Norwood Financial (NWFL) 8-K Norwood Financial Corp. Announces First Quarter Earnings

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP. ANNOUNCES FIRST QUARTER EARNINGS

April 22, 2010

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq Global Market – NWFL) and its subsidiary, Wayne Bank announced earnings of $1,797,000 for the three months ended March 31, 2010 which represents an increase of 3.5% over the $1,737,000 recorded during the same three month period of last year.  Earnings per share on a fully diluted basis were $.65 in the first quarter of this year compared to $.63 in the first quarter of 2009.  The return on average assets was 1.38% in the first quarter of 2010 and the return on average equity was 11.10%.

Total assets were $526.5 million as of March 31, 2010, an increase of $15.1 million or 3%, over the prior year total.  Total loans increased $6.1 million over the prior year comprised of a $9.2 million increase in commercial loans outstanding which was partially offset by a $3.1 million reduction in retail loans.  The decrease in retail loans includes the sale of $4.3 million of residential mortgage loans to reduce the Company’s interest rate risk position.  Total deposits increased $21.2 million, or 6% over the past twelve months due primarily to a $14.6 million increase in certificates of deposit.  The growth also includes a $3 million increase in savings deposits and almost $3 million of non-interest bearing demand balances.  Stockholders’ equity increased $5 million, or 8%, during the past year, primarily due to retention of earnings.

Non-performing assets totaled $4.4 million at March 31, 2010 comprised of $4.0 million of non-performing loans and $392,000 of Other Real Estate Owned, compared to $5.4 million of non-performing assets at December 31, 2009. The $1.0 million decrease recorded during the quarter reflects a reduction in non-accruing loans of $1.0 million due to payments received on loans carried in non-accrual status at year end.  As of March 31, 2009, non-performing assets totaled $2.5 million.  Net charge-offs for the three month period ending March 31, 2010 were $421,000 which includes $412,000 of write downs on properties previously carried as non-accrual loans, compared to $45,000 of net charge-offs during the first quarter of last year.  Due to the increase in charge-offs, management determined that it would be prudent to provide additional reserves and added $330,000 to the allowance for loan losses compared to $225,000 during the same period of last year.  The allowance for loan losses was 1.50% of total loans outstanding on March 31, 2010 and December 31, 2009 compared to 1.26% on March 31, 2009.

Net interest income (fully taxable equivalent) was $5,203,000 during the first quarter of 2010 which is 3% higher than the $5,035,000 recorded during the prior three month period and 7% higher than the same three month period of last year.  Loan growth and the downward repricing of interest bearing deposits contributed to the improvement over the first quarter of last year, resulting in a net interest margin (fte) which improved from 3.96% in the first quarter of 2009 to 4.14% for the three months ended March 31, 2010.  Other income totaled $1,002,000 in the first quarter of 2010 compared to $1,281,000 during the same period of last year.  The $279,000 decrease in other income can be attributed to a reduction in the amount of gains recognized from

the sale of loans and securities in each period and the $150,000 gain on the sale of deposits recorded during the first quarter of last year.  During the current period, the Company recognized a gain of $155,000 from the sale of securities and $75,000 in gains on the sale of $4.3 million of residential mortgage loans to reduce the long term risk to rising interest rates.  Operating expenses totaled $3,160,000 in the first quarter and were $115,000, or 4%, lower than the same period of last year.  Occupancy and equipment costs were $91,000 lower than last year due primarily to the closure of the branch office in Hamlin.  FDIC assessments were $118,000 in the first quarter of 2010 and $126,000 for the same period of last year.

Mr. Critelli stated that “We are extremely pleased to report a 3.5% improvement in net earnings over last year, considering that we increased our provision for loan losses by $105,000 and had $214,000 lower gains from the sale of assets and deposits.  We do expect the slow economy, high unemployment rate and soft real estate market to continue to impact our market area and customers.  Monitoring credit quality and aggressively addressing any issues as they arise remains a top priority.  However, our core earnings remain strong.  We also continue to have regulatory capital levels which are near the top of our peer group.”

Norwood Financial Corp. is the parent company of Wayne Bank which operates from eleven offices throughout 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 equivalent basis:

(dollars in thousands)	Three months ended March 31,
	2010	2009
Net interest income	$4,997	$4,681
Tax equivalent basis adjustment using 34% marginal  tax rate	206	161
Net interest income on a fully taxable equivalent basis	$5,203	$4,842

Contact:	William S. Lance
	Senior Vice President &
	Chief Financial Officer
	NORWOOD FINANCIAL CORP.
	570-253-8505
	www.waynebank.com

