8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) January 25, 2010

NORWOOD FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania	0-28364	23-2828306
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

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

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

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).

NORWOOD FINANCIAL CORP.

INFORMATION TO BE INCLUDED IN REPORT

Item 2.02. Results of Operations and Financial Condition

On January 25, 2010, the Registrant issued a press release announcing its earnings for the quarter and year ended December 31, 2009. A copy of the press release is furnished with this report as exhibit 99.1.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

99.1 Press Release, dated January 25, 2010

SIGNATURES

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

	NORWOOD FINANCIAL CORP.
Date:    January 25, 2010	By:	/s/ Lewis J. Critelli
		Lewis J. Critelli President, Chief Executive Officer and Chief Financial Officer (Duly Authorized Representative)

EX-99

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL ANNOUNCES INCREASED EARNINGS FOR THE FOURTH

QUARTER AND YEAR

January 25, 2010-Honesdale, PA

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp (Nasdaq Global Market – NWFL) and its subsidiary Wayne Bank today announced earnings for the three months ended December 31, 2009 of $1,802,000. This represents an increase of $217,000 or 13.7% from the $1,585,000 earned in the similar period of 2008. Earnings per share (fully diluted) were $.65 in the 2009 period compared to $.57 earned in the similar period of 2008. The increase was principally due to receipt of $816,000 of proceeds from a bank-owned life insurance policy. This was partially offset by a higher provision for loan losses which totaled $1,100,000 in 2009 compared to $420,000 in 2008. Annualized return on average assets for the quarter was 1.35% with an annualized return on equity of 11.09%. For the year ended December 31, 2009 net income totaled $7,063,000, an increase of $386,000, or 5.8% over the $6,677,000 earned in the prior year. Earnings per share on a fully diluted basis were $2.55 for 2009, compared to $2.41 in 2008. The return on average assets for the year was 1.38% with a return on average equity of 11.40%.

Total assets were $529.7 million as of December 31, 2009. Loans receivable totaled $363.5 million as of December 31, 2009, with total deposits of $391.5 million and stockholders’ equity of $64.5 million. The Company’s capital position remains strong and is at the top level of its peer group in all regulatory measures of capital.

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Loans receivable increased $14.1 million or 4.0% from the prior year-end. The increase in loans was centered in commercial real estate. The Company experienced a significant volume of residential mortgage refinancing activity in 2009. During the year, the Company sold $21.6 million of fixed rate residential mortgages for purposes of interest rate risk management. As a result of the general slow down in the local economy, higher unemployment and a softer real estate market, the Company did experience an increase in non-performing loans in 2009. As of December 31, 2009, total non-performing loans were $5,015,000 and represented 1.38% of total loans compared to $2,087,000, or .60% as of December 31, 2008. The increase was principally due to one commercial real estate loan and a home equity loan in which the Bank is in a first lien position. For the three months and year ended December 31, 2009, net charge-offs totaled $310,000 and $465,000 respectively, compared to $518,000 and $583,000 respectively for the similar periods in 2008. With the increase in non-performing loans, higher unemployment, soft real estate market and slow economy, the Company increased its provision for loan losses to $1,100,000 for the three months ended December 31, 2009 and $1,685,000 for the year 2009 compared to $420,000 in the similar quarter in 2008 and $735,000 for the year 2008. As of December 31, 2009, the allowance for loan losses totaled $5,453,000 and 1.50% of total loans increasing from $4,233,000 and 1.21% of loans at December 31, 2008.

Net interest income (fully taxable equivalent) totaled $5,035,000 for the three months ended December 31, 2009, an increase of $154,000, over the similar period in 2008. Net interest margin (fte) for the 2009 period was 3.96% decreasing from 4.09% for the similar period in 2008. The decrease in net interest margin was principally due to the lower short-term asset yields, and a higher level of interest-bearing deposits with other

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banks and federal funds sold. This was partially offset by a 44 basis point decrease in cost of funds. For the year, net interest income (fte) totaled $19,872,000, an increase of $842,000 or 4.4% over 2008. The net interest margin (fte) decreased 4 basis points to 4.03% in 2009.

