SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarter period ended September 30, 2002
                                  ------------------
                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                   to
                                ----------------    ----------------

Commission file number  0-28366
                       --------

                             Norwood Financial Corp.
- -------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      Pennsylvania                                     23-2828306
- -------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. employer identification no.)
incorporation or organization)


717 Main Street, Honesdale, Pennsylvania                18431
- ----------------------------------------                -----
(Address of principal executive ofices)               (Zip Code)


Registrant's telephone number, including area code   (570)253-1455
                                                    ----------------

                                       N/A
               ---------------------------------------------------
               Former name, former address and former fiscal year,
                         if changed since last report.


         Indicated by check (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

                 Class                        Outstanding as of October 30, 2002
- ---------------------------------------       ----------------------------------
common stock, par value $0.10 per share                 1,772,318

                                       1





                            NORWOOD FINANCIAL CORP.
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2002
                                      INDEX

                                                                          Page
                                                                          Number

Part I - CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP.

Item 1.  Financial Statements                                                  3
Item 2.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                         10
Item 3   Qualitative and Quantitative Disclosures About Market Risk           20
Item 4   Controls and Procedures                                              20

Part II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                    21
Item 2.  Changes in Securities                                                21
Item 3.  Defaults upon Senior Securities                                      21
Item 4.  Submission of Matters to a Vote of Security Holders                  21
Item 5.  Other Materially Important Events                                    21
Item 6.  Exhibits and Reports on Form 8-K                                     21

Signatures                                                                    22

Certifications                                                                23

                                       2



PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements
- ----------------------------
NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)



                                                            September 30,         December 31,
                                                               2002                    2001
                                                          ----------------     ---------------
                                                                      
ASSETS
    Cash and due from banks                               $    13,393           $     9,645
    Interest bearing deposits with banks                          712                   111
    Federal funds sold                                         23,565                 7,580
                                                          -----------           -----------
       Cash and cash equivalents                               37,670                17,336

    Securities available for sale                             107,486                95,793
    Securities held to maturity, fair value 2002
      $6,561, 2001 $6,464                                       6,202                 6,226
    Loans receivable (net of unearned income)                 213,598               214,194
       Less: Allowance for loan losses                          3,143                 3,216
                                                          -----------           -----------
    Net loans receivable                                      210,455               210,978
    Investment in FHLB Stock                                    1,150                 1,400
    Bank premises and equipment, net                            6,134                 6,037
    Foreclosed real estate                                        513                    54
    Accrued interest receivable                                 1,848                 1,879
    Other assets                                                6,157                 6,326
                                                          -----------           -----------
       TOTAL ASSETS                                       $   377,615           $   346,029
                                                          ===========           ===========

LIABILITIES
    Deposits:
     Non-interest bearing demand                               39,025           $    31,715
     Interest-bearing deposits                                257,167               243,208
                                                          -----------           -----------
          Total deposits                                      296,192               274,923
     Short-term borrowings                                     15,169                 6,641
     Long-term debt                                            23,000                25,000
     Accrued interest payable                                   1,699                 2,326
     Other liabilities                                          2,279                 2,023
                                                          -----------           -----------
TOTAL LIABILITIES                                             338,339               310,913

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized
     10,000,000 shares issued 1,803,824 shares                    180                   180
Surplus                                                         4,722                 4,687
Retained earnings                                              33,367                31,265
Treasury stock, at cost 2002: 31,506
     2001:  52,591 shares                                        (640)               (1,066)
Unearned ESOP shares                                             (850)                 (952)
Accumulated other comprehensive income                          2,497                 1,002
                                                          -----------           -----------
       TOTAL STOCKHOLDERS' EQUITY                              39,276                35,116
                                                          -----------           -----------
       TOTAL LIABILITIES AND
            STOCKHOLDERS' EQUITY                          $   377,615           $   346,029
                                                          ===========           ===========


See accompanying notes to the unaudited consolidated financial statements

                                       3



NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)



                                                        Three Months Ended       Nine Months Ended
                                                          September 30              September 30,
                                                       -------------------      -------------------
                                                         2002       2001          2002        2001
                                                         ----       ----          ----        ----
                                                                             
INTEREST INCOME
   Loans receivable including fees                     $ 3,875    $ 4,444       $11,828     $13,663
   Securities                                            1,436      1,444         4,271       4,178
   Other                                                    76         95           193         186
                                                       -------    -------       -------     -------
   Total interest income                                 5,387      5,983        16,292      18,027
INTEREST EXPENSE
   Deposits                                              1,486      2,114         4,716       6,555
   Short-term borrowings                                    49         67           130         215
   Long-term debt                                          324        373           974       1,181
                                                       -------    -------       -------     -------
   Total interest expense                                1,859      2,554         5,820       7,951
                                                       -------    -------       -------     -------
NET INTEREST INCOME                                      3,528      3,429        10,472      10,076
PROVISION FOR LOAN LOSSES                                  150        175           480         545
                                                       -------    -------       -------     -------
  NET INTEREST INCOME AFTER
  PROVISION FOR LOAN LOSSES                              3,378      3,254         9,992       9,531

OTHER INCOME
   Service charges and fees                                464        428         1,313       1,235
   Income from fiduciary activities                         70         58           177         209
   Net realized gains on sales of securities                83         55           427         144
   Other                                                   138        129           467         442
                                                       -------    -------       -------     -------
   Total other income                                      755        670         2,384       2,030

OTHER EXPENSES
   Salaries and employee benefits                        1,219      1,121         3,675       3,405
   Occupancy, furniture & equipment, net                   313        324           951         993
     Data processing related                               143        134           406         389
     Losses on lease residuals                             180        150           790         480
     Taxes, other than income                              (12)        71           144         214
     Professional fees                                      51         47           153         142
     Other                                                 646        574         1,845       1,712
                                                       -------    -------       -------     -------
   Total other expenses                                  2,540      2,421         7,964       7,335

INCOME BEFORE INCOME TAXES                               1,593      1,503         4,412       4,226
INCOME TAX EXPENSE                                         439        409         1,188       1,147
                                                       -------    -------       -------     -------
   NET INCOME                                          $ 1,154    $ 1,094       $ 3,224     $ 3,079
                                                       =======    =======       =======     =======

Basic Earnings per share                               $  0.68    $  0.65       $  1.90     $  1.84
                                                       =======    =======       =======     =======

Diluted earnings per share                             $  0.67    $  0.64       $  1.87     $  1.82
                                                       =======    =======       =======     =======

Cash Dividends Declared per share                      $  0.22    $  0.20       $  0.66     $  0.60
                                                       =======    =======       =======     =======


See accompanying notes to the unaudited consolidated financial statements.

