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

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES EARNINGS FOR THE THIRD QUARTER

October 21, 2009-Honesdale, PA

William W. Davis, Jr. President and Chief Executive Officer of Norwood Financial Corp (Nasdaq Global Market-NWFL) and its subsidiary, Wayne Bank announced earnings for the three months ended September 30, 2009 of $1,775,000. This represents an increase of $183,000, or 11.5%, over the $1,592,000 earned in the similar period of 2008. Earnings per share (fully diluted) were $.64 in the 2009 period, increasing from the $.58 earned in the similar period in 2008. Annualized return on average assets for the three months ended September 30, 2009 was 1.40% with an annualized return on average equity of 11.25%. Net income for the nine months ended September 30, 2009 totaled $5,261,000, an increase of $169,000 or 3.3% over the $5,092,000 earned in the similar period of 2008. Earnings per share (fully diluted) for the nine months ended September 30, 2009 totaled $1.90 per share compared to $1.84 per share in the 2008 period.

Total assets as of September 30, 2009 were $514.9 million with loans receivable of $359.5 million, deposits of $382.9 million and stockholders’ equity of $63.7 million. Total assets have increased $16.2 million, as compared to September 30, 2008.

Loans receivable increased $18.3 million or 5.4% from September 30, 2008. The increase was centered in the commercial loan portfolio, principally real estate related, which increased $18.4 million. The Company experienced a significant volume of residential mortgage activity in 2009, principally refinancing. In 2009, the Company sold $21.6 million of fixed-rate residential mortgages, mostly with 30 year terms, for purposes of interest rate risk management.

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Non-performing assets, which includes non-performing loans and foreclosed real estate, totaled $3,739,000 and represented .73% of total assets as of September 30, 2009 compared to $2,747,000 as of December 31, 2008 and $2,928,000 as of September 30, 2008. The increase was principally related to one home equity loan in which the Company is in a first lien position and two loans to a land developer. Net charge-offs were $51,000 for the quarter and totaled $155,000 for the nine months ended September 30, 2009 compared to $36,000 and $65,000, respectively, for the similar periods in 2008. The provision for loan losses totaled $140,000 and $585,000 for the three and nine month periods ended September 30, 2009, respectively, compared to $130,000 and $315,000, respectively, for the similar periods in 2008. The allowance for loan losses totaled $4,663,000 as of September 30, 2009 and represented 1.30% of total loans, increasing from $4,331,000 as of September 30, 2008 and 1.27% of total loans.

For the three months ended September 30, 2009, net interest income, on a fully taxable equivalent basis (fte), totaled $4,973,000, compared to $4,932,000 for the similar period in 2008. Net interest margin (fte) for the 2009 period was 4.07% compared to 4.21% for the similar period in 2008. The decrease in net interest margin was principally due to lower short-term asset yields and an increase in non-performing loans on which no interest is accrued. This was partially offset by a decrease of 46 basis points in the cost of funds. Net interest income (fte) for the nine months ended September 30, 2009 totaled $14,837,000, an increase of $688,000, or 4.9%, over the similar period in 2008. Net interest margin (fte) year to date for the 2009 period was 4.08% compared to 4.06% in 2008.

Other income for the three months ended September 30, 2009 totaled $1,018,000 compared to $973,000 for the similar period in 2008. The increase was principally due to a $90,000 in gain on the sales of investment securities compared to a $27,000 loss in

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2008. For the nine months ended September 30, 2009, other income totaled $3,467,000 compared to $3,197,000 in the 2008 period. Gains on the sales of investment securities totaled $423,000 on sales of $14.7 million for the 2009 period compared to $18,000 in losses in the 2008 period. The Company also had a $150,000 gain on the sale of deposits related to a branch closure in the 2009 period. The 2009 period includes $296,000 in gains on the sales of $21.6 million of mortgage loans and servicing rights compared to $486,000 in similar gains on sales of $14.4 million of mortgage loans and servicing rights in the 2008 period.