Other income for the three months ended December 31, 2009 totaled $1,925,000 compared to $890,000 for the similar period in 2008. The increase was principally due to the receipt of $816,000 in proceeds from a bank-owned life insurance policy. Other income for 2009 totaled $5,392,000 compared to $4,087,000 in 2008, an increase of $1,305,000. The earnings and proceeds on bank owned life insurance policies totaled $1,196,000 in 2009 compared to $345,000 in 2008. Gains on the sales of investment securities totaled $463,000 on sales of $16.6 million for the 2009 period compared to $18,000 in losses in the 2008 period. The Company also had a $150,000 gain on the sale of deposits related to a branch closure in the 2009 period. The 2009 period includes $481,000 in gains on the sales of $21.6 million of mortgage loans and servicing rights compared to $499,000 in similar gains on sales of $14.4 million of mortgage loans and servicing rights in the 2008 period.

Other expense totaled $3,702,000 for the three months ended December 30, 2009, compared to $2,946,000 in the similar period of 2008. The increase was due in part to a higher level of foreclosed real estate costs which totaled $288,000 in the 2009 period and $11,000 for the 2008 period. The current period also included $267,000 related to funding an employee benefit plan. For the year ended December 31, 2009, other expense totaled $13,471,000 compared to $12,240,000 for the similar period in 2009, an increase of $1,231,000. The increase was due in part to higher FDIC insurance assessments which

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increased $620,000 including the special assessment of $225,000. This was partially offset by a lower level of foreclosed real estate costs which totaled $436,000 in the 2009 period and $582,000 in 2008.

Mr. Critelli commented, “Given these unprecedented times, we are extremely pleased with our operating results. Our core earnings are strong, our net interest margin exceeded 4% for the year and our regulatory capital levels are at the top of our peer group. We ended 2009 with record levels of assets, loans, deposits and capital. In addition, 2009 marks the eighteenth consecutive year in which we increased our cash dividend which totaled $1.09 per share in 2009 compared to $1.02 per share in 2008. We are certainly aware that a slow economy, increasing unemployment and soft real estate market will continue to impact our market area and customers in 2010. We are continually monitoring our credit quality and are aggressively addressing any issues as they arise.”

Norwood Financial Corp., through its subsidiary Wayne Bank, operates eleven offices in Wayne, Pike and Monroe Counties, Pennsylvania. The Company’s stock is traded on the Nasdaq Global Market, under the symbol, “NWFL”.

Forward-Looking Statements.

The foregoing material may contain forward-looking statements. We caution that such statements may be subject to a number of uncertainties and actual results could differ materially and therefore readers should not place undue reliance on any forward looking statements. Those risks and uncertainties include changes in the absolute and relative levels of interest rates, the ability to control costs and expenses, demand for real estate, general economic conditions and the effectiveness of governmental responses thereto. Norwood Financial Corp. does not undertake and specifically disclaims any

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obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Financial Measures

This release references tax-equivalent net interest income, which is a non-GAAP (Generally Accepted Accounting Principles) financial measure. Tax-equivalent net interest income is derived from GAAP using an assumed tax rate of 34%. We believe the presentation of net interest income on a tax–equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. The following reconciles net interest income to net interest income on a fully taxable equivalent basis:

	Three months ended				Year ended
(dollars in thousands)	December 31				December 31
	2009			2008		2009		2008
Net interest income	$	4,826	$	4,727	$	19,109	$	18,401
Tax equivalent basis adjustment
using 34% marginal tax rate		209		154		763		629
Net interest income on a fully
taxable equivalent basis	$	5,035	$	4,881	$	19,872	$	19,030

Contact:	Lewis J. Critelli
	President &
	Chief Executive Officer
	NORWOOD FINANCIAL CORP.
	570-253-8512
	www.waynebank.com

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NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets

(dollars in thousands, except share data)

(unaudited)

		December 31
		2009		2008
ASSETS
Cash and due from banks	$	6,498	$	6,463
Interest bearing deposits with banks		7,857		17
Federal funds sold		3,000		-
Cash and cash equivalents		17,355		6,480
Securities available for sale		130,577		130,120
Securities held to maturity, fair value 2009: $722 2008: $720		708		707
Loans receivable (net of unearned Income)		363,474		349,404
Less: Allowance for loan losses		5,453		4,233
Net loans receivable		358,021		345,171
Investment in FHLB Stock, at cost		3,538		3,538
Bank premises and equipment,net		5,189		5,490
Bank owned life insurance		7,889		8,068
Foreclosed real estate owned		392		660
Accrued interest receivable		2,200		2,179
Other assets		3,827		1,883
TOTAL ASSETS	$	529,696	$	504,296
LIABILITIES
Deposits:
Non-interest bearing demand	$	59,821	$	56,839
Interest-bearing		331,652		302,796
Total deposits		391,473		359,635
Short-term borrowings		25,803		38,126
Other borrowings		43,000		43,000
Accrued interest payable		2,057		2,247
Other liabilities		2,892		2,598
TOTAL LIABILITIES		465,225		445,606
STOCKHOLDERS’ EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2,840,872		284		284
Surplus		9,764		9,972
Retained earnings		54,455		50,398
Treasury stock, at cost: 2009: 68,435 shares, 2008: 104,310 shares		(2,122)		(3,243)
Accumulated other comprehensive income (loss)		2,090		1,279
TOTAL STOCKHOLDERS’ EQUITY		64,471		58,690
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	529,696	$	504,296