                                       4


NORWOOD FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
(dollars in thousands)


                                                                                                   Accumulated
                                                                                      Unearned     Other
                                        Common                Retained    Treasury    ESOP         Comprehensive
                                        Stock      Surplus    Earnings    Stock       Shares       Income       Total
                                        ------     ------     -------     -------     -------      ------       -----

                                                                                    
Balance December 31, 2000                 $180     $4,629     $28,441    ($1,213)    ($1,155)       $488      $31,370

Comprehensive Income:
  Net Income                                                    3,079                                           3,079
    Change in unrealized gains
      on securities available for sale,
      net of reclassification adjustment
      and tax effects                                                                              1,364        1,364
                                                                                                              -------
Total comprehensive income                                                                                      4,443
                                                                                                              -------
Cash dividends declared $.60 per share                         (1,005)                                         (1,005)
Stock options exercised                               (19)                   136                                  117
Release of earned ESOP shares                          51                                115                      166
                                          ----     ------     -------    -------     -------      ------      -------

Balance, September 30, 2001               $180     $4,661     $30,515    ($1,077)    ($1,040)     $1,852      $35,091
                                          ====     ======     =======    =======     =======      ======      =======





                                                                                                   Accumulated
                                                                                      Unearned     Other
                                        Common                Retained    Treasury    ESOP         Comprehensive
                                        Stock      Surplus    Earnings    Stock       Shares       Income       Total
                                        ------     ------     -------     -------     -------      ------       -----

                                                                                    
Balance December 31, 2001                 $180     $4,687     $31,265    ($1,066)    ($  952)     $1,002      $35,116

Comprehensive Income:
  Net Income                                                    3,224                                           3,244
    Change in unrealized gains
      on securities available for sale,
      net of reclassification adjustment
      and tax effects                                                                              1,495        1,495
                                                                                                              -------
Total comprehensive income                                                                                      4,719
                                                                                                              -------
Cash dividends declared $.66 per share                         (1,122)                                         (1,122)
Stock options exercised                               (78)                   434                                  356
Tax benefit of stock options exercised                  5                                                           5
Acquisition of Treasury Stock                                                 (8)                                  (8)
Release of earned ESOP shares                         108                                102                      210
                                          ----     ------     -------      -----       -----      ------      -------
Balance, September 30, 2002               $180     $4,722     $33,367      ($640)      ($850)     $2,497      $39,276
                                          ====     ======     =======      =====       =====      ======      =======




                                       5



NORWOOD FINANCIAL CORP.
Consolidated Statements of Cashflows (Unaudited)
(dollars in thousands)


                                                                      Nine Months Ended September 30,
                                                                      --------------------------------
                                                                         2002                  2001
                                                                      ----------            ----------
                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                              $  3,224             $  3,079
Adjustments to reconcile net income to net cash provided
   by operating activities:
  Provision for loan losses                                                  480                  545
  Depreciation                                                               457                  466
  Amortization of intangible assets                                          133                  133
  Deferred income taxes                                                     (870)              (1,152)
  Net realized gain on sales of securities                                  (427)                (144)
  Gain(loss) on sale of foreclosed real estate, net                          (11)                  (4)
  Gain on sale of premises and equipment                                      (3)                  (2)
  Net gain on sale of mortgage loans and servicing                           (65)                 (48)
  Mortgage loans originated for sale                                     (4,530)               (1,823)
  Proceeds from sale of mortgage loans                                     4,595                1,871
  Decrease (increase) in accrued interest receivable                          31                  (50)
  Decrease in accrued interest payable                                      (627)                (631)
  (Increase) in cash surrender value of life insurance                      (153)                (371)
  Other, net                                                               1,514                2,157
                                                                        --------             --------
         Net cash provided by operating activities                         3,748                4,026
                                                                        --------             --------

CASH FLOWS FROM INVESTING ACTIVITIES
 Securities available for sale:
         Proceeds from sales                                               6,455               13,292
         Proceeds from maturities and principal reductions on
                  mortgage-backed securities                              32,717               23,770
         Purchases                                                       (48,311)             (48,253)
Securities held to maturity proceeds                                          30                1,000
Net increase in loans                                                     (1,037)                (830)
Redemption of FHLB stock                                                     250                    -
Purchase of bank premises and equipment, net                                (554)                (279)
Proceeds from sale of bank equipment                                          11                    -
Proceeds from sales of foreclosed real estate                                 46                   32
                                                                        --------             --------
         Net cash used in investing activities                           (10,393)             (11,268)

CASH FLOWS FROM FINANCING ACTIVITIES
 Net increase in deposits                                                 21,269               25,991
 Net increase (decrease) in short term borrowings                          8,528               (2,041)
 Repayments of long-term debt                                             (2,000)             (11,000)
Proceeds from long-term debt                                                   -                8,000
Stock options exercised                                                      356                  117
Acquisition of treasury stock                                                 (8)                   -
Release and (buyback) of ESOP shares                                         (48)                 115
 Cash dividends paid                                                      (1,118)              (1,005)
                                                                        --------             --------
         Net cash provided by financing activities                        26,979               20,177
                                                                        --------             --------
         Increase in cash and cash equivalents                            20,334               12,935

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            17,336               11,694
                                                                        --------             --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $ 37,670             $ 24,629
                                                                        ========             ========
See accompanying notes to consolidated financial statement



                                       6


Notes to Unaudited Consolidated Financial Statements
- ----------------------------------------------------

1.   Basis of Presentation
     ---------------------
     The  consolidated  financial  statements  include  the  accounts of Norwood
Financial Corp. (Company) and its wholly-owned subsidiary, Wayne Bank (Bank) and
the Bank's wholly-owned subsidiaries, WCB Realty Corp., Norwood Investment Corp.
and  WTRO  Properties.  All  significant  intercompany  transactions  have  been
eliminated in consolidation.

2.   Estimate
     --------
     The financial  statements  have been prepared in conformity  with generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates.  The financial statements reflect, in the opinion of management,  all
normal, recurring adjustments necessary to present fairly the financial position
of the Company. The operating results for the three and nine month periods ended
September  30, 2002 are not  necessarily  indicative  of the results that may be
expected  for the year  ending  December  31, 2002 or any other  future  interim
period.

     These  statements  should  be read in  conjunction  with  the  consolidated
financial  statements and related notes which are  incorporated  by reference in
the Company's Annual Report on Form 10-K for the year-ended December 31, 2001.

3.   Earnings Per Share
     ------------------
     Basic earnings per share represents income available to common stockholders
divided by the weighted average number of common shares  outstanding  during the
period.  Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive  potential  common shares had been issued,  as
well as any  adjustment  to income that would result from the assumed  issuance.
Potential  common  shares  that may be issued by the  Company  relate  solely to
outstanding stock options and are determined using the treasury stock method.



                                           For the three months ended      For the nine months ended
                                           --------------------------      -------------------------
                                                   September 30                  September  30
                                           --------------------------      -------------------------
                                                 2002           2001         2002         2001
                                                 ----           ----         ----         ----
                                                    (In Thousands)              (In Thousands)

                                                                         
Basic EPS weighted average
     Shares outstanding                         1,705          1,682        1,698        1,677
Dilutive effect of stock options                   30             20           27           13
                                                -----          -----       ------        -----

Diluted EPS weighted average
  Shares outstanding                            1,735          1,702        1,725        1,690
                                                =====          =====        =====        =====



4.   Cash Flow Information
     ---------------------
     For the purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks,  interest-bearing  deposits with banks and
federal funds sold.

     Cash payments for interest for the nine-month period ending September
30, 2002 and 2001 were $6,447,000 and $8,582,000 respectively. Cash payments for
income taxes in 2002 were  $2,415,000  compared to $1,514,000 in 2001.  Non-cash
investing  activity  for  2002  and  2001  included  foreclosed  mortgage  loans
transferred  to  foreclosed  real  estate and  repossession  of other  assets of
$1,050,000 and $1,148,000.

