10-Q

UNITED STATES

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 quarterly period ended June 30, 2013

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 Incorporation or organization)	(I.R.S. employer identification no.)

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

(570) 253-1455

(Registrant’s telephone number, including area code)

NA

(Former name, former address and former fiscal year, if changed since last report)

Indicate 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 by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  [X]  No   [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exhange Act.

Large accelerated filer  [  ]                                                                Accelerated filer   [ X]

Non-accelerated filer   [  ]                                                                Smaller reporting company   [  ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    [ ]  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 August 1, 2013
Common stock, par value $0.10 per share	3,621,969

1

NORWOOD FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2013

		Page Number
PART I -	CONSOLIDATED FINANCIAL INFORMATION OF NORWOOD FINANCIAL CORP.
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	45
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
Signatures		48

2

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

NORWOOD FINANCIAL CORP.

Consolidated Balance Sheets  (unaudited)

(dollars in thousands, except share and per share data)

	June 30, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	9,872		$	10,867
Interest bearing deposits with banks		17,425			1,428
Cash and cash equivalents		27,297			12,295
Securities available for sale, at fair value		150,750			145,390
Securities held to maturity, fair value 2013:    $177, 2012: $177		173			173
Loans receivable (net of unearned income)		480,715			476,710
Less:  Allowance for loan losses		5,749			5,502
Net loans receivable		474,966			471,208
Regulatory stock, at cost		2,527			2,630
Bank premises and equipment, net		7,206			7,326
Bank owned life insurance		14,527			15,357
Accrued interest receivable		2,488			2,393
Foreclosed real estate owned		1,297			852
Goodwill		9,715			9,715
Other intangibles		575			647
Other assets		6,085			4,313
TOTAL ASSETS	$	697,606		$	672,299
LIABILITIES
Deposits:
Non-interest bearing demand	$	93,881		$	82,075
Interest-bearing		456,269			442,350
Total deposits		550,150			524,425
Short-term borrowings		32,075			28,697
Other borrowings		20,150			22,487
Accrued interest payable		1,037			1,242
Other liabilities		3,734			3,027
TOTAL LIABILITIES		607,146			579,878
STOCKHOLDERS’ EQUITY
Common stock, $.10 par value per share, authorized     10,000,000; shares issued 2013: 3,708,718 shares,                                         2012: 3,371,849 shares		371			337
Surplus		34,949			24,737
Retained earnings		58,626			66,742
Treasury stock at cost: 2013:  86,749 shares,                                  2012: 75,426 shares		(2,299	)		(2,192	)
Accumulated other comprehensive income (loss)		(1,187	)		2,797
TOTAL STOCKHOLDERS’ EQUITY		90,460			92,421
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	697,606		$	672,299

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 June 30,				Six Months Ended June 30
	2013		2012		2013		2012
INTEREST INCOME
Loans receivable, including fees	$	6,169	$	6,431	$	12,355	$	12,804
Securities		877		1,007		1,746		2,033
Other		10		7		12		11
Total interest income		7,056		7,445		14,113		14,848
INTEREST EXPENSE
Deposits		719		942		1,473		1,903
Short-term borrowings		15		13		27		24
Other borrowings		178		243		368		487
Total interest expense		912		1,198		1,868		2,414
NET INTEREST INCOME		6,144		6,247		12,245		12,434
PROVISION FOR LOAN LOSSES		800		400		1,600		750
NET INTEREST INCOME AFTER   PROVISION FOR LOAN LOSSES		5,344		5,847		10,645		11,684
OTHER INCOME
Service charges and fees		620		559		1,221		1,113
Income from fiduciary activities		89		80		174		178
Net realized gains on sales of securities		254		285		392		687
Gains on sale of loans and servicing rights		1		66		3		60
Earnings and proceeds on Bank Owned Life Insurance		148		131		1,073		263
Other		100		85		226		196
Total other income		1,212		1,206		3,089		2,497
OTHER EXPENSES
Salaries and employee benefits		2,124		2,047		4,335		4,198
Occupancy, furniture & equipment, net		550		490		1,079		977
Data processing related		230		216		452		448
Taxes, other than income		179		149		352		301
Professional fees		172		217		359		444
Federal Deposit Insurance Corporation insurance assessment		110		97		221		196
Foreclosed real estate owned		86		85		277		207
Other		682		656		1,359		1,333
Total other expenses		4,133		3,957		8,434		8,104
INCOME BEFORE INCOME TAXES		2,423		3,096		5,300		6,077
INCOME TAX EXPENSE		584		838		1,153		1,633
NET INCOME	$	1,839	$	2,258	$	4,147	$	4,444
BASIC EARNINGS PER SHARE	$	.51	$	.63	$	1.15	$	1.23
DILUTED EARNINGS PER SHARE	$	.51	$	.63	$	1.14	$	1.23

See accompanying notes to the unaudited consolidated financial statements.

4

NORWOOD FINANCIAL CORP

Consolidated Statement of Comprehensive Income (unaudited)

(dollars in thousands)

	Three Months Ended June 30, 2013			Three Months Ended June 30, 2012
Net income	$	1,839		$	2,258
Other comprehensive income (loss):
Investment securities available for sale:
Unrealized holding gains (losses)		(4,779	)		291
Tax effect		1,624			(100	)
Reclassification of gains recognized in net income		(254	)		(285	)
Tax effect		86			97
Other comprehensive income (loss)		(3,323	)		3
Comprehensive Income (Loss)	$	(1,484	)	$	2,261

	Six Months Ended June 30, 2013			Six Months Ended June 30, 2012
Net income	$	4,147		$	4,444
Other comprehensive loss:
Investment securities available for sale:
Unrealized holding gains (losses)		(5,643	)		445
Tax effect		1,918			(148	)
Reclassification of gains recognized in net income		(392	)		(687	)
Tax effect		133			234
Other comprehensive loss		(3,984	)		(156	)
Comprehensive Income	$	163		$	4,288

See accompanying notes to unaudited consolidated financial statements.

5

NORWOOD FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Six Months Ended June 30, 2013

(dollars in thousands, except share and per share data)

	Common Stock							Retained			Treasury Stock						Accumulated Other Comprehensive
	Shares		Amount		Surplus			Earnings			Shares			Amount			Income (Loss)			Total
Balance December 31, 2012		3,371,849	$	337	$	24,737		$	66,742			75,426		$	(2,192	)	$	2,797		$	92,421
Net Income									4,147												4,147
Other comprehensive loss																		(3,984	)		(3,984	)
Cash dividends declared     $.60 per share									(2,070	)											(2,070	)
Acquisition of  treasury     stock												10,713			(319	)					(319	)
10% stock dividend		336,869		34		10,149			(10,193	)		8,043									(10	)
Compensation expense     related to stock     options						79															79
Stock options exercised						(32	)					(7,433	)		212						180
Tax benefit on     stock options						16															16
Balance, June 30, 2013		3,708,718	$	371	$	34,949		$	58,626			86,749		$	(2,299	)	$	(1,187	)	$	90,460

See accompanying notes to the unaudited consolidated financial statements.

6

NORWOOD FINANCIAL CORP.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

	Six Months Ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	4,147		$	4,444
Adjustments to reconcile net income to net cash provided by operating  activities:
Provision for loan losses		1,600			750
Depreciation		299			280
Amortization of intangible assets		72			80
Deferred income taxes		32			(259	)
Net amortization of securities premiums and discounts		565			580
Net realized gain on sales of securities		(392	)		(687	)
Gain on life insurance policy		(770	)		-
Net increase in value of life insurance		(304	)		(263	)
Loss on sale of bank premises and equipment and foreclosed real estate		103			27
Net gain on sale of mortgage loans		(25	)		(74	)
Mortgage loans originated for sale		(1,609	)		(2,269	)
Proceeds from sale of mortgage loans originated for sale		1,634			2,343
Compensation expense related to stock options		79			66
Decrease in accrued interest receivable and other assets		141			985
Increase (decrease)  in accrued interest payable and other liabilities		474			(1,441	)
Net cash provided by operating activities		6,046			4,562
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales		15,299			18,349
Proceeds from maturities and principal reductions on mortgage-backed securities		12,813			17,259
Purchases		(39,680	)		(28,582	)
Redemption of FHLB stock		103			350
Net increase in loans		(6,066	)		(22,883	)
Proceeds from life insurance policy		1,859			-
Purchase of bank premises and equipment		(179	)		(172	)
Proceeds from sale of bank premises and equipment and foreclosed real estate		216			2,569
Net cash used in investing activities		(15,635	)		(13,110	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		25,725			8,390
Net increase in short-term borrowings		3,378			5,398
Repayments of other borrowings		(5,337	)		(91	)
Proceeds from other borrowings		3,000			-
Stock options exercised		180			99
Tax benefit of stock options exercised		16			11
Acquisition of treasury stock		(319	)		(320	)
Cash dividends paid		(2,052	)		(1,966	)
Net cash provided by financing activities		24,591			11,521
Increase in cash and cash equivalents		15,002			2,973
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		12,295			21,423
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	27,297		$	24,396

See accompanying notes to the unaudited consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 (dollars in thousands)

	Six Months Ended June 30,
	2013		2012
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits and borrowings	$	2,073	$	2,398
Income taxes paid, net of refunds	$	1,110	$	1,559
Supplemental Schedule of Noncash Investing Activities
Investment purchases	$	-	$	1,619
Transfers of loans to foreclosed real estate and repossession of other assets	$	786	$	954

See accompanying notes to the unaudited consolidated financial statements.

Notes to the Unaudited Consolidated Financial Statements

1.           Basis of Presentation

The unaudited 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., Norwood Settlement Services, LLC,  and WTRO Properties.   All significant intercompany transactions have been eliminated in consolidation.

The accompanying unaudited consolidated  financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 and results of operations of the Company.  The operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 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, 2012.

2.         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.

           The following table sets forth the weighted average shares outstanding used in the computations of basic and diluted earnings per share.  All share and per share data has been adjusted to reflect the retroactive effect of the 10% stock dividend declared during the period ending March 31, 2013.

8

(in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Basic EPS weighted average shares outstanding		3,621		3,604		3,624		3,608
Dilutive effect of stock options		13		4		13		3
Diluted EPS weighted average shares outstanding		3,634		3,608		3,637		3,611

Stock options which had no intrinsic value, because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 0 and 108,103 as of June 30, 2013 and 2012, respectively, based upon the closing price of Norwood common stock of $29.00 and $25.91 per share on June 30, 2013 and 2012, respectively.

3.  Stock-Based Compensation

  The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the annual meeting on April 25, 2006.  The Company awarded 1,100 options in 2013 which have a twelve-month vesting period. As of June 30, 2013, there was $80,000 of total unrecognized compensation cost related to non-vested options granted in 2012 and 2013 under the plan, which will be fully amortized by December 31, 2013.  All share and per share data has been adjusted to reflect the retroactive effect of the 10% stock dividend declared during the period ended March 31, 2013.

A summary of stock options from all plans, adjusted for stock dividends declared, is shown below.

	Options	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value  ($000)
Outstanding at January 1, 2013	225,670	$	26.39	6.1	Yrs.	$	256
Granted	1,100		27.56	9.5	Yrs.		-
Exercised	(7,433		24.15	2.1	Yrs		-
Forfeited	(6,175		29.94	4.8	Yrs		-
Outstanding at June 30, 2013	213,162	$	26.38	5.8	Yrs.	$	560
Exercisable at June 30, 2013	182,362	$	26.26	5.1	Yrs.	$	500

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option.  The stock price was $29.00 as of June 30, 2013 and $27.05 as of December 31, 2012.

9

4.           Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income (in thousands) by component net of tax for the three months and six months ended June 30, 2013:

	Unrealized gains on available for sale securities (a)
Balance as of December 31, 2012	$	2,797
Other comprehensive loss before reclassification		(3,725	)
Amount reclassified from accumulated other comprehensive income		(259	)
Total other comprehensive loss		(3,984	)
Balance as of June 30, 2013	$	(1,187	)

	Unrealized gains on available for sale securities (a)
Balance as of March 31, 2013	$	2,135
Other comprehensive loss before reclassification		(3,154	)
Amount reclassified from accumulated other comprehensive income		(168	)
Total other comprehensive loss		(3,322	)
Balance as of June 30, 2013	$	(1,187	)

(a)  All amounts are net of tax.  Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three months and six months ended June 30, 2013:

Details about other comprehensive income	Amount Reclassified From Accumulated Other Comprehensive Income (a)						Affected Line Item in the Statement Where Net Income is Presented
	Three months ended June 30, 2013			Six months ended June 30, 2013
Unrealized gains on available for sale securities	$	254		$	392		Net realized gains on sales of securities
		(86	)		(133	)	Income tax expense
	$	168		$	259		Net of tax

(a)  Amounts in parentheses indicate debits to net income

10

5.           Off-Balance Sheet Financial Instruments and Guarantees

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the Bank’s financial instrument commitments is as follows:

(in thousands)	June 30,
	2013		2012
Unfunded availability under loan commitments	$	25,772	$	50,754
Unfunded commitments under lines of credit		46,597		37,462
Standby letters of credit		6,991		11,248
	$	79,360	$	99,464

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.  The Bank evaluates each customer’s credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.

The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Bank, generally, holds collateral and/or personal guarantees supporting these commitments.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The current amount of the liability as of June 30, 2013 for guarantees under standby letters of credit issued is not material.