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

		Three Months Ended December 31				Year-ended December 31
		2009		2008		2009		2008
INTEREST INCOME
Loans receivable, including fees	$	5,428	$	5,423	$	21,523	$	21,983
Securities		1,283		1,508		5,293		6,083
Other		11		3		19		29
Total Interest income		6,722		6,934		26,835		28,095
INTEREST EXPENSE
Deposits		1,411		1,659		5,765		7,773
Short-term borrowings		63		128		292		693
Other borrowings		421		420		1,669		1,228
Total Interest expense		1,895		2,207		7,726		9,694
NET INTEREST INCOME		4,827		4,727		19,109		18,401
PROVISION FOR LOAN LOSSES		1,100		420		1,685		735
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,727		4,307		17,424		17,666
OTHER INCOME
Service charges and fees		622		636		2,476		2,600
Income from fiduciary activities		91		111		354		404
Net realized gains (losses) on sales of securities		40		--		463		(18)
Gains on sale of loans and servicing rights		185		13		481		499
Earnings and proceeds on life insurance policies		913		84		1,196		345
Gain on sale of deposits		-		-		150		-
Other		74		46		272		257
Total other income		1,925		890		5,392		4,087
OTHER EXPENSES
Salaries and employee benefits		2,009		1,525		6,829		6,046
Occupancy, furniture and equipment		360		378		1,591		1,625
Data processing related		195		202		788		753
Taxes, other than income		70		117		484		504
Professional Fees		109		81		411		331
FDIC Insurance assessment		93		52		710		90
Foreclosed real estate owned		288		11		436		582
Other		578		580		2,222		2,309
Total other expenses		3,702		2,946		13,471		12,240
INCOME BEFORE TAX		1,950		2,251		9,345		9,513
INCOME TAX EXPENSE		148		666		2,282		2,836
NET INCOME	$	1,802	$	1,585	$	7,063	$	6,677
Basic earnings per share	$	0.65	$	0.58	$	2.57	$	2.44
Diluted earnings per share	$	0.65	$	0.57	$	2.55	$	2.41

NORWOOD FINANCIAL CORP.

Financial Highlights (Unaudited)

(dollars in thousands, except per share data)

For the Three Months Ended December 31		2009		2008
Net interest income	$	4,827	$	4,727
Net income		1,802		1,585
Net interest spread (fully taxable equivalent)		3.55%		3.61%
Net interest margin (fully taxable equivalent)		3.96%		4.09%
Return on average assets		1.35%		1.26%
Return on average equity		11.09%		11.05%
Basic earnings per share	$	0.65	$	0.58
Diluted earnings per share		0.65		0.57
For the Year Ended Ended December 31
Net interest income	$	19,109	$	18,401
Net income		7,063		6,677
Net interest spread (fully taxable equivalent)		3.60%		3.51%
Net interest margin (fully taxable equivalent)		4.03%		4.07%
Return on average assets		1.38%		1.36%
Return on average equity		11.40%		11.79%
Basic earnings per share	$	2.57	$	2.44
Diluted earnings per share		2.55		2.41
As of December 31
Total Assets	$	529,696	$	504,296
Total Loans receivable		363,474		349,404
Allowance for loan losses		5,453		4,233
Total deposits		391,473		359,635
Stockholders’ equity		64,471		58,690
Trust Assets under management		99,373		90,069
Book value per share	$	23.25	$	21.45
Equity to total assets		12.17%		11.64%
Allowance to total loans receivable		1.50%		1.21%
Nonperforming loans to total loans		1.38%		0.60%
Nonperforming assets to total assets		1.02%		0.54%

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets (unaudited)

(dollars in thousands)