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
		March 31
		2010		2009
ASSETS
Cash and due from banks	$	7,945	$	5,682
Interest bearing deposits with banks		14,672		9,329
Federal funds sold		3,000		3,000
Cash and cash equivalents		25,617		18,011
Securities available for sale		125,653		124,222
Securities held to maturity,  fair value 2010: $177,  2009:  $724		168		707
Loans receivable (net of unearned income)		357,587		351,433
Less: Allowance for loan losses		5,362		4,413
Net loans receivable		352,225		347,020
Investment in FHLB Stock, at cost		3,538		3,538
Bank premises and equipment,net		5,126		5,413
Bank owned life insurance		7,987		8,149
Foreclosed real estate owned		392		768
Accrued interest receivable		2,414		2,314
Other assets		3,397		1,282
TOTAL ASSETS	$	526,517	$	511,424
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,144	$	57,270
Interest-bearing		331,512		313,146
Total deposits		391,656		370,416
Short-term borrowings		21,781		29,412
Other borrowings		43,000		43,000
Payable on sale of deposits		0		3,607
Accrued interest payable		1,580		1,944
Other liabilities		3,397		2,895
TOTAL LIABILITIES		461,414		451,274
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284		284
Surplus		9,787		9,993
Retained earnings		55,481		51,394
Treasury stock, at cost: 2010: 86,007   shares, 2009: 106,041 shares		(2,620)		(3,286)
Accumulated other comprehensive income		2,171		1,765
TOTAL STOCKHOLDERS' EQUITY		65,103		60,150
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	526,517	$	511,424

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
		Three Months Ended March 31				YTD as of March 31
		2010		2009		2010		2009
INTEREST INCOME
Loans receivable, including fees	$	5,410	$	5,287	$	5,410	$	5,287
Securities		1,221		1,397		1,221		1,397
Other		11		6		11		6
Total Interest income		6,642		6,690		6,642		6,690
INTEREST EXPENSE
Deposits		1,199		1,501		1,199		1,501
Short-term borrowings		34		96		34		96
Other borrowings		412		412		412		412
Total Interest expense		1,645		2,009		1,645		2,009
NET INTEREST INCOME		4,997		4,681		4,997		4,681
PROVISION FOR LOAN LOSSES		330		225		330		225
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,667		4,456		4,667		4,456
OTHER INCOME
Service charges and fees		523		598		523		598
Income from fiduciary activities		86		82		86		82
Net realized gains (losses) on sales of securities		155		161		155		161
Gains on sale of loans and servicing rights		75		133		75		133
Earnings and proceeds on life insurance policies		102		93		102		93
Gain on sale of deposits		0		150		0		150
Other		61		64		61		64
Total other income		1,002		1,281		1,002		1,281
OTHER EXPENSES
Salaries and  employee benefits		1,615		1,614		1,615		1,614
Occupancy, furniture and equipment		394		485		394		485
Data processing related		196		196		196		196
Taxes, other than income		147		136		147		136
Professional Fees		139		98		139		98
FDIC Insurance assessment		118		126		118		126
Foreclosed real estate owned		16		12		16		12
Other		535		608		535		608
Total other expenses		3,160		3,275		3,160		3,275
INCOME BEFORE TAX		2,509		2,462		2,509		2,462
INCOME TAX EXPENSE		712		725		712		725
NET INCOME	$	1,797	$	1,737	$	1,797	$	1,737
Basic earnings per share	$	0.65	$	0.63	$	0.65	$	0.63
Diluted earnings per share	$	0.65	$	0.63	$	0.65	$	0.63