11

6.  Securities

The amortized cost and fair value of securities were as follows:

	June 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	23,663	$	-	$	(811	)	$	22,852
States and political subdivisions		60,860		1,065		(1,428	)		60,497
Corporate obligations		8,186		211		(98	)		8,299
Mortgage-backed securities-government sponsored entities		59,544		396		(1,165	)		58,775
Equity securities-financial services		292		38		(3	)		327
	$	152,545	$	1,710	$	(3,505	)	$	150,750
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-		$	177

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	13,076	$	36	$	(20	)	$	13,092
States and political subdivisions		55,864		2,995		(73	)		58,786
Corporate obligations		8,521		347		-			8,868
Mortgage-backed securities-government sponsored entities		63,397		1,041		(113	)		64,325
Equity securities-financial services		292		27		-			319
	$	141,150	$	4,446	$	(206	)	$	145,390
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-		$	177

12

The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2013
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government agencies	$	22,853	$	(811	)	$	-	$	-		$	22,853	$	(811	)
States and political subdivisions		22,084		(1,428	)		-		-			22,084		(1,428	)
Corporate Obligations		2,496		(98	)		-		-			2,496		(98	)
Mortgage-backed securities-     government sponsored agencies		38,059		(1,150	)		924		(15	)		38,983		(1,165	)
Equity securities–financial services		182		(3	)		-		-			182		(3	)
	$	85,674	$	(3,490	)	$	924	$	(15	)	$	86,598	$	(3,505	)

	December 31, 2012
	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	7,056	$	(20	)	$	-	$	-	$	7,056	$	(20	)
States and political subdivisions		5,821		(73	)		-		-		5,821		(73	)
Mortgage-backed securities-     government sponsored agencies		17,199		(113	)		-		-		17,199		(113	)
	$	30,076	$	(206	)	$	-	$	-	$	30,076	$	(206	)

At June 30, 2013, the Company has 101 debt securities in an unrealized loss position in the less than twelve months category and one debt security in the twelve months or more category.  In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2013.  Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

13

The amortized cost and fair value of debt securities as of June 30, 2013 by contractual maturity are shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	3,416	$	3,462	$	173	$	177
Due after one year through five years		13,433		13,579		-		-
Due after five years through ten years		36,489		35,831		-		-
Due after ten years		39,371		38,776		-		-
Mortgage-backed securities-government sponsored agencies		59,544		58,775		-		-
	$	152,253	$	150,423	$	173	$	177

Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2013		2012		2013			2012
Gross realized gains	$	254	$	285	$	410		$	687
Gross realized losses		-		-		(18	)		-
Net realized gain	$	254	$	285	$	392		$	687
Proceeds from sales of securities	$	7,896	$	7,716	$	15,299		$	18,349

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7. Loans Receivable and Allowance for Loan Losses

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

	Types of loans
	(dollars in thousands)
	June 30, 2013					December 31, 2012
Real Estate-Residential	$	158,595		33.0	%	$	150,043		31.4	%
Commercial		266,204		55.3			274,484		57.5
Construction		17,319		3.6			13,435		2.8
Commercial, financial and agricultural		24,723		5.1			25,113		5.3
Consumer loans to individuals		14,398		3.0			14,154		3.0
Total loans		481,239		100.0	%		477,229		100.0	%
Deferred fees, net		(524	)				(519	)
Total loans receivable		480,715					476,710
Allowance for loan losses		(5,749	)				(5,502	)
Net loans receivable	$	474,966				$	471,208

Changes in the accretable yield for purchased credit-impaired loans were as follows for the six months ended June 30 (in thousands):

	2013			2012
Balance at beginning of period	$	76		$	171
Accretion		(42	)		(47	)
Reclassification and other		-			-
Balance at end of period	$	34		$	124

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

	June 30, 2013		December 31, 2012
Outstanding Balance	$	1,081	$	1,145
Carrying Amount	$	1,046	$	1,069

There were no material increases or decreases in the expected cash flows of these loans between May 31, 2011 (the “acquisition date”) and June 30, 2013.  There has been no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of May 31, 2011 as well as those acquired without specific evidence of deterioration in credit quality as of June 30, 2013.  In addition, there has been no allowance for loan losses reversed.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probably that we will be unable to collect all amounts due according to the contractual terms of

15

the loan agreement.  All loans identified as impaired are evaluated independently.  We do not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk.

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

	Real Estate Loans
	Residential		Commercial		Construction		Commercial Loans		Consumer Loans		Total
June 30, 2013	(In thousands)
Individually     evaluated for     impairment	$	-	$	8,703	$	-	$	-	$	-	$	8,703
Loans acquired     with     deteriorated     credit quality		250		796		-		-		-		1,046
Collectively     evaluated for     impairment		158,345		256,705		17,319		24,723		14,398		471,490
Total Loans	$	158,595	$	266,204	$	17,319	$	24,723	$	14,398	$	481,239

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	Real Estate Loans
	Residential		Commercial		Construction		Commercial Loans		Consumer Loans		Total
December 31, 2012	(In thousands)
Individually     evaluated for     impairment	$	-	$	10,246	$	-	$	310	$	-	$	10,556
Loans acquired     with     deteriorated     credit quality		270		799		-		-		-		1,069
Collectively     evaluated for     impairment		149,773		263,439		13,435		24,803		14,154		465,604
Total Loans	$	150,043	$	274,484	$	13,435	$	25,113	$	14,154	$	477,229

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.  Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

	Recorded Investment		Unpaid  Principal  Balance		Associated Allowance
June 30, 2013 With no related allowance recorded:	(In thousands)
Real Estate Loans
Residential	$	250	$	259	$	-
Commercial		9,499		9,525		-
Subtotal		9,749		9,784		-
With an allowance recorded:
Subtotal		-		-		-
Total:
Real Estate loans
Residential		250		259		-
Commercial		9,499		9,525		-
Total Impaired Loans	$	9,749	$	9,784	$	-

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	Recorded Investment		Unpaid Principal Balance		Associated Allowance
December 31, 2012 With no related allowance recorded:			(In thousands)
Real Estate Loans
Residential	$	270	$	286	$	-
Commercial		10,494		10,554		-
Commercial Loans		310		310		-
Subtotal		11,074		11,150		-
With an allowance recorded:
Real Estate Loans
Commercial		551		551		9
Subtotal		551		551		9
Total:
Real Estate loans
Residential		270		286		-
Commercial		11,045		11,105		9
Commercial Loans		310		310		-
Total Impaired Loans	$	11,625	$	11,701	$	9

The following information for impaired loans is presented (in thousands) for the six months ended June 30, 2013 and 2012:

	Average Recorded Investment				Interest Income  Recognized
	2013		2012		2013		2012
Total:
Real Estate loans
Residential	$	258	$	289	$	2	$	2
Commercial		10,359		13,666		17		146
Commercial loans		-		-		-		-
Total Loans	$	10,617	$	13,955	$	19	$	148

The following information for impaired loans is presented (in thousands) for the three months ended June 30, 2013 and 2012:

	Average Recorded Investment				Interest Income  Recognized
	2013		2012		2013		2012
Total:
Real Estate loans
Residential	$	252	$	275	$	1	$	1
Commercial		9,856		13,536		-		71
Commercial loans		309		385		-		-
Total Loans	$	10,417	$	14,196	$	1	$	72

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Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.  As of June 30, 2013, troubled debt restructured loans totaled $6.0 million and had no specific reserves. During 2013, one loan with a balance of $1.3 million was classified as a troubled debt restructuring.  The restructuring resulted in a decrease in the borrower’s debt but the remaining balance was classified as troubled debt since it would be unlikely that the borrower could obtain comparable financing elsewhere.  As of December 31, 2012, troubled debt restructured loans totaled $5.6 million and resulted in specific reserves of $9,000. For the period ended June 30, 2013, there were no loan modifications classified as troubled debt restructurings that subsequently defaulted during the period. For the period ended June 30, 2012, there were no new loans identified as troubled debt restructurings, nor were there any loan modifications classified as troubled debt restructurings that subsequently defaulted during the period.

The following is a summary of troubled debt restructurings granted during the three and six month periods ended June 30, 2013 (dollars in thousands):

	For the Three Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real Estate Loans:
Commercial		1	$	1,259	$	1,259

	For the Six Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Real Estate Loans:
Commercial		1	$	1,259	$	1,259

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a

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specific action, such as non performance, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis.  Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration.  Loan Review also annually reviews relationships of $500,000 and over to assign or re-affirm risk ratings.  Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of  June 30, 2013 and December 31, 2012 (in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2013
Commercial real estate loans	$	240,670	$	15,194	$	10,340	$	-	$	266,204
Commercial loans		24,723		-		-		-		24,723
Total	$	265,393	$	15,194	$	10,340	$	-	$	290,927

	Pass		Special Mention		Substandard		Doubtful		Total
December 31,  2012
Commercial real estate loans	$	251,484	$	11,245	$	11,755	$	-	$	274,484
Commercial loans		24,427		318		368		-		25,113
Total	$	275,911	$	11,563	$	12,123	$	-	$	299,597

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.  The following table presents the recorded investment in the loan classes based on payment activity as of June 30, 2013 and December 31, 2012 (in thousands):

June 30, 2013	Performing		Nonperforming		Total
Residential real estate loans	$	156,187	$	2,408	$	158,595
Construction		17,319		-		17,319
Consumer loans		14,398		-		14,398
Total	$	187,904	$	2,408	$	190,312

December 31, 2012	Performing		Nonperforming		Total
Residential real estate loans	$	147,197	$	2,846	$	150,043
Construction		13,435		-		13,435
Consumer loans		14,154		-		14,154
Total	$	174,786	$	2,846	$	177,632

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2013 and December 31, 2012 (in thousands):

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	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non- Accrual		Total Past Due and Non- Accrual		Total Loans
June 30, 2013
Real Estate loans
Residential	$	155,980	$	86	$	121	$	-	$	2,408	$	2,615	$	158,595
Commercial		251,398		710		4,923		-		9,173		14,806		266,204
Construction		17,315		4		-		-		-		4		17,319
Commercial loans		24,689		34		-		-		-		34		24,723
Consumer loans		14,348		40		10		-		-		50		14,398
Total	$	463,730	$	874	$	5,054	$	-	$	11,581	$	17,509	$	481,239

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non- Accrual		Total Past Due  and Non- Accrual		Total Loans
December 31, 2012
Real Estate loans
Residential	$	146,847	$	94	$	256	$	-	$	2,846	$	3,196	$	150,043
Commercial		261,527		2,333		598		-		10,026		12,957		274,484
Construction		13,363		72		-		-		-		72		13,435
Commercial  loans		24,785		-		-		-		328		328		25,113
Consumer  loans		14,029		114		11		-		-		125		14,154
Total	$	460,551	$	2,613	$	865	$	-	$	13,200	$	16,678	$	477,229

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial Construction		Commercial			Consumer			Total
Beginning balance, December 31, 2012	$	1,797		$	3,183		$	119	$	223		$	180		$	5,502
Charge Offs		(390	)		(928	)		-		-			(46	)		(1,364	)
Recoveries		-			-			-		-			11			11
Provision Expense		357			1,063			244		(76	)		12			1,600
Ending balance, June 30, 2013	$	1,764		$	3,318		$	363	$	147		$	157		$	5,749
Ending balance individually   evaluated for impairment	$	-		$	-		$	-	$	-		$	-		$	-
Ending balance collectively   evaluated for impairment	$	1,764		$	3,318		$	363	$	147		$	157		$	5,749

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(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial Construction		Commercial			Consumer			Total
Beginning balance, March 31, 2013	$	1,974		$	3,290		$	124	$	176		$	162		$	5,726
Charge Offs		(140	)		(615	)		-		-			(27	)		(782	)
Recoveries		-			-			-		-			5			5
Provision Expense		(70	)		643			239		(29	)		17			800
Ending balance, June 30, 2013	$	1,764		$	3,318		$	363	$	147		$	157		$	5,749

(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial Construction			Commercial		Consumer			Total
Beginning balance, December 31, 2011	$	1,257		$	3,838		$	72		$	147	$	144		$	5,458
Charge Offs		(308	)		(96	)		(7	)		-		(33	)		(444	) )
Recoveries		1			-			-			-		10			11
Provision Expense		609			(51	)		22			116		54			750
Ending balance,  June 30, 2012	$	1,559		$	3,691		$	87		$	263	$	175		$	5,775
Ending balance individually   evaluated for impairment	$	-		$	1,120		$	-		$	-	$	-		$	1,120
Ending balance collectively   evaluated for impairment	$	1,559		$	2,571		$	87		$	263	$	175		$	4,655
(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial Construction			Commercial		Consumer			Total
Beginning balance, March 31, 2012	$	1,199		$	4,007		$	75		$	191	$	146		$	5,618
Charge Offs		(247	)		-			-			-		(1	)		(248	)
Recoveries		-			-			-			-		5			5
Provision Expense		607			(316	)		12			72		25			400
Ending balance,  June 30, 2012	$	1,559		$	3,691		$	87		$	263	$	175		$	5,775

The Company’s primary business activity is with customers located in northeastern Pennsylvania. Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to honor their contracts is influenced by the region’s economy.

As of June 30, 2013, the Company considered its concentration of credit risk to be acceptable.  The highest concentrations are in the hospitality lodging industry, property owners associations and bars/restaurants with loans outstanding of $37.8 million, or 40.4% of capital, to the hospitality lodging industry, $11.7 million, or 12.5% of capital, to property owners associations, and $10.0 million, or 10.7% of capital, to bars/restaurants. There were no losses recognized on loans within these concentrations during the current period.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $32,000 and $7,000 respectively, in the first six months of 2013 compared to $74,000 and $0, respectively, in the same period in 2012.  The proceeds from the sales of residential mortgage loans totaled $1.6 million and $2.3 million for the six months ended June 30, 2013 and 2012, respectively.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $14,000 and $0 respectively, for the three months ended June 30, 2013 compared to $69,000 and $0, respectively, in the same period in 2012.  The proceeds from the sales of residential mortgage loans totaled $523,000 and $2.2 million for the three months ended June 30, 2013 and 2012, respectively.