Other expenses totaled $3,174,000 for the three months ended September 30, 2009, compared to $3,361,000 in the similar period of 2008. The decrease was principally related to a lower level of foreclosed real estate costs which totaled $130,000 in the 2009 period and $519,000 for the 2008 period. This was partially offset by higher FDIC insurance assessments of $133,000 in the 2009 period due to general increases in the assessment rate, compared to $25,000 for the similar period in 2008. For the nine months ended September 30, 2009, other expenses total $9,769,000 compared to $9,294,000 for the similar period in 2008, an increase of $475,000. The increase was principally due to higher FDIC insurance assessments which increased $579,000 including the special assessment of $225,000. This was partially offset by a lower level of foreclosed real estate costs which totaled $148,000 in the 2009 period and $571,000 in 2008.

Mr. Davis commented, “Even though we are operating in a very challenging economic environment our core earnings are strong, net interest margin is over 4.00% and our capital levels are at the top of our peer group. We will maintain our focus on credit quality and work diligently to resolve our problem loans during the remainder of 2009 as we have seen an increase in our loan delinquencies. Loan quality issues are directly attributable to higher unemployment and a soft real estate market.”

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Norwood Financial Corp., through its subsidiary Wayne Bank, operates eleven 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, the ability to control costs and expenses, demand for real estate, general economic conditions and the effectiveness of governmental responses thereto. 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 (Generally Accepted Accounting Principles) financial measure. Tax-equivalent net interest income is derived from GAAP using an assumed tax rate of 34%. We believe the presentation of net interest income on a tax–equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. The following reconciles net interest income to net interest income on a fully taxable basis:

	Three months ended				Nine months ended
(dollars in thousands)	September 30				September 30
	2009		2008		2009		2008
Net interest income	$	4,766	$	4,776	$	14,282	$	13,674
Tax equivalent basis adjustment using 34% marginal tax rate		207		156		555		475
Net interest income on a fully taxable equivalent basis	$	4,973	$	4,932	$	14,837	$	14,149

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Contact:	Lewis J. Critelli
	Executive Vice President, Secretary &
	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)

	September 30
	2009			2008
ASSETS
Cash and due from banks	$	8,769		$	9,277
Interest bearing deposits with banks		280			74
Federal funds sold		3,000			450
Cash and cash equivalents		12,049			9,801
Securities available for sale		126,349			128,287
Securities held to maturity, fair value 2009: $725   2008: $724		708			706
Loans receivable (net of unearned Income)		359,482			341,217
Less: Allowance for loan losses		4,663			4,331
Net loans receivable		354,819			336,886
Investment in FHLB Stock, at cost		3,538			3,545
Bank premises and equipment, net		5,258			5,601
Bank owned life insurance		8,329			7,992
Foreclosed real estate owned		562			660
Accrued interest receivable		2,315			2,394
Other assets		940			2,763
TOTAL ASSETS	$	514,867		$	498,635
LIABILITIES
Deposits:
Non-interest bearing demand	$	63,600		$	63,474
Interest-bearing		319,263			297,083
Total deposits		382,863			360,557
Short-term borrowings		19,553			33,575
Other borrowings		43,000			43,000
Accrued interest payable		2,365			2,319
Other liabilities		3,350			3,070
TOTAL LIABILITIES		451,131			442,521
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		9,782			9,953
Retained earnings		53,430			49,550
Treasury stock, at cost: 2009: 78,089 shares, 2008: 105,616 shares		(2,420	)		(3,272	)
Accumulated other comprehensive income (loss)		2,660			(401	)
TOTAL STOCKHOLDERS’ EQUITY		63,736			56,114
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	514,867		$	498,635

