961			2,846
INCOME BEFORE TAX		2,251			2,258			2,454			2,550			2,297
INCOME TAX EXPENSE		666			666			733			771			625
NET INCOME	$	1,585		$	1,592		$	1,721		$	1,779		$	1,672
Basic earnings per share	$	0.58		$	0.58		$	0.63		$	0.65		$	0.61
Diluted earnings per share	$	0.58		$	0.58		$	0.62		$	0.64		$	0.60
Book Value per share	$	21.45		$	20.51		$	20.44		$	20.65		$	20.27
Return on average equity		11.05	%		11.15	%		12.19	%		12.71	%		12.02	%
Return on average assets		1.26	%		1.28	%		1.42	%		1.49	%		1.38	%
Net interest spread		3.61	%		3.67	%		3.50	%		3.24	%		3.24	%
Net interest margin		4.09	%		4.21	%		4.06	%		3.90	%		3.95	%
Allowance for loan losses to total loans		1.21	%		1.27	%		1.27	%		1.26	%		1.23	%
Net charge-offs to average loans (annualized)		0.60	%		0.04	%		0.01	%		0.02	%		0.02	%
Nonperforming loans to total loans		0.60	%		0.66	%		0.09	%		0.09	%		0.05	%
Nonperforming assets to total assets		0.54	%		0.59	%		0.31	%		0.06	%		0.03	%

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