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8.           Fair Value Measurements

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques.  These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used.  Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value.  These amounts do not reflect the total value of a going concern organization.  Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Securities:

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

			Fair Value Measurement Reporting Date Using
Description	Total		(Level 1)		(Level 2)		(Level 3)
(In thousands)
June 30, 2013
Available for Sale:
US Government agencies	$	22,852	$	-	$	22,852	$	-
States and political subdivisions		60,497		-		60,497		-
Corporate obligations		8,299		-		8,299		-
Mortgage-backed securities-government   sponsored agencies		58,775		-		58,775		-
Equity securities-financial services		327		327		-		-
Total	$	150,750	$	327	$	150,423	$	-
December 31, 2012
Available for Sale:
US Government agencies	$	13,092	$	-	$	13,092	$	-
States and political subdivisions		58,786		-		58,786		-
Corporate obligations		8,868		-		8,868		-
Mortgage-backed securities-government   sponsored agencies		64,325		-		64,325		-
Equity securities-financial services		319		319	-		-
Total	$	145,390	$	319	$	145,071	$	-

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

			Fair Value Measurement Reporting Date Using
Description	Total		(Level 1)		(Level 2)		(Level 3)
(In thousands)
June 30, 2013
Impaired Loans	$	9,749	$	-	$	-	$	9,749
Foreclosed Real Estate Owned		1,297		-		-		1,297
December 31, 2012
Impaired Loans	$	11,616	$	-	$	-	$	11,616
Foreclosed Real Estate Owned		852		-		-		852

 

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The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
June 30, 2013
Impaired loans	$	9,749	Appraisal of collateral(1)	Appraisal adjustments(2)		0-30%	(11.77%)
Foreclosed real estate owned	$	1,297	Appraisal of collateral(1)(3)	Liquidation Expenses(2)		20	%

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2012
Impaired loans	$	11,616	Appraisal of collateral(1)	Appraisal adjustments(2)		0-30%	(24.10%)
Foreclosed real estate owned	$	852	Appraisal of collateral(1)(3)	Liquidation Expenses(2)		20	%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.
(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3)	Includes qualitative adjustments by management and estimated liquidation expenses.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2013 and December 31, 2012.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

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Mortgage servicing rights (generally carried at cost)

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

Restricted Investment in Federal Home Loan Bank stock (carried at cost):

The Company as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula.  This restricted stock has no quoted market value and is carried at cost.

Bank Owned Life Insurance (carried at cost):

The fair value is equal to the cash surrender value of the Bank-owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g. interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

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The estimated fair values of the Bank’s financial instruments were as follows at June 30, 2013 and December 31, 2012. (In thousands)

	Fair Value Measurements at June 30, 2013
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for  Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant  Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	27,297	$	27,297	$	27,297	$	-	$	-
Securities		150,923		150,927		327		150,600		-
Loans receivable, net		474,966		486,212		-		-		486,212
Mortgage servicing rights		221		264		264		-		-
Regulatory Stock		2,527		2,527		2,527		-		-
Bank owned life insurance		14,527		14,527		14,527		-		-
Accrued interest receivable		2,488		2,488		2,488		-		-
Financial liabilities:
Deposits		550,150		551,507		342,184		-		209,323
Short-term borrowings		32,075		32,075		32,075		-		-
Other borrowings		20,150		22,634		-		-		22,634
Accrued interest payable		1,037		1,037		1,037		-		-
Off-balance sheet financial instruments:
Commitments to extend credit
and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2012
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	12,295	$	12,295	$	12,295	$	-	$	-
Securities		145,563		145,567		319		145,248		-
Loans receivable, net		471,208		485,848		-		-		485,848
Mortgage servicing rights		243		243		-		243		-
Regulatory stock		2,630		2,630		2,630		-		-
Bank owned life insurance		15,357		15,357		15,357		-		-
Accrued interest receivable		2,393		2,393		2,393		-		-
Financial liabilities:
Deposits		524,425		526,081		313,166		-		212,915
Short-term borrowings		28,697		28,697		28,697		-		-
Other borrowings		22,487		25,426		-		-		25,426
Accrued interest payable		1,242		1,242		1,242		-		-
Off-balance sheet financial instruments:
Commitments to extend credit
and outstanding letters of credit		-		-		-		-		-

27

9.           New and Recently Adopted Accounting Pronouncements

Recent Accounting Pronouncements:

  In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.   The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.  For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  Early adoption is permitted.  The Company has provided the necessary disclosures in Note 4.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.  The objective of the amendments in this Update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this Update include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on accounting for such obligations with joint and several liability, which has resulted in diversity in practice. Some entities record the entire amount under the joint and several liability arrangement on the basis of the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  This ASU is not expected to have a significant impact on the Company’s financial statements.

28

Item 2.  Management’s 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 are as follows:

• our ability to realize the anticipated benefits from our acquisition of North Penn Bancorp, Inc.

• possible future impairment of intangible assets

• our ability to effectively manage future growth

• loan losses in excess of our allowance

• risks inherent in commercial lending

• real estate collateral which is subject to declines in value

• potential other-than-temporary impairments

• higher deposit insurance premiums

• soundness of other financial institutions

• increased compliance burden under new financial reform legislation

• risk of failure to stabilize the financial system

• current market volatility

• potential liquidity risk

• availability of capital

• regional economic factors

• loss of senior officers

• comparatively low legal lending limits

• risks of new capital requirements

• limited market for the Company’s stock

• restrictions on ability to pay dividends

• common stock may lose value

• competitive environment

• issuing additional shares may dilute ownership

• extensive and complex governmental regulation and associated cost

• interest rate risks

Norwood Financial Corp. undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2012 (incorporated by reference in Item 8 of the Form 10-K) 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 and its results of operations.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, potential impairment of restricted stock, accounting for stock options, the valuation of deferred tax assets, the fair value of financial instruments, valuation of impaired loans, and the determination of other-than-temporary impairment losses on securities.  Please refer to the discussion of the allowance for loan losses calculation under “Allowance for Loan Losses and Non-performing Assets” in the “Changes in Financial Condition” section.

29

The Company uses the modified prospective transition method to account for stock based compensation.  Under this method companies are required to record compensation expense, based on the fair value of options over the vesting period.

Deferred income taxes reflect temporary differences in the recognition of the revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes.  Although realization is not assured, the Company believes that it is more likely than not that all deferred tax assets will be realized.

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the term of the security.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each Consolidated Balance Sheet date.

Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, the Company considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and it is more likely than not that it will not have to sell the securities before recovery of their cost basis.  The Company believes that the unrealized loss on all other securities at June 30, 2013 and December 31, 2012 represent temporary impairment of the securities, related to changes in interest rates.

The Company, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula.  This restricted stock has no quoted market value and is carried at cost.

Management evaluates the restricted stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

  Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions the world is facing.  Management also considered that the FHLB’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, and the new shares of FHLB stock continue to change hands at the $100 par value.  Management believes no impairmentcharge is necessary related to FHLB stock as of June 30, 2013.

In connection with the acquisition of North Penn, we recorded goodwill in the amount of $9.7 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired in purchase transactions, at its fair value at the date of acquisition.  Goodwill is tested and deemed impaired when the carrying value of goodwill exceeds its implied fair value.  The value of the goodwill can change in the future.  We expect the value of the goodwill to decrease if there is a significant decrease in the franchise value of the Bank.  If an impairment loss is determined in the future, we will reflect the loss as an expense for the period in which the impairment is determined, leading to a reduction of our net income for that period by the amount of the impairment loss.

30

Changes in Financial Condition

General

Total assets as of June 30, 2013 were $697.6 million compared to $672.3 million as of December 31, 2012, an increase of $25.3 million.  The increase includes $16 million of overnight liquidity which was funded with a $25.7 million increase in deposits.

Securities

The fair value of securities available for sale as of June 30, 2013 was $150.7 million compared to $145.4 million as of December 31, 2012.  The Company purchased $39.7 million of securities principally using the proceeds from $28.1 million of securities sold, called, maturities and principal reductions as well as from growth in deposits.

The carrying value of the Company’s securities portfolio (Available-for Sale and Held-to Maturity) consisted of the following:

	June 30, 2013					December 31, 2012
(dollars in thousands)	Amount		% of portfolio			Amount		% of portfolio
US Government agencies	$	22,852		15.1	%	$	13,092		9.0	%
States and political subdivisions		60,670		40.2			58,959		40.5
Corporate obligations		8,299		5.5			8,868		6.1
Mortgage-backed securities-   government sponsored entities		58,775		39.0			64,325		44.2
Equity securities-financial services		327		0.2			319		0.2
Total	$	150,923		100.0	%	$	145,563		100.0	%

The Company has securities in an unrealized loss position.  In management’s opinion, the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities.  The Company holds a small amount of equity securities in other financial institutions, the value of which has been impacted by the weakening conditions of the financial markets.  Management believes that the unrealized losses on all other equity holdings represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.

31

Loans

Loans receivable totaled $480.7 million at June 30, 2013 compared to $476.7 million as of December 31, 2012.  The growth recorded in 2013 was attributed to an $8.5 million increase in residential mortgage loans.  Commercial real estate loans decreased $8.3 million during the period while other loans increased $3.8 million.

The allowance for loan losses totaled $5,749,000 as of June 30, 2013 and represented 1.20% of total loans, compared to $5,502,000, or 1.15% of total loans, at December 31, 2012, and $5,775,000, or 1.20% of total loans, as of June 30, 2012.  The Company had net charge-offs for the six months ended June 30, 2013 of $1,353,000 compared to $433,000 in the comparable period in 2012.  The Company’s loan review process assesses the adequacy of the allowance for loan losses on a quarterly basis.  The process includes an analysis of the risks inherent in the loan portfolio.  It includes an analysis of impaired loans and a historical review of credit losses by loan type.  Other factors considered include:  concentration of credit in specific industries; economic and industry conditions; trends in delinquencies and loan classifications, large dollar exposures and loan growth.  Management considers the allowance adequate at June 30, 2013 based on the Company’s criteria.  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 June 30, 2013, non-performing loans totaled $11.6 million, or 2.41% of total loans compared to $13.2 million, or 2.77% of total loans at December 31, 2012.

The following table sets forth information regarding non-performing loans and foreclosed real estate at the dates indicated:

(dollars in thousands)	June 30, 2013			December 31, 2012
Loans accounted for on a non-accrual basis:
Commercial and all other	$	309		$	328
Real Estate	­­­­­­­­11,272				12,872
Total		11,581			13,200
Accruing loans which are contractually
past due 90 days or more		-			-
Total non-performing loans		11,581			13,200
Foreclosed real estate		1,297			852
Total non-performing assets	$	12,878		$	14,052
Allowance for loans losses	$	5,749		$	5,502
Coverage of non-performing loans		0.45	x		0.42	x
Non-performing loans to total loans		2.41	%		2.77	%
Non-performing loans to total assets		1.66	%		1.96	%
Non-performing assets to total assets		1.85	%		2.09	%

32

Deposits

During the period, total deposits increased $25.7 million which includes growth of $11.8 million in non-interest bearing demand deposits, a $16.5 million increase in money market and NOW accounts, and a $.7 million increase in savings deposits.  Certificates of deposit decreased $3.3 million due primarily to the runoff of deposits acquired through promotions.

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

(dollars in thousands)	June 30, 2013		December 31, 2012
Non-interest bearing demand	$	93,881	$	82,075
Interest bearing demand		47,093		45,616
Money market deposit accounts		131,894		116,841
Savings		69,316		68,633
Time deposits <$100,000		135,848		139,949
Time deposits >$100,000		72,118		71,311
Total	$	550,150	$	524,425

Borrowings

Short-term borrowings as of June 30, 2013 totaled $32.1 million compared to $28.7 million as of December 31, 2012.  Short-term borrowings, which consisted of securities sold under agreements to repurchase increased $3.4 million principally due to the seasonality of municipal cash management accounts.

Other borrowings consisted of the following:

(dollars in thousands)

	June 30, 2013		December 31, 2012
Notes with the FHLB:
Convertible note due May 2013 at 3.015%	$	-	$	5,000
Fixed rate note due July 2015 at 4.34%		7,394		7,487
Convertible note due January 2017 at 4.71%		10,000		10,000
Amortizing advance due January 2018 at 0.91%		2,756		-
	$	20,150	$	22,487

The convertible notes contain an option which allows the FHLB, at quarterly intervals to change the note to an adjustable-rate advance at three month LIBOR plus 17 to 22 basis points.  If the notes are converted, the option allows the Bank to put the funds back to the FHLB at no charge.  The fixed rate borrowing due July 2015 includes a $394,000 fair value adjustment recorded at the time of the North Penn acquisition.

33

Off-Balance Sheet Arrangements

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.  Commitments to grant loans totaled $25.8 million as of June 30, 2013 compared to $17.6 million as of December 31, 2012.

A summary of the contractual amount of the Company’s financial instrument commitments is as follows:

	June 30, 2013		December 31, 2012
	(in thousands)
Unfunded availability under loan commitments	$	25,772	$	17,582
Unfunded commitments under lines of credit		46,597		42,735
Standby letters of credit		6,991		6,128
	$	79,360	$	66,445

Stockholders’ Equity and Capital Ratios

As of June 30, 2013, stockholders’ equity totaled $90.5 million, compared to $92.4 million as of December 31, 2012.   The net change in stockholders’ equity included $4.2 million of net income, that was partially offset by $2.1 million of dividends declared, a $319,000 reduction due to an increase in Treasury Stock, and a $275,000 increase due to the exercise and vesting of stock options.  In addition, accumulated other comprehensive income decreased $4.0 million due to a decrease in fair value of securities in the available for sale portfolio, net of tax.  This decrease in fair value is the result of a change in interest rates and spreads, which may impact 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 regulatory capital ratios is as follows:

	June 30, 2013			December 31, 2012
Tier 1 Capital
(To average assets)		12.00	%		11.77	%
Tier 1 Capital
(To risk-weighted assets)		16.65	%		16.37	%
Total Capital
(To risk-weighted assets)		17.83	%		17.51	%

The minimum capital requirements imposed by the FDIC on the Bank 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 and Securities (PDB&S) guidelines.  The Bank’s capital ratios do not differ significantly from the Company’s ratios.  Although not adopted in regulation form, the PDB&S 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&S capital requirements as of June 30, 2013 and December 31, 2012.

34

Liquidity

As of June 30, 2013, the Company had cash and cash equivalents of $27.3 million in the form of cash, due from banks and short-term deposits with other institutions.  In addition, the Company had total securities available for sale of $150.7 million which could be used for liquidity needs.  This totals $178.0 million and represents 25.5% of total assets compared to $157.7 million and 23.5% of total assets as of December 31, 2012.  The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of June 30, 2013 and December 31, 2012.  Based upon these measures, the Company believes its liquidity is adequate.