                                       7


5.   Comprehensive Income
     --------------------
     Accounting principles generally require that recognized revenue,  expenses,
gains and losses be included in net income.  Although  certain changes in assets
and  liabilities,  such as  unrealized  gains and losses on  available  for sale
securities,  are reported as a separate  component of the equity  section of the
balance  sheet,   such  items,   along  with  net  income,   are  components  of
comprehensive  income. The components of other comprehensive  income and related
tax effects are as follows:



                                                Three months              Nine months
                                             ------------------        ------------------
                                             Ended September 30        Ended September 30
                                             ------------------        ------------------
(dollars in thousands)                       2002         2001          2002         2001
                                             ----         ----          ----         ----
                                                                     
Net income                                 $1,154       $1,094         $3,224       $3,079
Unrealized holding gains (losses)
  on available for sale securities            613          858          1,843        1,907
Reclassification adjustment for gains
  Realized in income                           83           55            427          144
                                           ------       ------         ------       ------
Net Unrealized gains (losses)                 696          913          2,270        2,051

Income tax (benefit)                          236          311            775          687
                                           ------       ------         ------       ------
Other comprehensive income                    460          602          1,495        1,364

Total comprehensive income                 $1,614       $1,696         $4,719       $4,443
                                           ======       ======         ======       ======


6.   Reclassification of Comparative Amounts
     ---------------------------------------
     Certain  comparative amounts for the prior period have been reclassified to
conform to the current period's  presentation.  Such  reclassifications  did not
affect net income.

7.   Recent Accounting Standards
     ---------------------------
     In June of 2001, the Financial  Accounting Standards Board issued Statement
No. 141 "Business  Combinations,"  and  Statement  No. 142,  "Goodwill and Other
Intangible  Assets."

     Statement  No. 141 requires all business  combinations  to be accounted for
using the  purchase  method  of  accounting  as use of the  pooling-of-interests
method is  prohibited.  In  addition,  this  Statement  requires  that  negative
goodwill  that exists after the basis of certain  acquired  assets is reduced to
zero should be  recognized  as an  extraordinary  gain.  The  provisions of this
Statement apply to all business combinations initiated after June 30, 2001.

     Statement  No. 142  prescribes  that  goodwill  associated  with a business
combination and intangible  assets with an indefinite  useful life should not be
amortized but should be tested for impairment at least  annually.  The Statement
requires   intangibles  that  are  separable  from  goodwill  and  that  have  a
determinable  useful life to be amortized over the determinable useful life. The
provisions  of this  Statement  became  effective  for the Company in January of
2002.  Upon adoption of this  Statement,  goodwill and other  intangible  assets
arising from acquisitions  completed before July 1, 2001 should be accounted for
in accordance with the provisions of this Statement.  This transition  provision
could  require  a  reclassification  of  a  previously   separately   recognized
intangible to goodwill and vice versa if the intangibles in question do not meet
the new criteria for classification as a separately recognizable intangible.

                                       8


     In October 2002, the Financial  Accounting Standards Board issued Statement
No.  147,  "Acquisitions  of Certain  Financial  Institutions."  This  statement
provides guidance on accounting for the acquisition of a financial  institution,
including  the  acquisition  of part of a financial  institution.  The statement
defines  criteria for  determining  whether the acquired  financial  institution
meets the conditions for a "business  combination." If the acquisition meets the
conditions of a "business  combination,"  the  specialized  accounting  guidance
under  Statement  No. 72,  "Accounting  for Certain  Acquisitions  of Banking or
Thrift  Institutions"  will not apply after September 30, 2002 and the amount of
the  unidentifiable  intangible  asset will be  reclassified  to  goodwill  upon
adoption of  Statement  No. 147. The  transition  provisions  were  effective on
October 1, 2002 and did not result in the  Company's  reclassification  of their
unidentifiable  intangible  assets  to  goodwill  and,  accordingly,  they  will
continue to be  amortized.

     At September 30, 2002,  the Company had  intangible  assets with a net book
value of  $505,000,  which will  continue to be  amortized  under the new rules.
Amortization  expense  related to these  assets was $133,000 for the nine months
ended  September  30, 2002 and 2001.

     In July of 2001, the Financial  Accounting Standards Board issued Statement
143,  "Accounting  for  Asset  Retirement   Obligations,"  which  addresses  the
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  This Statement  requires that the fair value of a liability for an asset
retirement  obligation  be recognized in the period in which it is incurred if a
reasonable  estimate of fair value can be made. The associated  asset retirement
costs are  capitalized as part of the carrying  amount of the long-lived  asset.
This Statement  will become  effective for the Company on January 1, 2003 and is
not expected to have a significant impact on the Company's  financial  condition
or results of  operations.

     In April 2002, the Financial  Accounting  Standards Board issued  Statement
No. 145,  "Rescission of Statements No. 4, 44 and 64, Amendment of Statement No.
13." This statement requires that debt extinguishment no longer be classified as
an  extraordinary  item since debt  extinguishment  has become a risk management
strategy for many  companies.  It also  eliminates the  inconsistent  accounting
treatment for sale-leaseback  transactions and certain lease  modifications that
have economic  effects similar to  sale-leaseback  transactions.  This statement
became  effective  May 15,  2002 and did not have any  impact  on the  Company's
financial  condition  or results of  operations.

     In June 2002, the Financial Accounting Standards Board issued Statement No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities," which
nullifies  EITF  Issue  94-3,   "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and other Costs to Exit and Activity  (including  certain
costs incurred in a restructuring)."  This statement delays recognition of these
costs until  liabilities  are incurred and requires fair value  measurement.  It
does not impact the  recognition  of liabilities  incurred in connection  with a
business  combination  or the disposal of long-lived  assets.  The provisions of
this  statement are effective for exit or disposal  activities  initiated  after
December  31,  2002 and are not  expected  to have a  significant  impact on the
Company's financial condition or results of operations.


                                       9


Item 2. Management Discussion and Analysis of Financial Condition and Results of
        Operations

Forward Looking Statements
- --------------------------

     The Private  Securities  Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking  statements.  When used in this discussion,
the words  "believes,  "anticipates,"  "contemplates,"  "expects,"  and  similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties  which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest  rates,  risks  associated  with the effect of opening a new
branch,  the  ability  to  control  costs and  expenses,  and  general  economic
conditions.

Overview
- --------

     On July 30, 2002 the President  signed into law the  Sarbanes-Oxley  Act of
2002 (the Act),  following an  investigative  order proposed by the SEC on chief
financial officers and chief executive officers of 947 large public companies on
June 27, 2002. Additional regulations are expected to be promulgated by the SEC.
As a result  of the  accounting  restatements  by large  public  companies,  the
passage  of the act and  regulations  expected  to be  implemented  by the  SEC,
publicly-registered   companies,  such  as  the  Company,  will  be  subject  to
additional and more cumbersome reporting  regulations and disclosure.  These new
regulations, which are intended to curtail corporate fraud, will require certain
officers to personally certify certain SEC filings and financial  statements and
will require additional  measures to be taken by our outside auditors,  officers
and directors.  The new laws and regulations will increase non-interest expenses
of the Company.

Critical Accounting Policies
- ----------------------------

     Note 2 to the consolidated financial statements of the Company (included in
Item 8 of the  Annual  Report on Form  10-K of the  Company  for the year  ended
December 31, 2001) lists significant accounting policies used in the development
and presentation of its financial statements.  This discussion and analysis, the
significant  accounting  policies,  and other  financial  statement  disclosures
identify  and address  key  variables  and other  qualitative  and  quantitative
factors that are necessary for an understanding  and evaluation of the Company's
results of operations.