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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
	2009		2008			2009		2008
INTEREST INCOME
Loans receivable, including fees	$	5,382	$	5,509		$	16,095	$	16,560
Securities		1,297		1,549			4,010		4,575
Other		1		1			8		26
Total Interest income		6,680		7,059			20,113		21,161
INTEREST EXPENSE
Deposits		1,433		1,780			4,354		6,114
Short-term borrowings		60		200			229		565
Other borrowings		421		303			1,248		808
Total Interest expense		1,914		2,283			5,831		7,487
NET INTEREST INCOME		4,766		4,776			14,282		13,674
PROVISION FOR LOAN LOSSES		140		130			585		315
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,626		4,646			13,697		13,359
OTHER INCOME
Service charges and fees		614		656			1,854		1,964
Income from fiduciary activities		99		91			263		293
Net realized gains (losses) on sales of securities		90		(27	)		423		(18	)
Gains on sale of loans and servicing rights		42		90			296		486
Gain on sale of deposits		—		—			150		—
Other		173		163			481		472
Total other income		1,018		973			3,467		3,197
OTHER EXPENSES
Salaries and employee benefits		1,611		1,477			4,820		4,521
Occupancy, furniture and equipment		367		403			1,231		1,247
Data processing related		194		183			593		551
Taxes, other than income		139		130			414		387
Professional Fees		100		72			302		250
FDIC Insurance assessment		133		25			617		38
Foreclosed real estate owned		130		519			148		571
Other		500		552			1,644		1,729
Total other expenses		3,174		3,361			9,769		9,294
INCOME BEFORE TAX		2,470		2,258			7,395		7,262
INCOME TAX EXPENSE		695		666			2,134		2,170
NET INCOME	$	1,775	$	1,592		$	5,261	$	5,092
Basic earnings per share	$	0.64	$	0.58		$	1.92	$	1.86
Diluted earnings per share	$	0.64	$	0.58		$	1.90	$	1.84

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NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

For the Three Months Ended September 30	2009			2008
Net interest income	$	4,766		$	4,776
Net income		1,775			1,592
Net interest spread (fully taxable equivalent)		3.63	%		3.67	%
Net interest margin (fully taxable equivalent)		4.07	%		4.21	%
Return on average assets		1.40	%		1.28	%
Return on average equity		11.25	%		11.15	%
Basic earnings per share	$	0.64		$	0.58
Diluted earnings per share		0.64			0.58
For the Nine Months Ended September 30
Net interest income	$	14,282		$	13,674
Net income		5,261			5,092
Net interest spread (fully taxable equivalent)		3.64	%		3.47	%
Net interest margin (fully taxable equivalent)		4.08	%		4.06	%
Return on average assets		1.39	%		1.40	%
Return on average equity		11.51	%		12.00	%
Basic earnings per share	$	1.92		$	1.86
Diluted earnings per share		1.90			1.84
As of September 30
Total Assets	$	514,867		$	498,635
Total Loans receivable		359,482			341,217
Allowance for loan losses		4,663			4,331
Total deposits		382,863			360,557
Stockholders’ equity		63,736			56,114
Trust Assets under management		99,042			96,563
Book value per share	$	23.07		$	20.51
Equity to total assets		12.38	%		11.25	%
Allowance to total loans receivable		1.30	%		1.27	%
Nonperforming loans to total loans		0.88	%		0.66	%
Nonperforming assets to total assets		0.73	%		0.59	%

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NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