Capital Resources

The Company has a line of credit commitment available from the Federal Home Loan Bank (FHLB) of Pittsburgh for borrowings of up to $20,000,000 which expires in December 2016.  There were no borrowings under this line at June 30, 2013 and December 31, 2012.

The Company has a line of credit commitment from Atlantic Central Bankers Bank for $7,000,000 which expires June 30, 2014.  There were no borrowings under this line as of June 30, 2013 and December 31, 2012.

The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $16,000,000.  There were no borrowings under this line as of June 30, 2013 and December 31, 2012.

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $259,754,000 as of June 30, 2013, of which $19,756,000 and $22,000,000 was outstanding at June 30, 2013 and December 31, 2012 respectively.  Advances from the Federal Home Loan Bank are secured by qualifying assets of the Bank.

Non-GAAP Financial Measures

This report contains or references fully taxable-equivalent (fte) interest income and net interest income, which are non-GAAP financial measures.  Interest income (fte) and net interest income (fte) are derived from GAAP interest income and net interest income using an assumed tax rate of 34%.  We believe the presentation of interest income (fte) and net interest income (fte) ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.  Net interest income (fte) is reconciled to GAAP net interest income on pages 36 and 40.  Although the Company believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.

35

Results of Operations

NORWOOD FINANCIAL CORP.

Consolidated Average Balance Sheets with Resultant Interest and Rates

(Tax-Equivalent Basis, dollars in thousands)	Three Months Ended June 30,
	2013									2012
	Average Balance (2)			Interest (1)			Average  Rate (3)			Average Balance (2)			Interest (1)			Average  Rate (3)
Assets
Interest-earning assets:
Interest bearing deposits with banks	$	15,421		$	9			0.23	%	$	11,261		$	7			0.25	%
Securities held-to-maturity		173			4			9.25			172			3			6.98
Securities available for sale:
Taxable		90,653			396			1.75			89,790			527			2.35
Tax-exempt (1)		57,090			726			5.09			52,197			722			5.53
Total securities available forsale (1)		147,743			1,122			3.04			141,987			1,249			3.52
Loans receivable (1) (4) (5)		481,366			6,207			5.16			481,524			6,504			5.40
Total interest earning assets		644,703			7,342			4.56			634,944			7,763			4.89
Non-interest earning assets:
Cash and due from banks		9,232									9,077
Allowance for loan losses		(5,847	)								(5,776	)
Other assets		43,314									43,844
Total non-interest earning assets		46,699									47,145
Total Assets	$	691,402								$	682,089
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and       money market	$	175,119			103			0.24		$	169,343			135			0.32
Savings		69,544			9			0.05			68,947			25			0.15
Time		209,638			607			1.16			223,147			782			1.40
Total interest bearing deposits		454,301			719			0.63			461,437			942			0.82
Short-term borrowings		27,347			15			0.22			19,346			13			0.27
Other borrowings		23,109			178			3.08			27,605			243			3.52
Total interest bearing liabilities		504,757			912			0.72			508,388			1,198			0.94
Non-interest bearing liabilities:
Demand deposits		88,908									79,378
Other liabilities		3,989									4,069
Total non-interest bearingliabilities		92,897									83,447
Stockholders' equity		93,748									90,254
Total Liabilities and Stockholders' Equity	$	691,402								$	682,089
Net interest income (tax equivalent basis)					6,430			3.83	%					6,565			3.95	%
Tax-equivalent basis adjustment					(286	)								(318	)
Net interest income				$	6,144								$	6,247
Net interest margin (tax equivalent basis)								3.99	%								4.14	%

(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.

36

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 June 30, 2013 Compared to  Three months ended June 30, 2012  Variance due to
Interest earning assets:	Volume			Rate			Net
		(dollars in thousands)
Interest bearing deposits with banks	$	5		$	(3	)	$	2
Securities held to maturity		-			1			1
Securities available for sale:
Taxable		34			(165	)		(131	)
Tax-exempt securities		253			(249	)		4
Total securities		287			(414	)		(127	)
Loans receivable		(2	)		(295	)		(297	)
Total interest earning assets		290			(711	)		(421	)
Interest bearing liabilities:
Interest-bearing demand and money market		29			(61	)		(32	)
Savings		1			(17	)		(16	)
Time		(45	)		(130	)		(175	)
Total interest bearing deposits		(15	)		(208	)		(223	)
Short-term borrowings		15			(13	)		2
Other borrowings		(37	)		(28	)		(65	)
Total interest bearing liabilities		(37	)		(249	)		(286	)
Net interest income (tax-equivalent basis)	$	327		$	(462	)	$	(135	)

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.

37

Comparison of Operating Results for The Three Months Ended June 30, 2013 to June 30, 2012

General

For the three months ended June 30, 2013, net income totaled $1,839,000 compared to $2,258,000 earned in the similar period in 2012.  The decreased net income for the three months ended June 30, 2013 was due primarily to a $400,000 increase in the provision for loan losses compared to the same period of last year.  A decrease in net interest income and increased operating expenses also contributed to the reduced earnings.  Earnings per share for the current period were $.51 for basic and fully diluted compared to $.63 per share basic and fully diluted for the three months ended June 30, 2012.  The resulting annualized return on average assets and annualized return on average equity for the three months ended June 30, 2013 was 1.07% and 7.87%, respectively, compared to 1.33% and 10.06%, respectively, for the similar period in 2012.

The following table sets forth changes in net income:

(dollars in thousands)	Three months ended June 30, 2013 to June 30, 2012
Net income three months ended June 30, 2012	$	2,258
Change due to:
Net interest income		(103	)
Provision for loan losses		(400	)
Gain on sales of loans and securities		(96	)
Other income		102
Salaries and employee benefits		(77	)
Occupancy, furniture and equipment		(60	)
All other expenses		(39	)
Income tax expense		254
Net income three months ended June 30, 2013	$	1,839

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the three months ended June 30, 2013 totaled $6,430,000, a decrease of $135,000 or 2.1% from the similar period in 2012.  The decrease in net interest income largely reflects the reduced earnings on loans and investments due to repricing in the current low interest rate environment.  The fte net interest spread and net interest margin were 3.83% and 3.99%, respectively, for the three months ended June 30, 2013 compared to 3.95% and 4.14%, respectively, for the similar period in 2012.

Interest income (fte) totaled $7,342,000 with a yield on average earning assets of 4.56% compared to $7,763,000 and 4.89% for the 2012 period. Average loans decreased $158,000 over the comparable period of last year which combined with a 24 basis point reduction in the yield earned, resulting in a $297,000 reduction in loan income.  Reduced yields on securities offset additional earnings due to growth.  An increased level of low yield money market assets also contributed to the reduced net interest margin.  Average earning assets totaled $644.7 million for the three months ended June 30, 2013, an increase of $9.8 million over the average for the similar period in 2012.  This increase in average earning assets helped offset the decline in asset yields.

Interest expense for the three months ended June 30, 2013 totaled $912,000 at an average cost of 0.72% compared to $1,198,000 and 0.94% for the similar period in 2012.  As a result of the continued low interest rate environment, the Company further reduced rates paid on its money market and savings accounts, and cash management products, which are included in short-term borrowings.  The cost of time deposits, which

38

is the most significant component of funding, declined to 1.16% from 1.40% for the similar period in the prior year.  As time deposits matured, they repriced at the current lower rates resulting in the decrease.

Provision for Loan Losses

The Company’s provision for loan losses for the three months ended June 30, 2013 was $800,000 compared to $400,000 for the three months ended June 30, 2012.  The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level.  Net charge-offs were $777,000 for the quarter ended June 30, 2013 compared to $243,000 for the similar period in 2012.

Other Income

Other income totaled $1,212,000 for the three months ended June 30, 2013 compared to $1,206,000 for the similar period in 2012.  Service charges and fees improved $61,000 compared to the prior year period which helped offset a $96,000 decrease in net gains from the sale of loans and securities.  The current period includes a $254,000 gain on the sale of investment securities compared to a $285,000 gain in the second quarter of 2012.  Gains on the sale of residential mortgage loans decreased $65,000 compared to the same quarter of last year due to decreased sales during the current period.  All other items of other income  increased $41,000, net, compared to the second quarter of last year.

Other Expense

Other expense for the three months ended June 30, 2013 totaled $4,133,000, or an increase of $176,000 from $3,957,000 for the similar period in 2012.  Salaries and benefits increased $77,000, or 3.8%, while occupancy and equipment expenses rose $60,000, or 12.2%.  All other operating expenses increased $39,000, net.

Income Tax Expense

Income tax expense totaled $584,000 for an effective tax rate of 24.1% for the period ending June 30, 2013 compared to $838,000 for an effective tax rate of 27.1% for the similar period in 2012.  The decreased effective rate reflects an increased level of tax-exempt income.

39

Results of Operations

NORWOOD FINANCIAL CORP.

Consolidated Average Balance Sheets with Resultant Interest and Rates

(Tax-Equivalent Basis, dollars in thousands)	Six Months Ended June 30,
	2013									2012
	Average Balance (2)			Interest (1)			Average  Rate (3)			Average Balance (2)			Interest (1)			Average  Rate (3)
Assets
Interest-earning assets:
Interest bearing deposits with banks	$	9,733		$	12			0.25	%	$	8,490		$	11			0.26	%
Securities held-to-maturity		173			7			8.09			171			5			5.85
Securities available for sale:
Taxable		90,301			796			1.76			91,280			1,060			2.32
Tax-exempt (1)		56,038			1,432			5.11			52,966			1,467			5.54
Total securities available for sale (1)		146,339			2,228			3.04			144,246			2,527			3.50
Loans receivable (1) (4) (5)		479,777			12,438			5.18			475,730			12,941			5.44
Total interest earning assets		636,022			14,685			4.62			628,637			15,484			4.93
Non-interest earning assets:
Cash and due from banks		9,035									8,688
Allowance for loan losses		(5,714	)								(5,660	)
Other assets		43,754									44,964
Total non-interest earning assets		47,075									47,992
Total Assets	$	683,097								$	676,629
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and        money market	$	171,337			214			0.25		$	167,452			274			0.33
Savings		69,362			26			0.07			68,430			50			0.15
Time		209,836			1,233			1.18			224,553			1,579			1.41
Total interest bearing deposits		450,535			1,473			0.65			460,435			1,903			0.83
Short-term borrowings		24,756			27			0.22			18,902			24			0.25
Other borrowings		23,917			368			3.08			27,628			487			3.53
Total interest bearing liabilities		499,208			1,868			0.75			506,965			2,414			0.95
Non-interest bearing liabilities:
Demand deposits		86,278									75,728
Other liabilities		4,031									4,019
Total non-interest bearing            liabilities		90,309									79,747
Stockholders' equity		93,580									89,917
Total Liabilities and Stockholders' Equity	$	683,097								$	676,629
Net interest income (tax equivalent basis)					12,817			3.87	%					13,070			3.97	%
Tax-equivalent basis adjustment					(572	)								(636	)
Net interest income				$	12,245								$	12,434
Net interest margin (tax equivalent basis)								4.03	%								4.16	%

(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.

40

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

	Increase/(Decrease)
	Six months ended June 30, 2013 Compared to  Six months ended June 30, 2012  Variance due to
	Volume			Rate			Net
	(dollars in thousands)
Interest earning assets:
Interest bearing deposits with banks	$	2		$	(1	)	$	1
Securities held to maturity		-			2			2
Securities available for sale:
Taxable		(11	)		(253	)		(264	)
Tax-exempt securities		180			(215	)		(35	)
Total securities		169			(468	)		(299	)
Loans receivable		296			(799	)		(503	)
Total interest earning assets		467			(1,266	)		(799	)
Interest bearing liabilities:
Interest-bearing demand and money market		18			(78	)		(60	)
Savings		2			(26	)		(24	)
Time		(99	)		(247	)		(346	)
Total interest bearing deposits		(79	)		(351	)		(430	)
Short-term borrowings		11			(8	)		3
Other borrowings		(61	)		(58	)		(119	)
Total interest bearing liabilities		(129	)		(417	)		(546	)
Net interest income (tax-equivalent basis)	$	596		$	(849	)	$	(253	)

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.

41

Comparison of Operating Results for The Six Months Ended June 30, 2013 to June 30, 2012

General

For the six months ended June 30, 2013, net income totaled $4,147,000 compared to $4,444,000 earned in the similar period in 2012.  Earnings per share for the current period were $1.15 for basic and $1.14 fully diluted compared to $1.23 per share basic and fully diluted for the six months ended June 30, 2012.  The resulting annualized return on average assets and annualized return on average equity for the six months ended June 30, 2013 was 1.22% and 8.94%, respectively, compared to 1.32% and 9.94%, respectively, for the similar period in 2012.

The following table sets forth changes in net income:

(dollars in thousands)	Six months ended June 30, 2013 to June 30, 2012
Net income six months ended June 30, 2012	$	4,444
Change due to:
Net interest income		(189	)
Provision for loan losses		(850	)
Gain on sales of loans and securities		(352	)
Proceeds on Bank Owned Life Insurance		770
Other income		174
Salaries and employee benefits		(137	)
Occupancy, furniture and equipment		(102	)
Merger related expenses		85
Foreclosed real estate expense		(70	)
All other expenses		(106	)
Income tax expense		480
Net income six months ended June 30, 2013	$	4,147

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the six months ended June 30, 2013 totaled $12,817,000, a decrease of $253,000 or 1.9% from the similar period in 2012.  The decrease in net interest income largely reflects the reduced yields earned on loans and securities due to growth and reinvestment at today’s lower rates.  The fte net interest spread and net interest margin were 3.87% and 4.03%, respectively, for the six months ended June 30, 2013 compared to 3.97% and 4.16%, respectively, for the similar period in 2012.