     The most significant estimate in the preparation of the Company's financial
statements  is for the  allowance  for loan losses and  estimated  residuals  on
leases.  Please refer to the  discussion of this  calculation  under "Changes in
Financial Condition" below.

Changes in Financial Condition
- ------------------------------

General
- -------
     Total assets at September 30, 2002 were $377.6  million  compared to $346.0
million at year-end 2001, an increase of $31.6 million or 9.1%. The increase was
principally  due to a $21.3  million  growth in deposits,  which was invested in
Federal Funds sold and short-term securities available for sale.

Securities
- ----------
     The fair value of  securities  available for sale at September 30, 2002 was
$107.5 million,  compared to $95.8 million at December 31, 2001. Total purchases
for the period were $48.3 million with  securities  called,  maturities and cash
flow of $32.7 million and sales of $6.5 million.  (See cash flow). The purchases
were principally  obligations of U.S.  Government  Agencies,  including callable
securities and mortgage-backed  securities. The average life of the portfolio at
September 30, 2002 was 2.3 years compared to 3.5 years at December 31, 2001. The
decrease in average life is due to the purchase of short-term  callable agencies
and,  due  to  the  declining  interest  rates,   accelerated   cash-flows  from
mortgage-backed securities.

                                       10


Loans
- -----
     Total loans receivable were $213.6 million at September 30, 2002,  compared
to $214.2  million at December  31,  2001.  The decrease was due in part to $4.5
million of longer-term residential mortgages sold in the secondary market. There
was a gain on the sale of $65,000,  included in other  income.  The Company also
experienced  a  slow  down  in  its  indirect  automobile  lending,  with  loans
decreasing  $7.1 million  from  December  31,  2001,  to total $40.9  million at
September 30, 2002.  Commercial and commercial real estate loans increased $10.1
million,  to $88.7 million.  The commercial  lending activity was principally in
the Monroe and Pike County market areas.

     The Company no longer originates  automobile  leases,  and as a result, the
portfolio  declined $3.9 million from December 31, 2001 to total $2.2 million at
September 30, 2002, which includes  residual value of $1.8 million.  The Company
liquidates its returned  off-lease vehicles through various used car dealers and
automobile  auction centers.  At September 30, 2002 the Company had an inventory
of vehicles to liquidate of $360,000,  decreasing  from $620,000 at December 31,
2001.  Total  provision for losses incurred on off-lease  vehicles,  included in
other expense,  was $790,000 for the nine months of 2002. The Company's  reserve
for future  residual value losses was $240,000 at September 30, 2002 compared to
$225,000 at December 31, 2001.

     Set forth below is selected  data relating to the  composition  of the loan
portfolio at the dates indicated:



Types of loans
(dollars in thousands)
                                                September 30, 2002          December 31, 2001
                                                --------------------       -------------------
                                                     $           %            $          %
                                                ----------     -----       ---------  --------
                                                                          
Real Estate-Residential                           $ 66,170      30.9      $ 64,635        30.1
                 Commercial                         73,808      34.6        63,609        29.6
                 Construction                        3,896       1.8         4,642         2.2
Commercial                                          17,208       8.0        17,442         8.1
Consumer  loans to individuals                      50,710      23.7        58,143        27.1
Lease financing, net of unearned income              2,244       1.0         6,126         2.9
                                                  --------     -----      --------       -----
         Total loans                               214,036     100.0%      214,597       100.0%
Less:
  Unearned income and deferred fees                    438                     403
  Allowance for loan losses                          3,143                   3,216
                                                  --------                --------
Total loans, net                                  $210,455                $210,978
                                                  ========                ========


Allowance for Loan Losses and Non-performing Assets
- ---------------------------------------------------

     Following is a summary of changes in the  allowance for loan losses for the
periods indicated:


                                            As of Three Months           As of Nine Months
(dollars in thousands)                      Ended September 30           Ended September 30
                                           -------------------           ------------------
                                             2002         2001           2002          2001
                                             ----         ----           ----          ----
                                                                    
Balance, beginning                          $ 3,260      $ 3,272      $ 3,216       $ 3,300
Provision for loan losses                       150          175          480           545
Charge-offs                                    (279)        (198)        (620)         (656)
Recoveries                                       12           33           67            93
                                           --------     --------     --------      --------
Net charge-offs                                (267)        (165)        (553)         (563)
                                           --------     --------     --------      --------
Balance, ending                            $  3,143     $  3,282     $  3,143      $  3,282
                                           ========     ========     ========      ========
Allowance to total loans                       1.47%        1.52%        1.47%         1.52%
Net charge-offs to average loans
    (annualized)                               .50%          .31%         .35%          .35%

                                       11



     The allowance for loan losses totaled  $3,143,000 at September 30, 2002 and
represented  1.47% of  total  loans  compared  to  $3,216,000  at  year-end  and
$3,282,000 at September  30, 2001.  Net  charge-offs  for the three months ended
September 30, 2002 total  $267,000  compared to $165,000 for the prior year. The
increase  was  due  to  a  write-down  of  $118,000  on  a  commercial  property
subsequently  transferred  to  foreclosed  real  estate.  The property was under
agreement of sale as of September 30, 2002 and  subsequently was sold in October
2002.  Other  charge-offs  for 2002 and 2001  consist  principally  of losses on
repossessed automobiles. Management's loan review function assesses the adequacy
of the allowance for loan losses on a quarterly  basis.  The process  includes a
review of the risks inherent in the loan portfolio.  It includes a credit review
and gives  consideration  to areas of exposure such as  concentration of credit,
economic and  industry  conditions,  trends in  delinquencies,  collections  and
collateral value coverage.  For residential mortgages and consumer loans general
reserve percentages are identified by loan type and allocated  accordingly.  The
commercial loan portfolio  (including  loans secured by real estate) is analyzed
by  industry  types,  with  allocation  factors  applied  based on the  specific
industry.   Larger  credit  exposures  are  individually  analyzed.   Management
considers the allowance adequate at September 30, 2002 based on the loan mix and
level of classifications.  However, there can be no assurance that the allowance
for loan losses will be adequate to cover significant losses, if any, that might
be incurred in the future.

     As of September 30, 2002,  non-performing  loans totaled  $278,000 which is
..13% of total loans  compared to $683,000  or .32% at  December  31,  2001.  The
decrease in  non-performing  loans was  principally  due to the  transfer of two
commercial real estate properties, totaling $502,000, to foreclosed real estate.
The properties  were each under agreement of sale as of September 30, 2002. Both
closings  occurred in October 2002,  significantly  reducing the foreclosed real
estate balance.  Foreclosed  real estate totaled  $513,000 at September 30, 2002
compared to $54,000 at December 31, 2001.




(dollars in thousands)                                 September 30, 2002     December 31, 2001
                                                       ------------------     -----------------

                                                                        
           Loans accounted for on a non-accrual
             basis:
           Commercial and all other                          $    -                $   64
           Real Estate                                          226                   597
           Consumer                                              14                    11
                                                             ------                ------
          Total                                                 240                   672

          Accruing loans which are contractually
             past due 90 days or more                            38                    11
                                                             ------                ------
           Total non-performing loans                        $  278                $  683
           Foreclosed real estate                               513                    54
                                                             ------                ------
           Total non-performing assets                       $  791                $  737
                                                             ======                ======
         Allowance for loan losses coverage
             non-performing loans                             11.31x                 4.71x

         Non-performing loans to total loans                    .13%                  .32%
         Non-performing assets to total assets                  .21%                  .21%



     The recorded  investment in impaired loans,  not requiring an allowance for
loan losses was $256,000  and  $618,000 at  September  30, 2002 and December 31,
2001  respectively.  The  recorded  investment  in impaired  loans  requiring an
allowance  for loan losses was $0 and $64,000 at September 30, 2002 and December
31, 2001,  respectively.  The related  allowance for loan losses associated with
these loans was $0 and $7,000  respectively  at September  30, 2002 and December
31, 2001.

