Norwood Financial (NWFL) 8-K Announces Second Quarter Earnings

    FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES SECOND QUARTER EARNINGS

July 21, 2010-Honesdale, PA

Lewis J. Critelli, 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 June 30, 2010 of $1,818,000.  This represents an increase of $69,000, or 3.9%, over the $1,749,000 earned in the similar period of 2009.  Earnings per share (fully diluted) were $.66 in the 2010 period, increasing from the $.63 earned in the similar period of 2009.  Annualized return on average assets for the three months ended June 30, 2010 was 1.36% with an annualized return on average equity of 11.03%.  Net income for the six months ended June 30, 2010 totaled $3,615,000, which is $129,000 or 3.7%, higher than the same six month period of last year.  Earnings per share (fully diluted) for the six mont hs ended June 30, 2010 and 2009 totaled $1.31 and $1.26 per share, respectively.

Total assets as of June 30, 2010 were $546.6 million with loans receivable of $353.9 million, deposits of $407.8 million and stockholders’ equity of $66.8 million.  Total assets increased $38.1 million, or 7.5% during the twelve months ended June 30, 2010.

Loans receivable decreased $6.7 million since June 30, 2009 due to the sale of fixed rate residential mortgage loans.  The commercial loan portfolio, principally real estate related, increased $3.8 million, while installment loans decreased $3.0 million.  The Company experienced a significant volume of residential mortgage activity but sold $17.3

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million of fixed-rate residential mortgages, principally with 30 year terms, for purposes of interest rate risk management.  As a result, mortgage loans outstanding decreased $7.5 million for the period.

Non-performing assets, which includes non-performing loans and foreclosed assets, totaled $4,136,000 and represented .76% of total assets as of June 30, 2010 compared to $5,407,000 and 1.02% of assets as of December 31, 2009 and $2,597,000, or .83% of total assets, as of June 30, 2009.  Net charge-offs were $91,000 for the quarter and totaled $512,000 for the six months ended June 30, 2010 compared to $59,000 and $104,000, respectively, for the similar periods in 2009.  The Company determined that it was appropriate to provide $150,000 and $480,000 for potential future loan losses for the three and six month periods ended June 30, 2010, respectively, compared to $220,000 and $445,000, respectively, for the similar periods in 2009.  The allowance for loan losses totaled $5,421,000 as of June 30, 2010, increasing from $4,574,000 as of June 30, 2009 and represented 1.53% of total loans outstanding.

For the three months ended June 30, 2010, net interest income, on a fully taxable equivalent basis (fte), totaled $5,066,000, an increase of $61,000 or 1.2% over the similar period in 2009.  Net interest margin (fte) for the 2010 period was 3.96% decreasing from 4.13% for the similar period in 2009 due to a decrease of 54 basis points on interest earning assets which was only partially offset by a 48 basis point decrease in the cost of funds.  New purchases and the reinvestment of proceeds from investment security activity contributed significantly to the reduced yield on assets. Net interest income (fte) for the six months ended June 30, 2010 totaled $10,269,000, which was a $422,000, or 4.3%

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increase, over the similar period in 2009.  Net interest margin (fte) for both periods was 4.05%.

Other income for the three months ended June 30, 2010 totaled $1,016,000 compared to $1,168,000 for the similar period in 2009.  The decrease was primarily due to a $108,000 reduction in gains on the sales of investment securities.  Service charges also decreased $72,000 in comparison to the second quarter of last year.  For the six months ended June 30, 2010, other income totaled $2,018,000 compared to $2,449,000 in the 2009 period.  The 2010 period includes $205,000 in gains and servicing rights on the sale of $10.5 million of residential mortgage loans compared to $254,000 in similar gains on sales of $15.7 million of mortgage loans in the 2009 period.  Gains on the sales of investment securities totaled $219,000 on sales of $12.6 million for the 2010 period compared to $333,000 in similar gains in the 2009 period.  The proceeds from investment securities sales were reinvested to provide protection from rising interest rates.  The Company also had a $150,000 gain on the sale of deposits related to a branch closure, in the 2009 period.

Other expenses totaled $3,176,000 for the three months ended June 30, 2010, a decrease of $144,000 from the $3,320,000 reported in the similar period of 2009.  The decrease was principally related to FDIC insurance assessments, which included a special assessment of $225,000 in the 2009 period.  For the six months ended June 30, 2010, other expenses totaled $6,336,000 compared to $6,595,000 for the similar period in 2009, a decrease of $259,000 due to the FDIC special assessment recognized in 2009.

Mr. Critelli commented, “Even though we are operating in a very challenging environment, we believe the Company had a very solid start to 2010.  Our core earnings

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are strong, net interest margin remains close to 4.00% and our capital levels are at the top of our peer group.  We are certainly aware that the slow down in the economy, increased unemployment and the soft real estate market will continue to impact our customers throughout the remainder of 2010.  However, we are confident that the resiliency of the people in Northeastern Pennsylvania will prevail as we slowly exit this period of economic instability.  We believe that we are well positioned to take advantage of the opportunities available as the economy rebounds.”

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 federal and state laws, 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 response 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.