Interest income (fte) totaled $14,685,000 with a yield on average earning assets of 4.62% compared to $15,484,000 and 4.93% for the 2012 period.  Residential mortgage rates remain historically low causing a portion of the portfolio to refinance at lower rates.  As a result, the fte yield on average loans in the current period was 5.18%, a decrease from 5.44% in the 2012 period.  The yield on investment securities also declined 46 basis points reflecting the reinvestment of cash flow, maturities and calls at the current lower rate.  Average earning assets totaled $636.0 million for the six months ended June 30, 2013 an increase of $7.4 million over the similar period in 2012. The growth in average earning assets helped offset the decline in loan and securities yields.

Interest expense for the six months ended June 30, 2013 totaled $1,868,000 at an average cost of 0.75% compared to $2,414,000 and 0.95% for the 2012 period.  The Company reduced rates paid on its deposits

42

by 18 basis points and short-term borrowings by 3 basis points.  The cost of time deposits, which is the largest component of interest expense, was 1.18% for the 2013 period decreasing from 1.41% in 2012.  This reflects time deposits maturing and repricing at the current lower rates.

Provision for Loan Losses

The Company’s provision for loan losses for the six months ended June 30, 2013 was $1,600,000 compared to $750,000 for the six months ended June 30, 2012.  The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level.  The increase in the provision was necessary to maintain the reserve at an adequate level after accounting for loan growth and charge-offs for the period ended June 30, 2013. Net charge-offs were $1,353,000 for the six months ended June 30, 2013 compared to $433,000 for the similar period in 2012.

Other Income

Other income totaled $3,089,000 for the six months ended June 30, 2013 compared to $2,497,000 for the similar period in 2012.  The 2013 period includes $770,000 of proceeds from a bank-owned life insurance policy and a $174,000 improvement in all other service charges and fees compared to the same period of last year.  The current period includes $3,000 in gains on the sale of $1.6 million of residential mortgage loans compared to $60,000 in similar gains on the sales of $2.3 million of mortgage loans in the 2012 period.  Gains on the sale of investment securities totaled $392,000 on sales of $15.3 million for the 2013 period compared to $687,000 of gains on sales of $18.3 million in the similar 2012 period.  The proceeds from investment securities sales were reinvested to improve credit quality in the Company’s bond portfolio as well as to fund new loan growth.

Other Expense

Other expenses totaled $8,434,000 for the six months ended June 30, 2013 an increase of $330,000 compared to $8,104,000 for the similar period in 2012.  Salary and benefit costs increased $137,000 due to the staff additions and merit increases while occupancy and equipment expenses rose $102,000.  All other operating expenses increased $91,000, net.  The efficiency ratio for the 2013 period was 53.0% compared to 54.3% in the 2012.

Income Tax Expense

Income tax expense totaled $1,153,000 for an effective tax rate of 21.7% in the 2013 period compared to $1,633,000 and 26.9% in 2012.  The decrease in the effective tax rate reflects a higher level of tax-exempt income.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by the Asset and Liability Management Committee (ALCO).  The principal objective of ALCO is to maximize net interest income within acceptable levels of risk, which are established by policy.  Interest rate risk is monitored and managed by using financial modeling techniques to measure the impact of changes in interest rates.

Net interest income, which is the primary source of the Company’s earnings, is impacted by changes in interest rates and the relationship of different interest rates.  To manage the impact of the rate changes, the balance sheet must be structured so that repricing opportunities exist for both assets and liabilities at approximately the same time intervals.  The Company uses net interest simulation to assist in interest rate risk management.  The process includes simulating various interest rate environments and their impact on net interest income.  As of June 30, 2013, the level of net interest income at risk in a 200 basis point increase in interest rates was within the Company’s policy limits, while a 200 basis point decrease in rates would result in a net interest income fluctuation that exceeds the policy limit.  The Company’s policy allows for a decline of no more than 8% of net interest income for a ± 200 basis point shift in interest rates.  Based on the current level of interest rates, the risk in the declining 200 basis point scenario is considered acceptable.

Imbalance in repricing opportunities at a given point in time reflects interest-sensitivity gaps measured as the difference between rate-sensitive assets (RSA) and rate-sensitive liabilities (RSL).  These are static gap measurements that do not take into account any future activity, and as such are principally used as early indications of potential interest rate exposures over specific intervals.

As of June 30, 2013, the Company had a positive 90 day interest sensitivity gap of $75.5 million or 10.7% of total assets, compared to the $54.3 million or 8.1% of total assets as of December 31, 2012.  Rate sensitive assets repricing within 90 days increased $22.2 million due to a $16.0 million increase in interest-bearing deposits and a $6.2 million increase in loans repricing within the period.  Time deposits repricing within 90 days decreased $2.7 million, while non-maturity interest bearing balances and other borrowings increased $3.7 million.  A positive gap means that rate-sensitive assets are greater than rate-sensitive liabilities at the time interval.  This would indicate that in a rising rate environment, the yield on interest-earning assets could increase faster than the cost of interest-bearing liabilities in the 90 day time frame.  The repricing intervals are managed by ALCO strategies, including adjusting the average life of the investment portfolio, pricing of deposit liabilities to attract longer term time deposits, loan pricing to encourage variable rate products and evaluation of loan sales of long-term fixed rate mortgages.

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June 30, 2013

Rate Sensitivity Table

(dollars in thousands)

	3 Months			3-12 Months			1 to 3 Years			Over 3 Years			Total
Federal funds sold and interest bearing deposits	$	17,425		$	-		$	-		$	-		$	17,425
Securities		9,578			25,279			51,798			64,268			150,923
Loans Receivable		123,282			110,442			131,473			115,518			480,715
Total RSA	$	150,285		$	135,721		$	183,271		$	179,786		$	649,063
Non-maturity interest-bearing deposits	$	39,879		$	45,727		$	120,887		$	41,810		$	248,303
Time Deposits		27,596			65,855			84,276			30,239			207,966
Other		7,346			11,827			22,058			10,994			52,225
Total RSL	$	74,821		$	123,409		$	227,221		$	83,043		$	508,494
Interest Sensitivity Gap	$	75,464		$	12,312		$	(43,950	)	$	96,743		$	140,569
Cumulative Gap		75,464			87,776			43,826			140,569
RSA/RSL-cumulative		200.9	%		144.3	%		110.3	%		127.6	%
December 31, 2012
Interest Sensitivity Gap	$	54,309		$	8,226		$	(19,404	)	$	87,036		$	130,167
Cumulative Gap		54,309			62,535			43,131			130,167
RSA/RSL-cumulative		173.6	%		130.7	%		110.4	%		126.4	%

Item 4.  Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

45

Part II.  OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 1A. Risk Factors

There have been no material changes in the risk factors affecting the Company that were identified in Item 1A of Part 1 of the Company’s Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Sales and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

Not applicable

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

None

Item 6.  Exhibits

No.	Description
3(i)	Articles of Incorporation of Norwood Financial Corp.(1)
3(ii)	Bylaws of Norwood Financial Corp. (2)
4.0	Specimen Stock Certificate of Norwood Financial Corp. (1)
10.1	Employment Agreement with Lewis J. Critelli (2)
10.2	Change in Control Severance Agreement with William S. Lance(2)
10.3	Norwood Financial Corp. Stock Option Plan (3)
10.4	Change in Control Severance Agreement with Robert J. Mancuso(4)
10.5	Salary Continuation Agreement between the Bank and William W. Davis, Jr. (5)
10.6	Salary Continuation Agreement between the Bank and Lewis J. Critelli (5)
10.7	1999 Directors Stock Compensation Plan (3)
10.8	Salary Continuation Agreement between the Bank and John H. Sanders (6)
10.9	2006 Stock Option Plan (7)
10.10	First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (8)
10.11	First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli (8)
10.12	First and Second Amendments to Salary Continuation Agreement with John H. Sanders (8)
31	Rule 13a-14(a)/15d-14(a) Certification of CEO and CFO
32	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002
101.INS		XBRL Instance Document *
101.SCH		XBRL Schema Document *
101.CAL		XBRL Calculation Linkbase Document *
101.LAB		XBRL Labels Linkbase Document *
101.PRE		XBRL Presentation Linkbase Document *
101.DEF		XBRL Definition Linkbase Document *

______________________

* Submitted as Exhibits 101 to this Form 10-Q are documents formatted in XBRL (Extensible Business Reporting Language).  Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

46

(1) Incorporated herein by reference into this document from the Exhibits to Form 10, Registration Statement initially filed with the Commission on April 29, 1996, Registration No. 0-28364

(2) Incorporated by reference into this document from the identically numbered exhibits to the Registrant’s Form 10-K filed with the Commission on March 15, 2010.

(3) Incorporated herein by reference to the identically numbered exhibits of the Registrant’s Form 10-K filed with the Commission on March 23, 2000.

(4) Incorporated by reference into this document from the identically numbered exhibit to the Registrant’s Form 10-K filed with the Commission on March 14, 2013, File No. 0-28364.

(5) Incorporated by reference into this document from the Exhibits to Form S-8 filed with the Commission on August 14, 1998, File No. 333-61487.

(6) Incorporated herein by reference to the identically numbered exhibit to the Registrant’s Form 10-K filed with the Commission on March 22, 2004.

(7) Incorporated by reference to this document from Exhibit 4.1 to Registrant’s Registration Statement on Form S-8 (File No. 333-134831) filed with the Commission on June 8, 2006.

(8) Incorporated herein by reference from the Exhibits to the Registrant’s Current Report on Form 8-K filed on April 4, 2006.

47

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 thereunto duly authorized.

		NORWOOD FINANCIAL CORP.
Date:	August 8, 2013	By:	/s/ Lewis J. Critelli
			Lewis J. Critelli
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	August 8, 2013	By:	/s/ William S. Lance
			William S. Lance
			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)

48

EX-31

Exhibit 31.1

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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2013	/s/ Lewis J. Critelli
		Lewis J. Critelli
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, William S. Lance, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2013	/s/ William S. Lance
		William S. Lance
		Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Norwood Financial Corp. (the Company) on Form 10-Q for the period ending June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Lewis J. Critelli, President and Chief Executive Officer, and William S. Lance, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lewis J. Critelli	/s/ William S. Lance
Lewis J. Critelli	William S. Lance
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

August 8, 2013

XML

New and Recently Adopted Accounting Pronouncements

6 Months Ended

Jun. 30, 2013

New and Recently Adopted Accounting Pronouncements [Abstract]

New and Recently Adopted Accounting Pronouncements

9.New and Recently Adopted Accounting Pronouncements

Recent Accounting Pronouncements:

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.   The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts.  For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  Early adoption is permitted.  The Company has provided the necessary disclosures in Note 4.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.  The objective of the amendments in this Update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. generally accepted accounting principles (GAAP). Examples of obligations within the scope of this Update include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not include specific guidance on accounting for such obligations with joint and several liability, which has resulted in diversity in practice. Some entities record the entire amount under the joint and several liability arrangement on the basis of the concept of a liability and the guidance that must be met to extinguish a liability. Other entities record less than the total amount of the obligation, such as an amount allocated, an amount corresponding to the proceeds received, or the portion of the amount the entity agreed to pay among its co-obligors, on the basis of the guidance for contingent liabilities. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  This ASU is not expected to have a significant impact on the Company’s financial statements.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
INTEREST INCOME
Loans receivable, including fees	$ 6,169	$ 6,431	$ 12,355	$ 12,804
Securities	877	1,007	1,746	2,033
Other	10	7	12	11
Total interest income	7,056	7,445	14,113	14,848
INTEREST EXPENSE
Deposits	719	942	1,473	1,903
Short-term borrowings	15	13	27	24
Other borrowings	178	243	368	487
Total Interest Expense	912	1,198	1,868	2,414
NET INTEREST INCOME	6,144	6,247	12,245	12,434
PROVISION FOR LOAN LOSSES	800	400	1,600	750
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	5,344	5,847	10,645	11,684
OTHER INCOME
Service charges and fees	620	559	1,221	1,113
Income from fiduciary activities	89	80	174	178
Net realized gains on sales of securities	254	285	392	687
Gain on sale of loans and servicing rights	1	66	3	60
Earnings and proceeds on Bank Owned Life Insurance	148	131	1,073	263
Other	100	85	226	196
Total Other Income	1,212	1,206	3,089	2,497
OTHER EXPENSES
Salaries and employee benefits	2,124	2,047	4,335	4,198
Occupancy, furniture & equipment, net	550	490	1,079	977
Data processing related	230	216	452	448
Taxes, other than income	179	149	352	301
Professional fees	172	217	359	444
Federal Deposit Insurance Corporation insurance assessment	110	97	221	196
Foreclosed real estate owned	86	85	277	207
Other	682	656	1,359	1,333
Total other expenses	4,133	3,957	8,434	8,104
INCOME BEFORE INCOME TAXES	2,423	3,096	5,300	6,077
INCOME TAX EXPENSE	584	838	1,153	1,633
NET INCOME	$ 1,839	$ 2,258	$ 4,147	$ 4,444
BASIC EARNINGS PER SHARE	$ 0.51	$ 0.63	$ 1.15	$ 1.23
DILUTED EARNINGS PER SHARE	$ 0.51	$ 0.63	$ 1.14	$ 1.23

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Earnings Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

2.         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.

The following table sets forth the weighted average shares outstanding used in the computations of basic and diluted earnings per share.  All share and per share data has been adjusted to reflect the retroactive effect of the 10% stock dividend declared during the period ending March 31, 2013.

(in thousands)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Basic EPS weighted average shares outstanding	3,621	3,604	3,624	3,608
Dilutive effect of stock options	13	4	13	3
Diluted EPS weighted average shares outstanding	3,634	3,608	3,637	3,611

Stock options which had no intrinsic value, because their effect would be anti-dilutive and therefore would not be included in the diluted EPS calculation were 0 and 108,103 as of June 30, 2013 and 2012, respectively, based upon the closing price of Norwood common stock of $29.00 and $25.91 per share on June 30, 2013 and 2012, respectively.