                                       12


Deposits
- --------
     Total deposits at September 30, 2002 were $296.2 million compared to $274.9
million at December 31, 2001.  Non-interest bearing demand deposits at September
30, 2002 were $39.0 million  compared to $31.7 million at December 31, 2001. The
change reflects a seasonal increase in commercial,  principally leisure related,
businesses  accounts and municipal  tax-receipt  accounts.  The Company has also
seen an  increase in retail  checking  and savings  accounts.  Time  deposits in
denominations  of $100,000 or more  decreased to $25.2  million at September 30,
2002 from $27.4  million at December 31, 2001,  due to scheduled  maturities  of
school district and other municipal deposits. In addition to commercial checking
accounts,  the Company had $13.5 million of commercial cash management  accounts
included in short-term  borrowings,  which  represents  excess funds invested in
overnight securities, which the Company considers core funding.

The following table sets forth deposit balances as of the dates indicated.


(dollars in thousands)            September 30, 2002          December 31, 2001
                                  ------------------          -----------------

Non-interest bearing demand           $ 39,025                     $ 31,715
Interest bearing demand                 40,646                       34,939
Money Market                            43,059                       34,360
Savings                                 50,311                       44,894
Time                                   123,151                      129,015
                                      --------                     --------
         Total                        $296,192                     $274,923
                                      ========                     ========

Stockholders' Equity and Capital Ratios
- ---------------------------------------
     At September 30, 2002,  stockholders'  equity totaled $39.3 million,  a net
increase  of  $4.2  million  from  December  31,  2001.   The  net  increase  in
stockholders'  equity was primarily  due to  $3,224,000 in net income,  that was
partially  offset  by  $1,122,000  of  cash  dividends  declared.  In  addition,
accumulated other comprehensive  income increased $1,495,000 due to the increase
in fair value of securities in the available for sale  portfolio.  This increase
in fair value is the result of a decrease in  interest  rates,  which  favorably
impacted the value of the securities.  Because of interest rate volatility,  the
Company's  accumulated other comprehensive income could materially fluctuate for
each interim and year-end period.

A comparison of the Company's capital ratios is as follows:

                                 September 30, 2002          December 31, 2001
                                 ------------------          -----------------
Tier 1 Capital
    (To average assets)                 10.06%                   9.75%
Tier 1 Capital
    (To risk-weighted assets)           14.49%                  13.78%
Total Capital
    (To risk-weighted assets)           15.98%                  15.30%


     The minimum capital requirements  imposed by the FDIC for leverage,  Tier 1
and Total  Capital  are 4%, 4% and 8%,  respectively.  The  Company  has similar
capital  requirements  imposed by the Board of Governors of the Federal  Reserve
System (FRB). The Bank is also subject to more stringent Pennsylvania Department
of  Banking  (PDB)   guidelines.   The  Bank's  capital  ratios  do  not  differ
significantly  from the  Company's  ratios.  Although not adopted in  regulation
form, the PDB utilizes  capital  standards  requiring a minimum of 6.5% leverage
capital and 10% total capital.  The Company and the Bank were in compliance with
FRB,  FDIC and PDB capital  requirements  at September 30, 2002 and December 31,
2001.


                                       13



Results of Operation NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)



                                                                              Three Months Ended September 30,
                                                       -------------------------------------------------------------------------
                                                                     2002                                      2001
                                                       ------------------------------------     --------------------------------
                                                       Average                      Average     Average                  Average
                                                       Balance     Interest         Rate        Balance      Interest    Rate
                                                       -------     --------         -------     -------      --------    -------
                                                         (2)          (1)             (3)         (2)          (1)         (3)
                                                                                                        
Assets
Interest-earning assets:
   Federal funds sold                                 $ 17,757       $   73           1.67%      $10,706       $   94       3.51%
   Interest bearing deposits with banks                    845            3           1.42           160            1       2.50
   Securities held-to-maturity                           6,201          135           8.71         6,498          143       8.80
   Securities available for sale:
     Taxable                                            93,459        1,181           5.05        79,527        1,198       6.03
     Tax-exempt                                         13,871          252           7.27        12,542          229       7.30
                                                      --------       ------                     --------       ------
        Total securities available for sale            107,330        1,433           5.34        92,069        1,427       6.20
     Loans receivable (4) (5)                          212,082        3,888           7.40       214,776        4,447       8.28
                                                      --------       ------                     --------       ------
        Total interest earning assets                  344,215        5,532           6.43       324,209        6,112       7.54

Non-interest earning assets:
   Cash and due from banks                               9,147                                     7,935
   Allowance for loan losses                            (3,197)                                   (3,233)
   Other assets                                  .      14,366                                    14,359
                                                      --------                                  --------
   Total non-interest earning assets                    20,316                                    19,061
                                                      --------                                  --------
Total Assets                                          $364,531                                  $343,270
                                                      ========                                  ========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
   Interest bearing demand and money market. . . .     $78,481          192           0.98%      $71,099          353       1.99%
   Savings  . . . . .. . . . . . . . . . . . . . .      49,950          171           1.37        43,689          214       1.96
   Time  . . . . . . . . . . . . . . . . . . . . .     123,669        1,123           3.63       120,879        1,547       5.12
                                                      --------       ------                     --------       ------
      Total interest bearing deposits                  252,100        1,486           2.36       235,667        2,114       3.59
Short-term borrowings                                   11,006           49           1.78         7,238           67       3.70
Long-term debt                                          23,000          324           5.63        26,728          373       5.58
                                                      --------       ------                     --------       ------
   Total interest bearing liabilities                  286,106        1,859           2.60       269,633        2,554       3.79
Non-interest bearing liabilities:
   Demand deposits                                      36,042                                    34,359
   Other liabilities                                     4,166                                     5,277
                                                      --------                                  --------
      Total non-interest bearing liabilities            40,208                                    39,636
   Shareholders' equity                                 38,217                                    34,001
                                                      --------                                  --------
Total Liabilities and Shareholders' Equity            $364,531                                  $343,270
                                                      ========                                  ========

Net interest income (tax equivalent basis)                            3,673           3.83%                     3,558       3.75%
                                                                                     =====                                 =====
Tax-equivalent basis adjustment                                        (145)                                     (129)
                                                                    -------                                    ------
Net interest income                                                 $ 3,528                                    $3,429
                                                                    =======                                    ======
Net interest margin (tax equivalent basis)                                            4.27%                                 4.39%
                                                                                     =====                                 =====


- -----------------
(1)  Interest  and  yields  are  presented  on a  tax-equivalent  basis  using a
     marginal tax rate of 34%.
(2)  Average balances have been calculated based on daily balances
(3)  Annualized
(4)  Loan balances include non-accrual loans and are net of unearned income.
(5)  Loan yields  include the effect of  amortization  of deferred  fees, net of
     costs.

                                       14


Rate/Volume  Analysis.  The following  table shows the fully taxable  equivalent
effect of changes in volumes and rates on interest income and interest expense.