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months  Ended March 31		2010		2009
Net interest income	$	4,997	$	4,681
Net income		1,797		1,737
Net interest spread (fully taxable equivalent)		3.79%		3.54%
Net interest margin (fully taxable equivalent)		4.14%		3.96%
Return on average assets		1.38%		1.39%
Return on average equity		11.10%		11.80%
Basic  earnings per share	$	0.65	$	0.63
Diluted earnings per share		0.65		0.63
For the YTD Ended Ended March 31
Net interest income	$	4,997	$	4,681
Net income		1,797		1,737
Net interest spread (fully taxable equivalent)		3.79%		3.54%
Net interest margin (fully taxable equivalent)		4.14%		3.96%
Return on average assets		1.38%		1.39%
Return on average equity		11.10%		11.80%
Basic  earnings per share	$	0.65	$	0.63
Diluted earnings per share		0.65		0.63
As of March 31
Total Assets	$	526,517	$	511,424
Total Loans receivable		357,587		351,433
Allowance for loan  losses		5,362		4,413
Total deposits		391,656		370,416
Stockholders' equity		65,103		60,150
Trust Assets  under management		105,237		85,146
Book value per share	$	23.52	$	21.99
Equity to total assets		12.36%		11.76%
Allowance to total loans receivable		1.50%		1.26%
Nonperforming loans to total loans		1.12%		0.48%
Nonperforming assets to total assets		0.83%		0.48%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
		March 31		31-Dec		30-Sep		30-Jun		31-Mar
		2010		2009		2009		2009		2009
ASSETS
Cash and due from banks	$	7,945	$	6,498	$	8,769	$	7,548	$	5,682
Interest bearing deposits with banks		14,672		7,857		280		6		9,329
Federal funds sold		3,000		3,000		3,000		-		3,000
Cash and cash equivalents		25,617		17,355		12,049		7,554		18,011
Securities available for sale		125,653		130,577		126,349		122,601		124,222
Securities held to maturity		168		708		708		708		707
Loans receivable (net of unearned Income)		357,587		363,474		359,482		360,593		351,433
Less: Allowance for loan losses		5,362		5,453		4,663		4,574		4,413
Net loans receivable		352,225		358,021		354,819		356,019		347,020
Investment in FHLB stock		3,538		3,538		3,538		3,538		3,538
Bank premises and equipment, net		5,126		5,189		5,258		5,297		5,413
Foreclosed real estate owned		392		392		562		798		768
Other assets		13,798		13,916		11,584		11,980		11,745
TOTAL ASSETS	$	526,517	$	529,696	$	514,867	$	508,495	$	511,424
LIABILITIES
Deposits:
Non-interest bearing demand	$	60,144	$	59,821	$	63,600	$	60,444	$	57,270
Interest- bearing deposits		331,512		331,652		319,263		313,709		313,146
Total deposits		391,656		391,473		382,863		374,153		370,416
Other borrowings		64,781		68,803		62,553		67,596		72,412
Other liabilities		4,977		4,949		5,715		5,645		8,446
TOTAL LIABILITIES		461,414		465,225		451,131		447,394		451,274
STOCKHOLDERS' EQUITY		65,103		64,471		63,736		61,101		60,150
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	526,517	$	529,696	$	514,867	$	508,495	$	511,424
NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
		31-Mar		31-Dec		30-Sep		30-Jun		31-Mar
Three months ended		2010		2009		2009		2009		2009
INTEREST INCOME
Loans receivable, including fees	$	5,410	$	5,428	$	5,382	$	5,426	$	5,287
Securities		1,221		1,283		1,297		1,316		1,397
Other		11		11		1		1		6
Total Interest income		6,642		6,722		6,680		6,743		6,690
INTEREST EXPENSE
Deposits		1,199		1,411		1,433		1,420		1,501
Borrowings		446		484		481		488		508
Total Interest expense		1,645		1,895		1,914		1,908		2,009
NET INTEREST INCOME		4,997		4,827		4,766		4,835		4,681
PROVISION FOR LOAN LOSSES		330		1,100		140		220		225
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,667		3,727		4,626		4,615		4,456
OTHER INCOME
Service charges and fees		523		622		614		642		598
Income from fiduciary activities		86		91		99		82		82
Net realized gains (losses) on sales of securities		155		40		90		172		161
Gains on sale of loans and servicing rights		75		185		42		121		133
Gain on sale of deposits		0		-		-		-		150
Earnings and proceeds on life insurance		102		913		102		88		93
Other		61		74		71		63		64
Total other income		1,002		1,925		1,018		1,168		1,281
OTHER EXPENSES
Salaries and  employee benefits		1,615		2,009		1,611		1,595		1,614
Occupancy, furniture and equipment , net		394		360		367		379		485
Foreclosed real estate owned		16		288		130		6		12
FDIC insurance assessment		118		93		133		358		126
Other		1,017		952		933		982		1,038
Total other expenses		3,160		3,702		3,174		3,320		3,275
INCOME BEFORE TAX		2,509		1,950		2,470		2,463		2,462
INCOME TAX EXPENSE		712		148		695		714		725
NET INCOME	$	1,797	$	1,802	$	1,775	$	1,749	$	1,737
Basic  earnings per share	$	0.65	$	0.65	$	0.64	$	0.64	$	0.63
Diluted earnings per share	$	0.65	$	0.65	$	0.64	$	0.63	$	0.63
Book Value per share	$	23.52	$	23.25	$	23.07	$	22.23	$	21.99
Return on average equity		11.10%		11.09%		11.25%		11.49%		11.80%
Return on average assets		1.38%		1.39%		1.40%		1.39%		1.39%
Net interest spread		3.79%		3.55%		3.63%		3.70%		3.54%
Net interest margin		4.14%		3.96%		4.07%		4.13%		3.96%
Allowance for loan losses to total loans		1.50%		1.50%		1.30%		1.27%		1.26%
Net charge-offs to average loans (annualized)		0.47%		0.34%		0.06%		0.07%		0.05%
Nonperforming loans to total loans		1.12%		1.38%		0.88%		0.50%		0.48%
Nonperforming assets to total assets		0.83%		1.02%		0.73%		0.51%		0.48%