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Securities (Tables)

6 Months Ended

Jun. 30, 2013

Securities [Abstract]

Amortized Cost and Fair Values of Securities [Table Text Block]

	June 30, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	23,663	$	-	$	(811)	$	22,852
States and political subdivisions		60,860		1,065		(1,428)		60,497
Corporate obligations		8,186		211		(98)		8,299
Mortgage-backed securities-
government sponsored entities		59,544		396		(1,165)		58,775
Equity securities-financial services		292		38		(3)		327
	$	152,545	$	1,710	$	(3,505)	$	150,750
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-	$	177

	December 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	13,076	$	36	$	(20)	$	13,092
States and political subdivisions		55,864		2,995		(73)		58,786
Corporate obligations		8,521		347		-		8,868
Mortgage-backed securities-government
sponsored entities		63,397		1,041		(113)		64,325
Equity securities-financial services		292		27		-		319
	$	141,150	$	4,446	$	(206)	$	145,390
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-	$	177

Investments' Gross Unrealized Losses and Fair Value [Table Text Block]

	June 30, 2013
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	22,853	$	(811)	$	-	$	-	$	22,853	$	(811)
States and political subdivisions		22,084		(1,428)		-		-		22,084		(1,428)
Corporate Obligations		2,496		(98)		-		-		2,496		(98)
Mortgage-backed securities-government sponsored agencies		38,059		(1,150)		924		(15)		38,983		(1,165)
Equity securities–financial services		182		(3)		-		-		182		(3)
	$	85,674	$	(3,490)	$	924	$	(15)	$	86,598	$	(3,505)

	December 31, 2012
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	7,056	$	(20)	$	-	$	-	$	7,056	$	(20)
States and political subdivisions		5,821		(73)		-		-		5,821		(73)
Mortgage-backed securities-government sponsored agencies		17,199		(113)		-		-		17,199		(113)
	$	30,076	$	(206)	$	-	$	-	$	30,076	$	(206)

Securities by Contractual Maturity [Table Text Block]

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	3,416	$	3,462	$	173	$	177
Due after one year through five years		13,433		13,579		-		-
Due after five years through ten years		36,489		35,831		-		-
Due after ten years		39,371		38,776		-		-
Mortgage-backed securities-government sponsored agencies		59,544		58,775		-		-
	$	152,253	$	150,423	$	173	$	177

Gross Realized Gains and Losses on Sales of Securities Available-for-Sale [Table Text Block]

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2013		2012		2013		2012
Gross realized gains	$	254	$	285	$	410	$	687
Gross realized losses		-		-		(18)		-
Net realized gain	$	254	$	285	$	392	$	687
Proceeds from sales of securities	$	7,896	$	7,716	$	15,299	$	18,349

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Basis of Presentation (Policy)

6 Months Ended

Jun. 30, 2013

Basis of Presentation [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The accompanying unaudited consolidated  financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 and results of operations of the Company.  The operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or any other future interim period.

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Fair Value Measurements (Fair Value, by Balance Sheet Grouping) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	$ 27,297	$ 12,295
Financial assets: Securities, Fair Value Disclosure	150,927	145,567
Financial assets: Loans receivable, net, Fair Value Disclosure	486,212	485,848
Financial assets: Mortgage servicing rights, Fair Value Disclosure	264	243
Financial assets: Regulatory stock, Fair Value Disclosure	2,527	2,630
Financial assets: Bank owned life insurance, Fair Value Disclosure	14,527	15,357
Financial assets: Accrued interest receivable, Fair Value Disclosure	2,488	2,393
Financial liabilities: Deposits, Fair Value Disclosure	551,507	526,081
Financial liabilities: Short-term borrowings, Fair Value Disclosure	32,075	28,697
Financial liabilities: Other borrowings, Fair Value Disclosure	22,634	25,426
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,037	1,242
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold	27,297	12,295	24,396	21,423
Financial assets: Securities	150,923	145,563
Financial assets: Loans receivable, net	474,966	471,208
Financial assets: Mortgage servicing rights	221	243
Financial assets: Investment in FHLB stock	2,527	2,630
Financial assets: Bank owned life insurance	14,527	15,357
Financial assets: Accrued interest receivable	2,488	2,393
Financial liabilities: Deposits	550,150	524,425
Financial liabilities: Short-term borrowings	32,075	28,697
Financial liabilities: Other borrowings	20,150	22,487
Financial liabilities: Accrued interest payable	1,037	1,242
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Cash and due from banks, interest-bearing deposits with banks and federal funds sold, Fair Value Disclosure	27,297	12,295
Financial assets: Securities, Fair Value Disclosure	327	319
Financial assets: Mortgage servicing rights, Fair Value Disclosure	264
Financial assets: Regulatory stock, Fair Value Disclosure	2,527	2,630
Financial assets: Bank owned life insurance, Fair Value Disclosure	14,527	15,357
Financial assets: Accrued interest receivable, Fair Value Disclosure	2,488	2,393
Financial liabilities: Deposits, Fair Value Disclosure	342,184	313,166
Financial liabilities: Short-term borrowings, Fair Value Disclosure	32,075	28,697
Financial liabilities: Accrued interest payable, Fair Value Disclosure	1,037	1,242
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Securities, Fair Value Disclosure	150,600	145,248
Financial assets: Mortgage servicing rights, Fair Value Disclosure		243
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets: Loans receivable, net, Fair Value Disclosure	486,212	485,848
Financial liabilities: Deposits, Fair Value Disclosure	209,323	212,915
Financial liabilities: Other borrowings, Fair Value Disclosure	$ 22,634	$ 25,426

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Loans Receivable and Allowance for Loan Losses (Changes in the Accretable Yield for Purchased Credit Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Loans Receivable and Allowance for Loan Losses [Abstract]
Balance at beginning of period	$ 76	$ 171
Accretion	(42)	(47)
Balance at end of period	$ 34	$ 124

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Earnings Per Share (Details) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Earnings Per Share [Abstract]
Common Stock, Dividend Rate, Percentage		10.00%		10.00%
Denominator for basic earnings per share, weighted average shares	3,621,000		3,604,000	3,624,000	3,608,000
Effect of dilutive securities, employee stock options	13,000		4,000	13,000	3,000
Denominator for diluted earnings per share, adjusted weighted average shares and assumed conversions	3,634,000		3,608,000	3,637,000	3,611,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount				0	108,103
Share Price	$ 29.00		$ 25.91	$ 29.00	$ 25.91	$ 27.05

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Fair Value Measurement Using
	Reporting Date
Description	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
June 30, 2013
Available for Sale:
US Government agencies	$	22,852	$	-	$	22,852	$	-
States and political subdivisions		60,497		-		60,497		-
Corporate obligations		8,299		-		8,299		-
Mortgage-backed securities-government
sponsored agencies		58,775		-		58,775		-
Equity securities-financial services		327		327		-		-
Total	$	150,750	$	327	$	150,423	$	-
December 31, 2012
Available for Sale:
US Government agencies	$	13,092	$	-	$	13,092	$	-
States and political subdivisions		58,786		-		58,786		-
Corporate obligations		8,868		-		8,868		-
Mortgage-backed securities-government		64,325				64,325
sponsored agencies				-				-
Equity securities-financial services		319		319		-		-
Total	$	145,390	$	319	$	145,071	$	-

Fair Value, Assets Measured on Nonrecurring Basis [Table Text Block]

			Fair Value Measurement Reporting Date using
(In thousands)
Description	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2013
Impaired Loans	$	9,749	$	-	$	-	$	9,749
Foreclosed Real Estate Owned		1,297		-		-		1,297
December 31, 2012
Impaired Loans	$	11,616	$	-	$	-	$	11,616
Foreclosed Real Estate Owned		852		-		-		852

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

		Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
June 30, 2013
Impaired loans	$	9,749	Appraisal of collateral(1)	Appraisal adjustments(2)	0-30% (11.77)%
Foreclosed real estate owned	$	1,297	Appraisal of collateral(1)(3)	Liquidation Expenses(2)	20%

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2012
Impaired loans	$	11,616	Appraisal of collateral(1)	Appraisal adjustments(2)	0-30%(24.10%)
Foreclosed real estate owned	$	852	Appraisal of collateral(1)(3)	Liquidation Expenses(2)	20%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Fair Value Measurements at June 30, 2013
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	27,297	$	27,297	$	27,297	$	-	$	-
Securities		150,923		150,927		327		150,600		-
Loans receivable, net		474,966		486,212		-		-		486,212
Mortgage servicing rights		221		264		264		-		-
Regulatory Stock		2,527		2,527		2,527		-		-
Bank owned life insurance		14,527		14,527		14,527		-		-
Accrued interest receivable		2,488		2,488		2,488		-		-
Financial liabilities:
Deposits		550,150		551,507		342,184		-		209,323
Short-term borrowings		32,075		32,075		32,075		-		-
Other borrowings		20,150		22,634		-		-		22,634
Accrued interest payable		1,037		1,037		1,037		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2012
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	12,295	$	12,295	$	12,295	$	-	$	-
Securities		145,563		145,567		319		145,248		-
Loans receivable, net		471,208		485,848		-		-		485,848
Mortgage servicing rights		243		243		-		243		-
Regulatory stock		2,630		2,630		2,630		-		-
Bank owned life insurance		15,357		15,357		15,357		-		-
Accrued interest receivable		2,393		2,393		2,393		-		-
Financial liabilities:
Deposits		524,425		526,081		313,166		-		212,915
Short-term borrowings		28,697		28,697		28,697		-		-
Other borrowings		22,487		25,426		-		-		25,426
Accrued interest payable		1,242		1,242		1,242		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of  credit		-		-		-		-		-

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Fair Value Measurements (Fair Value, Assets and Liabilities Measured on Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 9,749	$ 11,616
Impaired Loans [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	9,749	11,616
Foreclosed Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,297	852
Foreclosed Real Estate Owned [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 1,297	$ 852

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Securities (Investments' Gross Unrealized Losses and Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	$ 85,674	$ 30,076
Less than 12 Months, Unrealized Losses	(3,490)	(206)
12 Months or More, Fair Value	924
12 Months or More, Unrealized Losses	(15)
Total, Fair Value	86,598	30,076
Total, Unrealized Losses	(3,505)	(206)
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	22,853	7,056
Less than 12 Months, Unrealized Losses	(811)	(20)
Total, Fair Value	22,853	7,056
Total, Unrealized Losses	(811)	(20)
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	22,084	5,821
Less than 12 Months, Unrealized Losses	(1,428)	(73)
Total, Fair Value	22,084	5,821
Total, Unrealized Losses	(1,428)	(73)
Corporate obligations [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	2,496
Less than 12 Months, Unrealized Losses	(98)
Total, Fair Value	2,496
Total, Unrealized Losses	(98)
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	38,059	17,199
Less than 12 Months, Unrealized Losses	(1,150)	(113)
12 Months or More, Fair Value	924
12 Months or More, Unrealized Losses	(15)
Total, Fair Value	38,983	17,199
Total, Unrealized Losses	(1,165)	(113)
Equity securities-financial services [Member]
Schedule of Investments [Line Items]
Less than 12 Months, Fair Value	182
Less than 12 Months, Unrealized Losses	(3)
Total, Fair Value	182
Total, Unrealized Losses	$ (3)
Less than 12 Months [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	101
12 Months or More [Member]
Schedule of Investments [Line Items]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1

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Loans Receivable and Allowance for Loan Losses (Allowance for Loan Losses and Recorded Investment in Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	$ 8,703		$ 8,703		$ 10,556
Collectively evaluated for impairment	471,490		471,490		465,604
Total Loans	481,239		481,239		477,229
Beginning balance,	5,726	5,618	5,502	5,458
Charge Offs	(782)	(248)	(1,364)	(444)
Recoveries	5	5	11	11
Provision for loan losses	800	400	1,600	750
Ending balance,	5,749	5,775	5,749	5,775
Ending balance individually evaluated for impairment		1,120		1,120
Loans acquired with deteriorated credit quality	1,046		1,046		1,069
Ending balance collectively evaluated for impairment	5,749	4,655	5,749	4,655
Gross Realized Gains on Loans			32	74
Gross Realized Losses on Loans			7	0
Proceeds from Sale of Mortgage Loans Held-for-sale			1,634	2,343
Hospitality Lodging Industry [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	37,800		37,800
Concentration Risk, Percentage			40.40%
Property Owners' Associations [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	11,700		11,700
Concentration Risk, Percentage			12.50%
Bars and Restaurants [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	10,000		10,000
Concentration Risk, Percentage			10.70%
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	158,345		158,345		149,773
Total Loans	158,595		158,595		150,043
Beginning balance,	1,974	1,199	1,797	1,257
Charge Offs	(140)	(247)	(390)	(308)
Recoveries				1
Provision for loan losses	(70)	607	357	609
Ending balance,	1,764	1,559	1,764	1,559
Loans acquired with deteriorated credit quality	250		250		270
Ending balance collectively evaluated for impairment	1,764	1,559	1,764	1,559
Commercial Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	8,703		8,703		10,246
Collectively evaluated for impairment	256,705		256,705		263,439
Total Loans	266,204		266,204		274,484
Beginning balance,	3,290	4,007	3,183	3,838
Charge Offs	(615)		(928)	(96)
Provision for loan losses	643	(316)	1,063	(51)
Ending balance,	3,318	3,691	3,318	3,691
Ending balance individually evaluated for impairment		1,120		1,120
Loans acquired with deteriorated credit quality	796		796		799
Ending balance collectively evaluated for impairment	3,318	2,571	3,318	2,571
Construction Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	17,319		17,319		13,435
Total Loans	17,319		17,319		13,435
Beginning balance,	124	75	119	72
Charge Offs				(7)
Provision for loan losses	239	12	244	22
Ending balance,	363	87	363	87
Ending balance collectively evaluated for impairment	363	87	363	87
Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment					310
Collectively evaluated for impairment	24,723		24,723		24,803
Total Loans	24,723		24,723		25,113
Beginning balance,	176	191	223	147
Provision for loan losses	(29)	72	(76)	116
Ending balance,	147	263	147	263
Ending balance collectively evaluated for impairment	147	263	147	263
Consumer Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	14,398		14,398		14,154
Total Loans	14,398		14,398		14,154
Beginning balance,	162	146	180	144
Charge Offs	(27)	(1)	(46)	(33)
Recoveries	5	5	11	10
Provision for loan losses	17	25	12	54
Ending balance,	157	175	157	175
Ending balance collectively evaluated for impairment	$ 157	$ 175	$ 157	$ 175