                               Increase/(Decrease)
                               -------------------
                Three months ended September 30,2002 Compared to
                ------------------------------------------------
                      Three months ended September 30, 2001
                      -------------------------------------
                                 Variance due to
                                 ---------------


                                             Volume       Rate            Net
                                             -------    -------         -------
                                                  (dollars in thousands)
Assets
Interest earning assets:

 Federal funds sold ......................   $   209    $  (230)        $   (21)
 Interest bearing deposits with banks ....         5         (3)              2
 Securities held to maturity .............        (6)        (2)             (8)
 Securities available for sale:
    Taxable ..............................       796       (813)            (17)
    Tax-exempt securities ................        31         (8)             23
                                             -------    -------         -------
       Total securities ..................       827       (821)              6
 Loans receivable ........................       (59)      (500)           (559)
                                             -------    -------         -------
   Total interest earning assets .........       976     (1,556)           (580)

Interest bearing liabilities:
  Interest-bearing demand deposits .......       216       (377)           (161)
  Savings ................................       152       (195)            (43)
  Time ...................................       232       (656)           (424)
                                             -------    -------         -------
     Total interest bearing deposits .....       600     (1,228)           (628)
 Short-term borrowings ...................       130       (148)            (18)
Long Term debt ...........................       (72)        23             (49)
                                             -------    -------         -------
 Total interest bearing liabilities ......       658     (1,353)           (695)
Net interest income (tax-equivalent basis)   $   318    $  (203)        $   115
                                             =======    =======         =======


(1)  Changes in net interest income that could not be specifically identified as
     either a rate or volume change were allocated proportionately to changes in
     volume and changes in rate.

                                       15

Comparison  of Operating  Results for the Three months ended  September 30, 2002
- --------------------------------------------------------------------------------
and September 30, 2001.
- -----------------------

General
- -------
         For the three months ended September 30, 2002 net income was $1,154,000
compared to $1,094,000  in 2001,  an increase of $60,000 or 5.5%.  The resulting
basic EPS was $.68 with a diluted EPS of $.67  compared to basic EPS of $.65 and
diluted EPS of $.64 for the third quarter of 2001.  The return on average assets
for the three  months of 2002 was  1.26%,  with a return  on  average  equity of
11.98%.

Net Interest Income
- -------------------
         Net interest income on a fully taxable  equivalent  basis (fte) for the
three months ended  September 30, 2002 was $3,673,000  compared to $3,558,000 in
2001, an increase of $115,000 or 3.2%. The resultant fte net interest spread and
net  interest  margin for 2002 were 3.83% and 4.27%,  respectively,  compared to
3.75% and 4.39% respectively in 2001.

         Interest  income (fte) for the three months  ended  September  30, 2002
totaled $5,532,000,  decreasing from $6,112,000 in 2001. The decrease was due to
lower yield on earning  assets,  6.43% in 2002 compared to 7.54% in 2001.  Asset
yields have  declined  in 2002 as a result of lower  interest  rate  environment
including Federal Funds sold, prime rate and US Treasury issues.

         The earning  asset yield was also  unfavorably  impacted by a change in
the asset mix.  The change in asset mix was the  result of  deposits  increasing
faster than loans.  For the 2002 period,  lower yielding  federal funds sold and
securities represented 38.1% of total earning assets, with loans of 61.6%. Loans
decreased from 66.3% of earning assets on average in the third quarter of 2001.

         Securities  available for sale averaged  $107.3  million with income of
$1,433,000  and fte yield of 5.34%  compared to $92.1  million,  $1,427,000  and
6.20% in 2001.  The increase was  principally  due to the purchase of short-term
callable U. S.  Government  Agency  Bonds and  mortgage-backed  securities.  The
increase was funded by deposit growth.

         Average  loans for the quarter were $212.1  million  compared to $214.8
million in 2001.  The yield on loans  declined to 7.40% in the third  quarter of
2002 from  8.28% in 2001.  The  decrease  is a result of the lower  prime  rate,
4.75%, and the decrease in residential mortgage rates.

         Interest  expense for the three months ended September 30, 2002 totaled
$1,859,000  with a cost of 2.60%  compared to $2,554,000  and 3.79% in 2001. All
deposit  categories  showed a decrease in costs,  with the lower  interest  rate
environment.   Average  interest-bearing   deposits  and  short-term  borrowings
increased  $20.2  million.  The proceeds  were used to purchase  securities,  as
previously  described,  and pay-down long-term debt by $3.7 million.  The excess
was  invested in Federal  Funds sold which  increased  $10.0  million to average
$17.7 million during the third quarter of 2002.

Other Income
- ------------
         Other income totaled  $755,000 for the three months ended September 30,
2002  compared to $670,000 in the third  quarter of 2001, an increase of $85,000
or 12.7%.  Service charges and fees increased $36,000  principally due to growth
in retail  deposit  activity.  Income  from  fiduciary  activities  was  $70,000
increasing from $58,000 in 2001.

Other Expenses
- --------------
         Other  expenses  totaled  $2,540,000  in  the  third  quarter  of  2002
increasing  from  $2,421,000  in 2001.  The  increase  was due in part to higher
losses on lease  residuals,  $180,000  compared to $150,000 in 2001. The Company
did liquidate more autos in 2002 and the loss level was also negatively impacted
by a softer used car market.  Salary and  employee  benefit  expenses  increased
$98,000 due to higher health insurance  premiums and costs of the Employee Stock
Ownership  Plan  (ESOP).  The Company  made a $100,000  charitable  contribution
(included in Other expenses-other) to the Wayne County Community Foundation. The
contribution qualifies for the Pennsylvania Educational Improvement Tax Program.
As such,  a $90,000  tax credit was  recorded  against  the bank's  Pennsylvania
Shares Tax Liability (included in Other expense-taxes other than income).

Income Taxes
- ------------
         Income tax expense totaled  $439,000 for an effective tax rate of 27.6%
for the three months ended  September 30, 2002 compared to $409,000 and 27.2% in
2001.
                                       16

Results of Operation NORWOOD FINANCIAL CORP.
Consolidated Average Balance Sheets with Resultant Interest and Rates
(Tax-Equivalent Basis, dollars in thousands)


                                                                           Nine Months Ended September 30,
                                                      ---------------------------------------------------------------------------
                                                                     2002                                    2001
                                                      -------------------------------          ----------------------------------
                                                       Average                Average           Average                  Average
                                                       Balance     Interest    Rate             Balance    Interest       Rate
                                                       -------     --------   -------          --------    --------      -------
                                                         (2)          (1)        (3)           (2)          (1)            (3)
                                                                                                      
Assets
Interest-earning assets:
   Federal funds sold                                   $ 15,215      $   189   1.66%          $  6,351     $   181       3.80%
   Interest bearing deposits with banks                      395            4   1.35                156           5       4.27
   Securities held-to-maturity                             6,216          409   8.77              6,992         461       8.79
   Securities available for sale:
     Taxable                                              86,767        3,515   5.40             74,813       3,493       6.23
     Tax-exempt                                           13,535          737                    10,523         577       7.31
                                                        --------       ------   7.26           --------     -------
        Total securities available for sale              100,302        4,252   5.65             85,336       4,070       6.36

     Loans receivable (4) (5)                            213,406       11,857   7.41            215,187      13,671       8.47
                                                        --------      -------                  --------     -------
        Total interest earning assets                    335,534       16,711   6.64            314,022      18,388       7.81