		30-Sep		30-Jun		31-Mar		31-Dec		30-Sep
		2009		2009		2009		2008		2008
ASSETS
Cash and due from banks	$	8,769	$	7,548	$	5,682	$	6,463	$	9,277
Interest bearing deposits with banks		280		6		9,329		17		74
Federal funds sold		3,000		-		3,000		-		450
Cash and cash equivalents		12,049		7,554		18,011		6,480		9,801
Securities available for sale		126,349		122,601		124,222		130,120		128,287
Securities held to maturity		708		708		707		707		706
Loans receivable (net of unearned Income)		359,482		360,593		351,433		349,404		341,217
Less: Allowance for loan losses		4,663		4,574		4,413		4,233		4,331
Net loans receivable		354,819		356,019		347,020		345,171		336,886
Investment in FHLB stock		3,538		3,538		3,538		3,538		3,545
Bank premises and equipment, net		5,258		5,297		5,413		5,490		5,601
Foreclosed real estate owned		562		798		768		660		660
Other assets		11,584		11,980		11,745		12,130		13,149
TOTAL ASSETS	$	514,867	$	508,495	$	511,424	$	504,296	$	498,635
LIABILITIES
Deposits:
Non-interest bearing demand	$	63,600	$	60,444	$	57,270	$	56,839	$	63,474
Interest- bearing deposits		319,263		313,709		313,146		302,796		297,083
Total deposits		382,863		374,153		370,416		359,635		360,557
Other borrowings		62,553		67,596		72,412		81,126		76,575
Other liabilities		5,715		5,645		8,446		4,845		5,389
TOTAL LIABILITIES		451,131		447,394		451,274		445,606		442,521
STOCKHOLDERS’ EQUITY		63,736		61,101		60,150		58,690		56,114
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	514,867	$	508,495	$	511,424	$	504,296	$	498,635

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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		2009			2009			2009			2008			2008
INTEREST INCOME
Loans receivable, including fees	$	5,382		$	5,426		$	5,287		$	5,423		$	5,509
Securities		1,297			1,316			1,397			1,508			1,549
Other		1			1			6			3			1
Total Interest income		6,680			6,743			6,690			6,934			7,059
INTEREST EXPENSE
Deposits		1,433			1,420			1,501			1,659			1,780
Borrowings		481			488			508			548			503
Total Interest expense		1,914			1,908			2,009			2,207			2,283
NET INTEREST INCOME		4,766			4,835			4,681			4,727			4,776
PROVISION FOR LOAN LOSSES		140			220			225			420			130
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,626			4,615			4,456			4,307			4,646
OTHER INCOME
Service charges and fees		614			642			598			636			656
Income from fiduciary activities		99			82			82			111			91
Net realized gains (losses) on sales of securities		90			172			161			-			(27	)
Gains on sale of loans and servicing rights		42			121			133			13			90
Gain on sale of deposits		-			-			150			-			-
Other		173			151			157			130			163
Total other income		1,018			1,168			1,281			890			973
OTHER EXPENSES
Salaries and employee benefits		1,611			1,595			1,614			1,525			1,477
Occupancy, furniture and equipment , net		367			379			485			378			403
Foreclosed real estate owned		130			6			12			11			519
FDIC insurance assessment		133			358			126			54			12
Other		933			982			1,038			978			950
Total other expenses		3,174			3,320			3,275			2,946			3,361
INCOME BEFORE TAX		2,470			2,463			2,462			2,251			2,258
INCOME TAX EXPENSE		695			714			725			666			666
NET INCOME	$	1,775		$	1,749		$	1,737		$	1,585		$	1,592
Basic earnings per share	$	0.64		$	0.64		$	0.63		$	0.58		$	0.58
Diluted earnings per share	$	0.64		$	0.63		$	0.63		$	0.58		$	0.58
Book Value per share	$	23.07		$	22.23		$	21.99		$	21.45		$	20.51
Return on average equity		11.25%	%		11.49	%		11.80	%		11.05	%		11.15	%
Return on average assets		1.40	%		1.39	%		1.39	%		1.26	%		1.28	%
Net interest spread		3.63	%		3.70	%		3.54	%		3.61	%		3.67	%
Net interest margin		4.07	%		4.13	%		3.96	%		4.09	%		4.21	%
Allowance for loan losses to total loans		1.30	%		1.27	%		1.26	%		1.21	%		1.27	%
Net charge-offs to average loans (annualized)		0.06	%		0.07	%		0.05	%		0.60	%		0.04	%
Nonperforming loans to total loans		0.88	%		0.50	%		0.48	%		0.60	%		0.66	%
Nonperforming assets to total assets		0.73	%		0.51	%		0.48	%		0.54	%		0.59	%

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