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Accumulated Other Comprehensive Income (Items Reclassified Out of Each Component of OCI) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	$ 254	$ 285	$ 392	$ 687
Income tax expense	(584)	(838)	(1,153)	(1,633)
Net Income	1,839	2,258	4,147	4,444
Unrealized gains on available for sale securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities			392
Income tax expense			(133)
Net Income			259
Unrealized gains on available for sale securities [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of securities	254
Income tax expense	(86)
Net Income	$ 168

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Loans Receivable and Allowance for Loan Losses (Troubled Debt Restructurings) (Details) (Commercial Loans [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013 loan	Jun. 30, 2013 loan
Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Financing Receivable, Modifications, Number of Contracts	1	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 1,259	$ 1,259
Financing Receivable, Modifications, Post-Modification Recorded Investment	$ 1,259	$ 1,259

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Loans Receivable and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2013

Loans Receivable and Allowance for Loan Losses [Abstract]

Composition of Loans Receivable [Table Text Block]

	Types of loans
	(dollars in thousands)
	June 30, 2013			December 31, 2012
Real Estate-Residential	$	158,595	33.0%	$	150,043	31.4%
Commercial		266,204	55.3		274,484	57.5
Construction		17,319	3.6		13,435	2.8
Commercial, financial and agricultural		24,723	5.1		25,113	5.3
Consumer loans to individuals		14,398	3.0		14,154	3.0
Total loans		481,239	100.0%		477,229	100.0%
Deferred fees, net		(524)			(519)
Total loans receivable		480,715			476,710
Allowance for loan losses		(5,749)			(5,502)
Net loans receivable	$	474,966		$	471,208

Changes In The Accretable Yield For Purchased Credit Impaired Loans [Table Text Block]

	2013		2012
Balance at beginning of period	$	76	$	171
Accretion		(42)		(47)
Reclassification and other		-		-
Balance at end of period	$	34	$	124

Loans Acquired And Accounted For in Accordance With ASC 310-30 [Table Text Block]

	June 30, 2013		December 30, 2012
Outstanding Balance	$	1,081	$	1,145
Carrying Amount	$	1,046	$	1,069

Allowance for Loan Losses and Recorded Investment in Financing Receivables [Table Text Block]

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2012	$	1,797	$	3,183	$	119	$	223	$	180	$	5,502
Charge Offs		(390)		(928)		-		-		(46)		(1,364)
Recoveries		-		-		-		-		11		11
Provision Expense		357		1,063		244		(76)		12		1,600
Ending balance, June 30, 2013	$	1,764		3,318		363		147		157		5,749
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,764	$	3,318	$	363	$	147	$	157	$	5,749

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, March 31, 2013	$	1,974	$	3,290	$	124	$	176	$	162	$	5,726
Charge Offs		(140)		(615)		-		-		(27)		(782)
Recoveries		-		-		-		-		5		5
Provision Expense		(70)		643		239		(29)		17		800
Ending balance, June 30, 2013	$	1,764		3,318		363		147		157		5,749

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2011	$	1,257	$	3,838	$	72	$	147	$	144	$	5,458
Charge Offs		(308)		(96)		(7)		-		(33)		(444)
Recoveries		1		-		-		-		10		11
Provision Expense		609		(51)		22		116		54		750
Ending balance, June 30, 2012	$	1,559	$	3,691	$	87	$	263	$	175	$	5,775
Ending balance individually evaluated for impairment	$	-	$	1,120	$	-	$	-	$	-	$	1,120
Ending balance collectively evaluated for impairment	$	1,559	$	2,571	$	87	$	263	$	175	$	4,655

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, March 31, 2012	$	1,199	$	4,007	$	75	$	191	$	146	$	5,618
Charge Offs		(247)		-		-		-		(1)		(248)
Recoveries		-		-		-		-		5		5
Provision Expense		607		(316		12		72		25		400
Ending balance, June 30, 2012	$	1,559	$	3,691	$	87	$	263	$	175	$	5,775

Impaired Loans and Related Interest Income by Loan Portfolio Class [Table Text Block]

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
June 30, 2013	(In thousands)
Individually evaluated for  impairment	$	-	$	8,703	$	-	$	-	$	-	$	8,703
Loans acquired with deteriorated credit quality		250		796		-		-		-		1,046
Collectively evaluated for impairment		158,345		256,705		17,319		24,723		14,398		471,490
Total Loans	$	158,595	$	266,204	$	17,319	$	24,723	$	14,398	$	481,239

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2012
Individually evaluated for impairment	$	-	$	10,246	$	-	$	310	$	-	$	10,556
Loans acquired with deteriorated credit quality		270		799		-		-		-		1,069
Collectively evaluated for impairment		149,773		263,439		13,435		24,803		14,154		465,604
Total Loans	$	150,043	$	274,484	$	13,435	$	25,113	$	14,154	$	477,229

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.  Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

			Unpaid Principal
	Recorded		Principal		Associated
	Investment		Balance		Allowance
June 30, 2013
With no related allowance recorded:
Real Estate Loans
Residential	$	250	$	259	$	-
Commercial		9,499		9,525		-
Subtotal		9,749		9,784		-
With an allowance recorded:
Subtotal		-		-		-
Total:
Real Estate Loans
Residential		250		259		-
Commercial		9,499		9,525		-
Total Impaired Loans	$	9,749	$	9,784	$	-

			Unpaid Principal
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2012
With no related allowance recorded:
Real Estate Loans
Residential	$	270	$	286	$	-
Commercial		10,494		10,554		-
Commercial Loans		310		310		-
Subtotal		11,074		11,120		-
With an allowance recorded:
Real Estate Loans
Commercial		551		551		9
Subtotal		551		551		9
Total:
Real Estate Loans
Residential		270		286		-
Commercial		11,045		11,105		9
Commercial Loans		310		310		-
Total Impaired Loans	$	11,625	$	11,701	$	9

The following information for impaired loans is presented (in thousands) for the six months ended June 30, 2013 and 2012:

	Average Recorded				Interest Income
	Investment				Recognized
	2013		2012		2013		2012
Total:
Real Estate Loans
Residential	$	258	$	289	$	2	$	2
Commercial		10,359		13,666		17		146
Commercial Loans		-		-		-		-
Total Loans	$	10,617	$	13,955	$	19	$	148

The following information for impaired loans is presented (in thousands) for the three months ended June 30, 2013 and 2012:

	Average Recorded				Interest Income
	Investment				Recognized
	2013		2012		2013		2012
Total:
Real Estate Loans
Residential	$	252	$	275	$	1	$	1
Commercial		9,856		13,536		-		71
Commercial Loans		309		385		-		-
Total Loans	$	10,417	$	14,916	$	1	$	72

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating [Table Text Block]

			Special
	Pass		Mention		Substandard		Doubtful		Total
June 30, 2013
Commercial real estate loans	$	240,670	$	15,194	$	10,340	$	-	$	266,204
Commercial loans		24,723		-		-		-		24,723
Total	$	265,393	$	15,194	$	10,340	$	-	$	290,927

			Special
	Pass		Mention		Substandard		Doubtful		Total
December 31, 2012
Commercial real estate loans	$	251,484	$	11,245	$	11,755	$	-	$	274,484
Commercial loans		24,427		318		368		-		25,113
Total	$	275,911	$	11,563	$	12,123	$	-	$	299,597

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.  The following table presents the recorded investment in the loan classes based on payment activity as of June 30, 2013 and December 31, 2012 (in thousands):

	Performing		Nonperforming		Total
June 30, 2013
Residential real estate loans	$	156,187	$	2,408	$	158,595
Construction		17,319		-		17,319
Consumer loans		14,398		-		14,398
Total	$	187,904	$	2,408	$	190,312

	Performing		Nonperforming		Total
December 31, 2012
Residential real estate loans	$	147,197	$	2,846	$	150,043
Construction		13,435		-		13,435
Consumer loans		14,154		-		14,154
Total	$	174,786	$	2,846	$	177,632

Loan Portfolio Summarized by the Past Due Status [Table Text Block]

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
June 30, 2013
Real Estate loans
Residential	$	155,980251,398155,980		86		121		-		2,408		2,615		158,595
Commercial		251,398251,398		710		4,923		-		9,173		14,806		266,204
Construction		17,315		4		-		-		-		4		17,319
Commercial  loans		24,689		34		-		-		-		34		24,723
Consumer  loans		14,348		40		10		-		-		50		14,398
Total	$	463,730463,730		874		5,054		-		11,581		17,509		481,239

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2012
Real Estate loans
Residential	$	146,847146,847	$	94	$	256	$	-	$	2,846	$	3,196	$	150,043
Commercial		261,527261,527		2,333		598		-		10,026		12,957		274,484
Construction		13,363		72		-		-		-		72		13,435
Commercial  loans		24,785		-		-		-		328		328		25,113
Consumer  loans		14,029		114		11		-		-		125		14,154
Total	$	460,551460,551	$	2,613	$	865	$	-	$	13,200	$	16,678	$	477,229

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Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income [Member]	Total
Balance, at Dec. 31, 2012	$ 337	$ 24,737	$ 66,742	$ (2,192)	$ 2,797	$ 92,421
Shares, Issued, Beginning Balance at Dec. 31, 2012	3,371,849			75,426
Net Income			4,147			4,147
Other comprehensive loss					(3,984)	(3,984)
Cash dividends declared per share			(2,070)			(2,070)
Acquisition of treasury stock				(319)		(319)
Acquisition of treasury stock, shares				10,713
10% stock dividend	34	10,149	(10,193)			(10)
10% stock dividend, shares	336,869			8,043
Compensation expense related to stock options		79				79
Stock options exercised		(32)		212		180
Stock options exercised, shares				(7,433)		(7,433)
Tax benefit on stock options exercised		16				16
Balance, at Jun. 30, 2013	$ 371	$ 34,949	$ 58,626	$ (2,299)	$ (1,187)	$ 90,460
Shares, Issued, Ending Balance at Jun. 30, 2013	3,708,718			86,749

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$ 4,147	$ 4,444
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,600	750
Depreciation	299	280
Amortization of intangible assets	72	80
Deferred income taxes	32	(259)
Net amortization of securities premiums and discounts	565	580
Net realized gains on sales of securities	(392)	(687)
Gain on life insurance policy	(770)
Net increase in value of life insurance	(304)	(263)
Loss on sale of bank premises and equipment and foreclosed real estate	103	27
Net gain on sale of mortgage loans	(25)	(74)
Mortgage loans originated for sale	(1,609)	(2,269)
Proceeds from sale of mortgage loans originated for sale	1,634	2,343
Compensation expense related to stock options	79	66
Decrease in accrued interest receivable and other assets	141	985
Increase (decrease) in accrued interest payable and other liabilities	474	(1,441)
Net cash provided by operating activities	6,046	4,562
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale: Proceeds from sales	15,299	18,349
Securities available for sale: Proceeds from maturities and principal reductions on mortgage-backed securities	12,813	17,259
Securities available for sale: Purchases	(39,680)	(28,582)
Redemption of FHLB stock	103	350
Net increase in loans	(6,066)	(22,883)
Proceeds from life insurance policy	1,859
Purchase of bank premises and equipment	(179)	(172)
Proceeds from sale of bank premises and equipment and foreclosed real estate	216	2,569
Net cash used in investing activities	(15,635)	(13,110)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	25,725	8,390
Net increase (decrease) in short-term borrowings	3,378	5,398
Repayments of other borrowings	(5,337)	(91)
Proceeds from other borrowings	3,000
Stock options exercised	180	99
Tax benefit from stock options exercised	16	11
Acquisition of treasury stock	(319)	(320)
Cash dividends paid	(2,052)	(1,966)
Net Cash Provided by Financing Activities	24,591	11,521
Increase (Decrease) in Cash and Cash Equivalents	15,002	2,973
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	12,295	21,423
CASH AND CASH EQUIVALENTS, END OF PERIOD	27,297	24,396
Supplemental Disclosure of Cash Flow Information
Cash payments for: Interest on deposits and borrowings	2,073	2,398
Cash payments for: Income taxes paid, net of refunds	1,110	1,559
Supplemental Schedule of Noncash Investing Activities
Investment purchases		1,619
Transfers of loans to foreclosed real estate and repossession of other assets	$ 786	$ 954

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

3.         Stock-Based Compensation

The Company’s shareholders approved the Norwood Financial Corp 2006 Stock Option Plan at the annual meeting on April 25, 2006.  The Company awarded 1,100options in 2013 which have a twelve-month vesting period. As of June 30, 2013, there was $80,000 of total unrecognized compensation cost related to non-vested options granted in 2012 and 2013 under the plan, which will be fully amortized by December 31, 2013.  All share and per share data has been adjusted to reflect the retroactive effect of the 10% stock dividend declared during the period ended March 31, 2013.

A summary of stock options from all plans, adjusted for stock dividends declared, is shown below.

		Weighted
		Average Exercise		Weighted Average		Aggregate
		Price		Remaining		Intrinsic Value
	Options	Per Share		Contractual Term		($000)
Outstanding at January 1, 2013	225,670	$	26.39	6.1	Yrs.	$	256
Granted	1,100		27.56	9.5	Yrs.		-
Exercised	(7,433)		24.15	2.1	Yrs.		-
Forfeited	(6,175)		29.94	4.8	Yrs.		-
Outstanding at June 30, 2013	213,162	$	26.38	5.8	Yrs.	$	560
Exercisable at June 30, 2013	182,362	$	26.26	5.1	Yrs.	$	500

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option.  The stock price was $29.00 as of June 30, 2013 and $27.05 as of December 31, 2012.

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Basis of Presentation

6 Months Ended

Jun. 30, 2013

Basis of Presentation [Abstract]

Basis of Presentation

1.         Basis of Presentation

The unaudited 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., Norwood Settlement Services, LLC,  and WTRO Properties.   All significant intercompany transactions have been eliminated in consolidation. 