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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.

The following reconciles net interest income to net interest income on a fully taxable equivalent basis:

	Three months ended June 30				Six months ended June 30
(dollars in thousands)	2010		2009		2010		2009
Net Interest Income	$	4,832	$	4,835	$	9,829	$	9,516
Taxable equivalent basis adjustment   using 34% marginal tax rate		234		170		439		331
Net interest income on a fully taxable   equivalent basis	$	5,066	$	5,005	$	10,269	$	9,847

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

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NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
	June 30
	2010			2009
ASSETS
Cash and due from banks	$	6,168		$	7,548
Federal funds sold		3,000			0
Interest bearing deposits with banks		25,374			6
Cash and cash equivalents		34,542			7,554
Securities available for sale		141,245			122,601
Securities held to maturity,  fair value 2010: $179 and 2009:  $721		169			708
Loans receivable (net of unearned Income)		353,933			360,593
Less: Allowance for loan losses		5,421			4,574
Net loans receivable		348,512			356,019
Investment in FHLB Stock, at cost		3,538			3,538
Bank premises and equipment,net		5,061			5,297
Bank owned life insurance		8,074			8,234
Foreclosed real estate owned		382			798
Accrued interest receivable		2,113			2,117
Other assets		2,944			1,629
TOTAL ASSETS	$	546,580		$	508,495
LIABILITIES
Deposits:
Non-interest bearing demand	$	63,408		$	60,444
Interest-bearing		344,355			313,709
Total deposits		407,763			374,153
Short-term borrowings		24,378			24,596
Other borrowings		43,000			43,000
Accrued interest payable		1,617			2,210
Other liabilities		3,056			3,435
TOTAL LIABILITIES		479,814			447,394
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284			284
Surplus		9,777			9,879
Retained earnings		56,526			52,402
Treasury stock, at cost: 2010: 80,977 shares, 2009: 92,666 shares		(2,467	)		(2,871	)
Accumulated other comprehensive income		2,646			1,407
TOTAL STOCKHOLDERS' EQUITY		66,766			61,101
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	546,580		$	508,495

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
	2010		2009		2010		2009
INTEREST INCOME
Loans receivable, including fees	$	5,218	$	5,426	$	10,628	$	10,713
Securities		1,141		1,316		2,362		2,713
Other		18		1		29		7
Total Interest income		6,377		6,743		13,019		13,433
INTEREST EXPENSE
Deposits		1,102		1,420		2,301		2,921
Short-term borrowings		27		73		61		169
Other borrowings		416		415		828		827
Total Interest expense		1,545		1,908		3,190		3,917
NET INTEREST INCOME		4,832		4,835		9,829		9,516
PROVISION FOR LOAN LOSSES		150		220		480		445
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,682		4,615		9,349		9,071
OTHER INCOME
Service charges and fees		570		642		1,093		1,240
Income from fiduciary activities		93		82		179		164
Net realized gains on sales of securities		64		172		219		333
Gains on sale of loans and servicing rights		130		121		205		254
Gain on sale of deposits		0		0		0		150
Other		159		151		322		308
Total other income		1,016		1,168		2,018		2,449
OTHER EXPENSES
Salaries and  employee benefits		1,572		1,595		3,187		3,209
Occupancy, furniture and equipment		408		379		802		864
Data processing related		216		203		412		399
Taxes, other than income		150		139		297		275
Professional Fees		138		104		277		202
FDIC Insurance assessment		118		358		236		484
Foreclosed real estate owned		13		6		29		18
Other		561		536		1,096		1,144
Total other expenses		3,176		3,320		6,336		6,595
INCOME BEFORE TAX		2,522		2,463		5,031		4,925
INCOME TAX EXPENSE		704		714		1,416		1,439
NET INCOME	$	1,818	$	1,749	$	3,615	$	3,486
Basic earnings per share	$	0.66	$	0.64	$	1.31	$	1.27
Diluted earnings per share	$	0.66	$	0.63	$	1.31	$	1.26

NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)
For the Three Months Ended June 30	2010			2009
Net interest income	$	4,832		$	4,835
Net income		1,818			1,749
Net interest spread (fully taxable equivalent)		3.64	%		3.70	%
Net interest margin (fully taxable equivalent)		3.96	%		4.13	%
Return on average assets		1.36	%		1.39	%
Return on average equity		11.03	%		11.49	%
Basic  earnings per share	$	0.66		$	0.64
Diluted earnings per share		0.66			0.63
For the Six Months Ended June 30
Net interest income	$	9,829		$	9,516
Net income		3,615			3,486
Net interest spread (fully taxable equivalent)		3.72	%		3.62	%
Net interest margin (fully taxable equivalent)		4.05	%		4.05	%
Return on average assets		1.37	%		1.39	%
Return on average equity		11.06	%		11.64	%
Basic  earnings per share	$	1.31		$	1.27
Diluted earnings per share		1.31			1.26
As of June 30
Total Assets	$	546,580		$	508,495
Total Loans receivable		353,933			360,593
Allowance for loan  losses		5,421			4,574
Total deposits		407,763			374,153
Stockholders' equity		66,766			61,101
Trust Assets  under management		99,137			93,162
Book value per share	$	24.16		$	22.23
Equity to total assets		12.22	%		12.02	%
Allowance to total loans receivable		1.53	%		1.27	%
Nonperforming loans to total loans		1.06	%		0.50	%
Nonperforming assets to total assets		0.76	%		0.51	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	June 30		March 31		31-Dec		30-Sep		30-Jun
	2010		2010		2009		2009		2009
ASSETS
Cash and due from banks	$	6,168	$	7,945	$	6,498	$	8,769	$	7,548
Interest bearing deposits with banks		25,374		14,672		7,857		280		6
Federal funds sold		3,000		3,000		3,000		3,000		-
Cash and cash equivalents		34,542		25,617		17,355		12,049		7,554
Securities available for sale		141,245		125,653		130,577		126,349		122,601
Securities held to maturity		169		168		708		708		708
Loans receivable (net of unearned Income)		353,933		357,587		363,474		359,482		360,593
Less: Allowance for loan losses		5,421		5,362		5,453		4,663		4,574
Net loans receivable		348,512		352,225		358,021		354,819		356,019
Investment in FHLB stock		3,538		3,538		3,538		3,538		3,538
Bank premises and equipment, net		5,061		5,126		5,189		5,258		5,297
Foreclosed real estate owned		382		392		392		562		798
Other assets		13,131		13,798		13,916		11,584		11,980
TOTAL ASSETS	$	546,580	$	526,517	$	529,696	$	514,867	$	508,495
LIABILITIES
Deposits:
Non-interest bearing demand	$	63,408	$	60,144	$	59,821	$	63,600	$	60,444
Interest- bearing deposits		344,355		331,512		331,652		319,263		313,709
Total deposits		407,763		391,656		391,473		382,863		374,153
Other borrowings		67,378		64,781		68,803		62,553		67,596
Other liabilities		4,673		4,977		4,949		5,715		5,645
TOTAL LIABILITIES		479,814		461,414		465,225		451,131		447,394
STOCKHOLDERS' EQUITY		66,766		65,103		64,471		63,736		61,101
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	546,580	$	526,517	$	529,696	$	514,867	$	508,495

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	2010			2010			2009			2009			2009
INTEREST INCOME
Loans receivable, including fees	$	5,218		$	5,410		$	5,428		$	5,382		$	5,426
Securities		1,141			1,221			1,283			1,297			1,316
Other		18			11			11			1			1
Total Interest income		6,377			6,642			6,722			6,680			6,743
INTEREST EXPENSE
Deposits		1,102			1,199			1,411			1,433			1,420
Borrowings		443			446			484			481			488
Total Interest expense		1,545			1,645			1,895			1,914			1,908
NET INTEREST INCOME		4,832			4,997			4,827			4,766			4,835
PROVISION FOR LOAN LOSSES		150			330			1,100			140			220
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		4,682			4,667			3,727			4,626			4,615
OTHER INCOME
Service charges and fees		570			523			622			614			642
Income from fiduciary activities		93			86			91			99			82
Net realized gains (losses) on sales of securities		64			155			40			90			172
Gains on sale of loans and servicing rights		130			75			185			42			121
Gain on sale of deposits		0			0			-			-			-
Earnings and proceeds on life insurance		96			102			913			102			88
Other		63			61			74			71			63
Total other income		1,016			1,002			1,925			1,018			1,168
OTHER EXPENSES
Salaries and  employee benefits		1,572			1,615			2,009			1,611			1,595
Occupancy, furniture and equipment , net		408			394			360			367			379
Foreclosed real estate owned		13			16			288			130			6
FDIC insurance assessment		118			118			93			133			358
Other		1,065			1,017			952			933			982
Total other expenses		3,176			3,160			3,702			3,174			3,320
INCOME BEFORE TAX		2,522			2,509			1,950			2,470			2,463
INCOME TAX EXPENSE		704			712			148			695			714
NET INCOME	$	1,818		$	1,797		$	1,802		$	1,775		$	1,749
Basic  earnings per share	$	0.66		$	0.65		$	0.65		$	0.64		$	0.64
Diluted earnings per share	$	0.66		$	0.65		$	0.65		$	0.64		$	0.63
Book Value per share	$	24.16		$	23.52		$	23.25		$	23.07		$	22.23
Return on average equity		11.03	%		11.10	%		11.09	%		11.25	%		11.49	%
Return on average assets		1.36	%		1.38	%		1.39	%		1.40	%		1.39	%
Net interest spread		3.64	%		3.79	%		3.55	%		3.63	%		3.70	%
Net interest margin		3.96	%		4.14	%		3.96	%		4.07	%		4.13	%
Allowance for loan losses to total loans		1.53	%		1.50	%		1.50	%		1.30	%		1.27	%
Net charge-offs to average loans (annualized)		0.10	%		0.47	%		0.34	%		0.06	%		0.07	%
Nonperforming loans to total loans		1.06	%		1.12	%		1.38	%		0.88	%		0.50	%
Nonperforming assets to total assets		0.76	%		0.83	%		1.02	%		0.73	%		0.51	%