		31-Dec		30-Sep		30-Jun		31-Mar		31-Dec
		2009		2009		2009		2009		2008
ASSETS
Cash and due from banks	$	6,498	$	8,769	$	7,548	$	5,682	$	6,463
Interest bearing deposits with banks		7,857		280		6		9,329		17
Federal funds sold		3,000		3,000		-		3,000		-
Cash and cash equivalents		17,355		12,049		7,554		18,011		6,480
Securities available for sale		130,577		126,349		122,601		124,222		130,120
Securities held to maturity		708		708		708		707		707
Loans receivable (net of unearned Income)		363,474		359,482		360,593		351,433		349,404
Less: Allowance for loan losses		5,453		4,663		4,574		4,413		4,233
Net loans receivable		358,021		354,819		356,019		347,020		345,171
Investment in FHLB stock		3,538		3,538		3,538		3,538		3,538
Bank premises and equipment, net		5,189		5,258		5,297		5,413		5,490
Foreclosed real estate owned		392		562		798		768		660
Other assets		13,916		11,584		11,980		11,745		12,130
TOTAL ASSETS	$	529,696	$	514,867	$	508,495	$	511,424	$	504,296
LIABILITIES
Deposits:
Non-interest bearing demand	$	59,821	$	63,600	$	60,444	$	57,270	$	56,839
Interest- bearing deposits		331,652		319,263		313,709		313,146		302,796
Total deposits		391,473		382,863		374,153		370,416		359,635
Other borrowings		68,803		62,553		67,596		72,412		81,126
Other liabilities		4,949		5,715		5,645		8,446		4,845
TOTAL LIABILITIES		465,225		451,131		447,394		451,274		445,606
STOCKHOLDERS’ EQUITY		64,471		63,736		61,101		60,150		58,690
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	529,696	$	514,867	$	508,495	$	511,424	$	504,296

NORWOOD FINANCIAL CORP.

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

		31-Dec		30-Sep		30-Jun		31-Mar		31-Dec
Three months ended		2009		2009		2009		2009		2008
INTEREST INCOME
Loans receivable, including fees	$	5,428	$	5,382	$	5,426	$	5,287	$	5,423
Securities		1,283		1,297		1,316		1,397		1,508
Other		11		1		1		6		3
Total Interest income		6,722		6,680		6,743		6,690		6,934
INTEREST EXPENSE
Deposits		1,411		1,433		1,420		1,501		1,659
Borrowings		484		481		488		508		548
Total Interest expense		1,895		1,914		1,908		2,009		2,207
NET INTEREST INCOME		4,827		4,766		4,835		4,681		4,727
PROVISION FOR LOAN LOSSES		1,100		140		220		225		420
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		3,727		4,626		4,615		4,456		4,307
OTHER INCOME
Service charges and fees		622		614		642		598		636
Income from fiduciary activities		91		99		82		82		111
Net realized gains (losses) on sales of securities		40		90		172		161		-
Gains on sale of loans and servicing rights		185		42		121		133		13
Gain on sale of deposits		-		-		-		150		-
Earnings and proceeds on life insurance		913		102		88		93		84
Other		74		71		63		64		46
Total other income		1,925		1,018		1,168		1,281		890
OTHER EXPENSES
Salaries and employee benefits		2,009		1,611		1,595		1,614		1,525
Occupancy, furniture and equipment , net		360		367		379		485		378
Foreclosed real estate owned		288		130		6		12		11
FDIC insurance assessment		93		133		358		126		54
Other		952		933		982		1,038		978
Total other expenses		3,702		3,174		3,320		3,275		2,946
INCOME BEFORE TAX		1,950		2,470		2,463		2,462		2,251
INCOME TAX EXPENSE		148		695		714		725		666
NET INCOME	$	1,802	$	1,775	$	1,749	$	1,737	$	1,585
Basic earnings per share	$	0.65	$	0.64	$	0.64	$	0.63	$	0.58
Diluted earnings per share	$	0.65	$	0.64	$	0.63	$	0.63	$	0.58
Book Value per share	$	23.25	$	23.07	$	22.23	$	21.99	$	21.45
Return on average equity		11.09%		11.25%		11.49%		11.80%		11.05%
Return on average assets		1.39%		1.40%		1.39%		1.39%		1.26%
Net interest spread		3.55%		3.63%		3.70%		3.54%		3.61%
Net interest margin		3.96%		4.07%		4.13%		3.96%		4.09%
Allowance for loan losses to total loans		1.50%		1.30%		1.27%		1.26%		1.21%
Net charge-offs to average loans (annualized)		0.34%		0.06%		0.07%		0.05%		0.60%
Nonperforming loans to total loans		1.38%		0.88%		0.50%		0.48%		0.60%
Nonperforming assets to total assets		1.02%		0.73%		0.51%		0.48%		0.54%