Non-interest earning assets:
   Cash and due from banks. . . . . . . . . . . . .        8,307                                  7,291
   Allowance for loan losses. . . . . . . . . . . .       (3,248)                                (3,276)
   Other assets. . . . . . . . . . . . . . . . . ..       14,219                                 14,364
                                                        --------                                 ------
   Total non-interest earning assets                      19,278                                 18,379
                                                        --------                                 ------
Total Assets                                            $354,812                               $332,401
                                                        ========                               ========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
   Interest bearing demand and money market. . . .       $73,006          559   1.02%           $64,991       1,073       2.20%
   Savings  . . . . .. . . . . . . . . . . . . . .        47,607          495   1.39             42,098         634       2.01
   Time  . . . . . . . . . . . . . . . . . . . . .       127,421        3,662   3.83            120,022       4,848       5.39
                                                        --------      -------                  --------       -----
      Total interest bearing deposits                    248,034        4,716   2.54            227,111       6,555       3.85
Short-term borrowings                                      8,874          130   1.95              8,227         215       3.48
Long-term debt                                            23,308          974   5.57             27,487       1,181       5.73
                                                        --------      -------                  --------      ------
   Total interest bearing liabilities                    280,216        5,820   2.77            262,825       7,951       4.03
Non-interest bearing liabilities:
   Demand deposits                                        33,521                                 30,983
   Other liabilities                                       4,222                                  5,695
                                                        --------                                  -----
      Total non-interest bearing liabilities              37,743                                 36,678
   Shareholders' equity                                   36,853                                 32,898
                                                        --------                                 ------
Total Liabilities and Shareholders' Equity              $354,812                               $332,401
                                                        ========                               ========
Net interest income (tax equivalent basis)                             10,891   3.87%                        10,437       3.77%
                                                                               =====                                     =====
Tax-equivalent basis adjustment                                          (419)                                 (361)
                                                                      -------                               -------
Net interest income                                                   $10,472                               $10,076
                                                                      =======                               =======
Net interest margin (tax equivalent basis)                                      4.33%                                    4.43%
                                                                               =====                                    =====

(1)  Interest  and  yields  are  presented  on a  tax-equivalent  basis  using a
     marginal tax rate of 34%.
(2)  Average balances have been calculated based on daily balances.
(3)  Annualized
(4)  Loan balances include non-accrual loans and are net of unearned income.
(5)  Loan yields  include the effect of  amortization  of deferred  fees, net of
     costs.
                                       17


Rate/Volume  Analysis.  The following  table shows the fully taxable  equivalent
effect of changes in volumes and rates on interest income and interest expense.

                               Increase/(Decrease)
                               -------------------
                 Nine months ended September 30,2002 Compared to
                 -----------------------------------------------
                      Nine months ended September 30, 2001
                      ------------------------------------
                                 Variance due to
                                 ---------------

                                              Volume      Rate       Net
                                             -------    -------    -------
                                                (dollars in thousands)
Assets
Interest earning assets:
 Federal funds sold ......................   $   200    $  (192)   $     8
 Interest bearing deposits with banks ....         6         (7)        (1)
 Securities held to maturity .............       (51)        (1)       (52)
 Securities available for sale:
    Taxable ..............................       686       (664)        22
    Tax-exempt securities ................       167         (7)       160
                                             -------    -------    -------
       Total securities ..................       853       (671)       182
 Loans receivable ........................      (112)    (1,702)    (1,814)
                                             -------    -------    -------
   Total interest earning assets .........       896     (2,573)    (1,677)

Interest bearing liabilities:
  Interest-bearing demand deposits .......       191       (705)      (514)
  Savings ................................       114       (253)      (139)
  Time ...................................       448     (1,634)    (1,186)
                                             -------    -------    -------
     Total interest bearing deposits .....       753     (2,592)    (1,839)
 Short-term borrowings ...................        25       (110)       (85)
Long Term debt ...........................      (175)       (32)      (207)
                                             -------    -------    -------
 Total interest bearing liabilities ......       603     (2,734)    (2,131)
Net interest income (tax-equivalent basis)   $   293    $   161    $   454
                                             =======    =======    =======


(1)  Changes in net interest income that could not be specifically identified as
     either a rate or volume change were allocated proportionately to changes in
     volume and changes in rate.

                                       18


Comparison  of Operating  Results for Nine Months Ended  September  30, 2002 and
- --------------------------------------------------------------------------------
September 30, 2001
- ------------------

General
- -------
           For the nine  months  ended  September  30,  2002 net income  totaled
$3,224,000  with a basic  earnings  per share  (EPS) of $1.90 and diluted EPS of
$1.87. This compares to $3,079,000  earned for the corresponding  period in 2001
with  basic  EPS of $1.84 and  diluted  EPS of $1.82.  The  resulting  return on
average  equity and average assets for nine months of 2002 were 11.70% and 1.21%
respectively compared to 12.48% and 1.24% respectively in 2001.

Net Interest Income
- -------------------
           Net interest  income (fte) for the nine months  ended  September  30,
2002 was $10,891,000 compared to $10,437,000 in 2001, an increase of $454,000 or
4.4%.  The  resultant fte net interest  spread and net interest  margin for 2002
were 3.87% and 4.33%,  respectively,  compared to 3.77% and 4.43%, respectively,
in 2001.

           Interest  income (fte) for the nine months ended  September  30, 2002
totaled   $16,711,000   compared  to  $18,388,000  in  2001.  The  decrease  was
principally  due to lower  interest  rates in 2002 with an average prime rate of
4.75% and Federal  Funds rate of 1.75%  declining  from 7.51% average prime rate
and 4.47%  average fed funds for nine  months of 2001.  As a result of the lower
interest rates the yield on earning assets declined 117 basis points to 6.64% in
2002.

           The earning asset yield was also unfavorably  impacted by a change in
the asset mix, as a result of  deposits  increasing  faster than loans.  For the
2002 period, average loans represented 63.6% of earning assets compared to 68.5%
in 2001.  The offset was an increase in lower  yielding  Federal  Funds sold and
securities available for sale.

           Securities  available for sale averaged $100.3 million with income of
$4,252,000 and yield (fte) of 5.65%  compared to $85.3  million,  $4,070,000 and
6.36% in 2001. The increase, which was funded by deposit growth, was principally
in short-term callable U.S. Government agencies and mortgage-backed securities.

           Average  loans  for the  nine  months  of 2002  were  $213.4  million
compared to $215.2  million in 2001.  The yield  declined to 7.41% from 8.47% in
2001,  as a result of the lower prime rate and  declining  residential  mortgage
rates during 2002.

           Interest expense for the nine months ended September 30, 2002 totaled
$5,820,000  with a cost of  2.77%  compared  to  $7,951,000  and  4.03% in 2001.
Average interest-bearing deposits increased $20.9 million during the period. The
proceeds were used to fund  securities  purchases,  and pay down long-term debt,
which declined $4.2 million, with the remainder invested in Federal Funds sold.

Other Income
- ------------
           Other income totaled  $2,384,000 for the nine months ended  September
30, 2002  compared to $2,030,000  for the same period in 2001.  The increase was
due in part to $427,000 of net realized gains on sales of securities compared to
$144,000 in 2001. The gains were  principally  generated from the sale of equity
holdings  in  other  financial  holding  companies.  Service  charges  and  fees
increased  $78,000  due to growth in ATM and debit card  activity.  Income  from
fiduciary  activities  totaled $177,000 in 2002 declining from $209,000 in 2001,
due to a lower level of estate fees in 2002.

Other Expense
- -------------
           Other  expense  for nine months  ended  September  30,  2002  totaled
$7,964,000 compared to $7,335,000 in 2001, an increase of $629,000. The increase
was due in part to higher  losses on lease  residuals  of $790,000  in 2002,  an
increase of $310,000 from 2001.  Salaries and employee  benefit costs  increased
$270,000 or 7.9%, principally due to increase in retirement and health insurance
plan costs.

          The Company made a $100,000 charitable contribution (included in Other
expenses-other)  to the Wayne  County  Community  Foundation.  The  contribution
qualifies for the Pennsylvania  Educational  Improvement Tax Program. As such, a
$90,000  tax credit was  recorded  against  the bank's  Pennsylvania  Shares Tax
Liability (included in Other expense-taxes, other than income).

                                       19

Income Tax Expense
- ------------------
           Income tax expense for the nine months ended  September  30, 2002 was
$1,188,000  for an  effective  rate  of  26.9%  compared  to  $1,147,000  and an
effective  rate of 27.1% in 2001. The decrease in the effective rate is due to a
higher level of tax exempt income on municipal securities and loans.

Liquidity
- ---------
           Liquidity can be viewed as the ability to fund  customers'  borrowing
needs and their deposit  withdrawal  requests while supporting asset growth. The
Company's  primary  sources  of  liquidity  include  deposit  generation,  asset
maturities and cash flow from loan repayments and securities.

           At September 30, 2002,  the Company had cash and cash  equivalents of
$37.7  million  in the form of cash,  due from  banks,  federal  funds  sold and
short-term deposits with other institutions.  In addition, the Company had total
securities  available  for  sale of  $107.5  million,  which  could  be used for
liquidity needs. This totals $145.2 million and represents 38.4% of total assets
compared to $113.1  million and 32.7% of total assets at December 31, 2001.  The
Company also monitors other liquidity measures,  all of which were within policy
guidelines at September 30, 2002 and December 31, 2001. The Company believes its
liquidity position is adequate.

           The Company  maintains  established  lines of credit with the Federal
Home Loan Bank of Pittsburgh (FHLB) and other correspondent banks, which support
liquidity needs.

           At September 30, 2002,  the  borrowing  capacity from FHLB was $119.5
million.  As of September  30, 2002,  the Company had $23 million in  borrowings
from the FHLB, decreasing from $25 million at December 31, 2001.


Item 3:  Quantitative and Qualitative Disclosures about Market Risk

Market Risk
- -----------
           There were no significant changes for the nine months ended September
30,  2002 from the  information  presented  in the Form 10-k for the  year-ended
December 31, 2001.

Item 4:  Controls and Procedures

     (a)  Evaluation  of  disclosure  controls  and  procedures.  Based on their
          -----------------------------------------------------
          evaluation  as of a date  within  90 days of the  filing  date of this
          Quarterly  Report on Form 10-Q, the Registrant's  principal  executive
          officer  and  principal  financial  officer  have  concluded  that the
          Registrant's  disclosure  controls and procedures (as defined in Rules
          13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
          "Exchange Act")) are effective to ensure that information  required to
          be disclosed by the Company in reports that it files or submits  under
          the  Exchange  Act is  recorded,  processed,  summarized  and reported
          within  the  time  periods   specified  in  Securities   and  Exchange
          Commission rules and forms.

     (b)  Changes in internal controls. There were no significant changes in the
          ----------------------------
          Registrant's   internal  controls  or  in  other  factors  that  could
          significantly  affect these  controls  subsequent to the date of their
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

                                       20

Part II.  Other Information

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and use of proceeds

Not applicable

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

Not applicable

Item 5.  Other Materially Important Events

None


Item 6.  Exhibits and Reports on Form 8-K

     (a)  3(i)   Articles of Incorporation of Norwood Financial Corp*
          3(ii)  Bylaws of Norwood Financial Corp.*
          4.0    Specimen Stock Certificate of Norwood Financial Corp.*
         10.1    Amended Employment Agreement with William W. Davis, Jr.***
         10.2    Amended Employment Agreement with Lewis J. Critelli ***
         10.3    Form of Change-In-Control Severance Agreement with seven key
                   employees of the Bank*
         10.4    Consulting Agreement with Russell L. Ridd**
         10.5    Wayne Bank Stock Option Plan*
         10.6    Salary Continuation Agreement between the Bank and
                   William W. Davis, Jr.***
         10.7    Salary Continuation Agreement between the Bank and
                   Lewis J. Critelli***
         10.8    Salary Continuation Agreement between the Bank and
                   Edward C. Kasper***
         10.9    1999 Directors Stock Compensation Plan***
         99.0    Certification pursuant to 18 U.S.C. 55.1350, as adopted
                   pursuant to 55.906 of Sarbanes Oxley Act of 2002

     (b)  Reports on Form 8-k

               None

- ---------------------------
*    Incorporated herein by reference into the identically  numbered exhibits of
     the Registrant's  Form 10 Registration  Statement  initially filed with the
     Commission on April 29, 1996.

**   Incorporated herein by reference into the indentically numbered exhibits of
     the Registrant's Form 10-K filed with the Commission on March 31, 1997.

***  Incorporated herein by reference into the indentically numbered exhibits of
     the Registrant's Form 10-K filed with the Commission on March 25, 2002.


                                       21


                                   Signatures

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                      NORWOOD FINANCIAL CORP.

Date:   November 12, 2002             By:  /s/William W. Davis, Jr.
                                           -------------------------------------
                                           William W. Davis, Jr.
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

Date:   November 12, 2002             By:  /s/Lewis J. Critelli
                                           -------------------------------------
                                           Lewis J. Critelli
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)

                                       22


                            SECTION 302 CERTIFICATION


         I, William W. Davis, Jr., certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Norwood Financial
         Corp.;

2.       Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;

4.       The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this quarterly report is being prepared;

         (b)      evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing  date of this  quarterly  report  (the  "Evaluation
                  Date"); and

         (c)      presented in this quarterly report our conclusions  about  the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         (a)      all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud,  whether or not material, that involves  management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

         The registrant's  other certifying officer and I have indicated in this
         quarterly  report  whether there were  significant  changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.



Date:   November 12, 2002                  /s/William W. Davis, Jr.
                                           -------------------------------------
                                           William W. Davis, Jr.
                                           President and Chief Executive Officer

                                       23



                            SECTION 302 CERTIFICATION


         I, Lewis J. Critelli, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Norwood Financial
         Corp.;

2.       Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;

4.       The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this quarterly report is being prepared;

         (b)      evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing  date of this  quarterly  report  (the  "Evaluation
                  Date"); and

         (c)      presented in this quarterly report our conclusions  about  the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         (a)      all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's   internal   controls;   and  registrant's  other
                  certifying  officer  and I have  indicated  in this  quarterly
                  report  whether  there were  significant  changes in  internal
                  controls or in other factors that could  significantly  affect
                  internal  controls  subsequent  to the date of our most recent
                  evaluation,  including any  corrective  actions with regard to
                  significant deficiencies and material weaknesses.



Date:   November 12, 2002                  /s/Lewis J. Critelli
                                           -------------------------------------
                                           Lewis J. Critelli
                                           Executive Vice President and
                                           Chief Financial Officer


                                       24