The accompanying unaudited consolidated  financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 and results of operations of the Company.  The operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 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, 2012.

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Loans Receivable and Allowance for Loan Losses (Impaired Loans and Related Interest Income by Loan Portfolio Class) (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 9,749,000		$ 9,749,000		$ 11,074,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment					551,000
Impaired Financing Receivable, Recorded Investment	9,749,000		9,749,000		11,625,000
Unpaid Principal Balance, With no related allowance recorded	9,784,000		9,784,000		11,120,000
Unpaid Principal Balance, With an allowance recorded					551,000
Unpaid Principal Balance, Total	9,784,000		9,784,000		11,701,000
Associated Allowance					9,000
Average Recorded Investment, Total	10,417,000	14,916,000	10,617,000	13,955,000
Interest Income Recognized, Total	1,000	72,000	19,000	148,000
Financing Receivable, Modifications, Recorded Investment	6,000,000		6,000,000		5,600,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down					9,000
New Loans Identified as Troubled Debt Restructurings			1,300,000
Residential Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	250,000		250,000		270,000
Impaired Financing Receivable, Recorded Investment	250,000		250,000		270,000
Unpaid Principal Balance, With no related allowance recorded	259,000		259,000		286,000
Unpaid Principal Balance, Total	259,000		259,000		286,000
Average Recorded Investment, Total	252,000	275,000	258,000	289,000
Interest Income Recognized, Total	1,000	1,000	2,000	2,000
Commercial Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	9,499,000		9,499,000		10,494,000
Impaired Financing Receivable, with Related Allowance, Recorded Investment					551,000
Impaired Financing Receivable, Recorded Investment	9,499,000		9,499,000		11,045,000
Unpaid Principal Balance, With no related allowance recorded	9,525,000		9,525,000		10,554,000
Unpaid Principal Balance, With an allowance recorded					551,000
Unpaid Principal Balance, Total	9,525,000		9,525,000		11,105,000
Associated Allowance					9,000
Average Recorded Investment, Total	9,856,000	13,536,000	10,359,000	13,666,000
Interest Income Recognized, Total		71,000	17,000	146,000
Commercial Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment					310,000
Impaired Financing Receivable, Recorded Investment					310,000
Unpaid Principal Balance, With no related allowance recorded					310,000
Unpaid Principal Balance, Total					310,000
Average Recorded Investment, Total	$ 309,000	$ 385,000

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Stock-Based Compensation (Summary of Stock Option Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Stock-Based Compensation [Abstract]
Options, Outstanding, beginning of year	225,670
Options, Granted	1,100
Options, Exercised	(7,433)
Options, Forfeited	(6,175)
Options, Outstanding, end of year	213,162		225,670
Options, Exercisable, end of year	182,362
Weighted Average Exercise Price Per Share, Outstanding, beginning of year	$ 26.39
Weighted Average Exercise Price Per Share, Granted	$ 27.56
Weighted Average Exercise Price Per Share, Exercised	$ 24.15
Weighted Average Exercise Price Per Share, Forfeited	$ 29.94
Weighted Average Exercise Price Per Share, Outstanding, end of year	$ 26.38		$ 26.39
Weighted Average Exercise Price Per Share, Exercisable, end of year	$ 26.26
Weighted Average Remaining Contractual Term, Outstanding,	5 years 9 months 18 days		6 years 1 month 6 days
Weighted Average Remaining Contractual Term, Granted in Period	9 years 6 months
Weighted Average Remaining Contractual Term, Exercised During Period	2 years 1 month 6 days
Weighted Average Remaining Contractual Term, Forfeited During Period	4 years 9 months 18 days
Weighted Average Remaining Contractual Term, Outstanding,	5 years 9 months 18 days		6 years 1 month 6 days
Weighted Average Remaining Contractual Term, Exercisable at End of Period	5 years 1 month 6 days
Aggregate Intrinsic Value, Outstanding,	$ 256
Aggregate Intrinsic Value, Outstanding, end of year	560		256
Aggregate Intrinsic Value, Exercisable, end of year	500
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	12 months
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	80
Share Price	$ 29.00	$ 25.91	$ 27.05
Proceeds from Stock Options Exercised	180	99
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 560		$ 256

XML

Off-Balance Sheet Financial Instruments and Guarantees (Table) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Jun. 30, 2012
Loss Contingencies [Line Items]
Financial Instrument Commitments	$ 79,360	$ 99,464
Unfunded availability under loan commitments [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	25,772	50,754
Unfunded commitments under lines of credit [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	46,597	37,462
Standby letters of credit [Member]
Loss Contingencies [Line Items]
Financial Instrument Commitments	$ 6,991	$ 11,248

XML

Loans Receivable and Allowance for Loan Losses (Composition of Loans Receivable) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 481,239		$ 477,229
Deferred fees (net)	(524)		(519)
Loans receivable, net of unearned income	480,715		476,710
Allowance for loan losses	(5,749)	(5,726)	(5,502)	(5,775)	(5,618)	(5,458)
Loans and Leases Receivable, Net Reported Amount	474,966		471,208
Percent of Loans	100.00%		100.00%
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	158,595		150,043
Percent of Loans	33.00%		31.40%
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	266,204		274,484
Percent of Loans	55.30%		57.50%
Construction Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	17,319		13,435
Percent of Loans	3.60%		2.80%
Commercial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	24,723		25,113
Percent of Loans	5.10%		5.30%
Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 14,398		$ 14,154
Percent of Loans	3.00%		3.00%

XML

Fair Value Measurements (Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 150,750	$ 145,390
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	327	319
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	150,423	145,071
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	22,852	13,092
U.S. Government Agencies [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	22,852	13,092
States and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	60,497	58,786
States and political subdivisions [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	60,497	58,786
Corporate obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	8,299	8,868
Corporate obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	8,299	8,868
Mortgage-backed securities-government sponsored entities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	58,775	64,325
Mortgage-backed securities-government sponsored entities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	58,775	64,325
Equity securities-financial services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	327	319
Equity securities-financial services [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 327	$ 319

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Consolidated Balance Sheets (parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Consolidated Balance Sheets [Abstract]
Held-to-maturity Securities, Fair Value	$ 177	$ 177
Common Stock, Par or Stated Value Per Share	$ 0.10	$ 0.10
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	3,708,718	3,371,849
Treasury Stock, Shares	86,749	75,426

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Securities

6 Months Ended

Jun. 30, 2013

Securities [Abstract]

Securities

6.         Securities

The amortized cost and fair value of securities were as follows:

	June 30, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	23,663	$	-	$	(811)	$	22,852
States and political subdivisions		60,860		1,065		(1,428)		60,497
Corporate obligations		8,186		211		(98)		8,299
Mortgage-backed securities-
government sponsored entities		59,544		396		(1,165)		58,775
Equity securities-financial services		292		38		(3)		327
	$	152,545	$	1,710	$	(3,505)	$	150,750
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-	$	177

	December 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Available for Sale:
U.S. Government agencies	$	13,076	$	36	$	(20)	$	13,092
States and political subdivisions		55,864		2,995		(73)		58,786
Corporate obligations		8,521		347		-		8,868
Mortgage-backed securities-government
sponsored entities		63,397		1,041		(113)		64,325
Equity securities-financial services		292		27		-		319
	$	141,150	$	4,446	$	(206)	$	145,390
Held to Maturity:
States and political subdivisions	$	173	$	4	$	-	$	177

The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	June 30, 2013
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	22,853	$	(811)	$	-	$	-	$	22,853	$	(811)
States and political subdivisions		22,084		(1,428)		-		-		22,084		(1,428)
Corporate Obligations		2,496		(98)		-		-		2,496		(98)
Mortgage-backed securities-government sponsored agencies		38,059		(1,150)		924		(15)		38,983		(1,165)
Equity securities–financial services		182		(3)		-		-		182		(3)
	$	85,674	$	(3,490)	$	924	$	(15)	$	86,598	$	(3,505)

	December 31, 2012
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government agencies	$	7,056	$	(20)	$	-	$	-	$	7,056	$	(20)
States and political subdivisions		5,821		(73)		-		-		5,821		(73)
Mortgage-backed securities-government sponsored agencies		17,199		(113)		-		-		17,199		(113)
	$	30,076	$	(206)	$	-	$	-	$	30,076	$	(206)

At June 30, 2013, the Company has101 debt securities in an unrealized loss position in the less than twelve months category and one debt security in the twelve months or more category.  In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities.  No other-than-temporary-impairment charges were recorded in 2013.  Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

The amortized cost and fair value of debt securities as of June 30, 2013 by contractual maturity are shown below.  Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	3,416	$	3,462	$	173	$	177
Due after one year through five years		13,433		13,579		-		-
Due after five years through ten years		36,489		35,831		-		-
Due after ten years		39,371		38,776		-		-
Mortgage-backed securities-government sponsored agencies		59,544		58,775		-		-
	$	152,253	$	150,423	$	173	$	177

Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2013		2012		2013		2012
Gross realized gains	$	254	$	285	$	410	$	687
Gross realized losses		-		-		(18)		-
Net realized gain	$	254	$	285	$	392	$	687
Proceeds from sales of securities	$	7,896	$	7,716	$	15,299	$	18,349

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Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statement of Comprehensive Income [Abstract]
Net Income	$ 1,839	$ 2,258	$ 4,147	$ 4,444
Other comprehensive income (loss):
Investment securities available for sale: Unrealized holding gains	(4,779)	291	(5,643)	445
Investment securities available for sale: Tax effect	1,624	(100)	1,918	(148)
Reclassification of gains recognized in net income	(254)	(285)	(392)	(687)
Reclassification of gains recognized in net income: Tax effect	86	97	133	234
Other comprehensive income (loss)	(3,323)	3	(3,984)	(156)
Comprehensive Income (Loss)	$ (1,484)	$ 2,261	$ 163	$ 4,288

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 9,872	$ 10,867
Interest bearing deposits with banks	17,425	1,428
Cash and cash equivalents	27,297	12,295
Securities available for sale	150,750	145,390
Securities held to maturity, fair value 2013: $175, 2012: $177	173	173
Loans receivable (net of unearned income)	480,715	476,710
Less: Allowance for loan losses	5,749	5,502
Net loans receivable	474,966	471,208
Regulatory stock, at cost	2,527	2,630
Bank premises and equipment, net	7,206	7,326
Bank owned life insurance	14,527	15,357
Accrued interest receivable	2,488	2,393
Foreclosed real estate owned	1,297	852
Goodwill	9,715	9,715
Other intangibles	575	647
Other assets	6,085	4,313
Total Assets	697,606	672,299
LIABILITIES
Deposits: Non-interest bearing demand	93,881	82,075
Deposits: Interest-bearing	456,269	442,350
Total deposits	550,150	524,425
Short-term borrowings	32,075	28,697
Other borrowings	20,150	22,487
Accrued interest payable	1,037	1,242
Other liabilities	3,734	3,027
Total Liabilities	607,146	579,878
STOCKHOLDERS' EQUITY
Common stock, $.10 par value per share, authorized 10,000,000; shares issued 2013: 3,708,718 shares, 2012: 3,371,849 shares	371	337
Surplus	34,949	24,737
Retained earnings	58,626	66,742
Treasury stock at cost: 2013: 80,438 shares, 2012: 75,426 shares	(2,299)	(2,192)
Accumulated other comprehensive income	(1,187)	2,797
Total Stockholders' Equity	90,460	92,421
Total Liabilities and Stockholders' Equity	$ 697,606	$ 672,299

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Stock-Based Compensation (Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	6 Months Ended
	Mar. 31, 2013	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012
Stock-Based Compensation [Abstract]
Options, Granted		1,100
Options, Exercised		(7,433)
Share Price		$ 29.00	$ 27.05	$ 25.91
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		12 months
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized		$ 80
Common Stock, Dividend Rate, Percentage	10.00%	10.00%

XML

Off-Balance Sheet Financial Instruments and Guarantees (Tables)

6 Months Ended

Jun. 30, 2013

Off-Balance Sheet Financial Instruments and Guarantees [Abstract]

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

A summary of the Bank’s financial instrument commitments is as follows:

(in thousands)	June 30,
	2013		2012
Unfunded availability under loan commitments	$	25,772	$	50,754
Unfunded commitments under lines of credit		46,597		37,462
Standby letters of credit		6,991		11,248
	$	79,360	$	99,464

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Loans Receivable and Allowance for Loan Losses (Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 265,393	$ 275,911
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	15,194	11,563
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	10,340	12,123
Performing Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	187,904	174,786
Nonperforming Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,408	2,846
Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	290,927	299,597
Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	190,312	177,632
Commercial Real Estate Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	240,670	251,484
Commercial Real Estate Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	15,194	11,245
Commercial Real Estate Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	10,340	11,755
Commercial Real Estate Loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	266,204	274,484
Commercial Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	24,723	24,427
Commercial Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net		318
Commercial Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net		368
Commercial Loans [Member] | Total Summarized by Aggregate Risk Rating [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	24,723	25,113
Residential Real Estate Loans [Member] | Performing Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	156,187	147,197
Residential Real Estate Loans [Member] | Nonperforming Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,408	2,846
Residential Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	158,595	150,043
Construction Real Estate Loans [Member] | Performing Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	17,319	13,435
Construction Real Estate Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	17,319	13,435
Consumer Loans [Member] | Performing Financing Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	14,398	14,154
Consumer Loans [Member] | Total Summarized by Performance of Individual Credits [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 14,398	$ 14,154

XML

Loans Receivable and Allowance for Loan Losses (Loans Acquired and Accounted for in Accordance with ASC 310-30) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Loans Receivable and Allowance for Loan Losses [Abstract]
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Outstanding Balance	$ 1,081	$ 1,145
Acquired Loans with Specific Evidence of Deterioration in Credit Quality, Carrying Amount	$ 1,046	$ 1,069

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Securities (Securities by Contractual Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Securities [Abstract]
Available for Sale, Amortized Cost, Due in one year or less	$ 3,416
Available for Sale, Amortized Cost, Due after one year through five years	13,433
Available for Sale, Amortized Cost, Due after five years through ten years	36,489
Available for Sale, Amortized Cost, Due after ten years	39,371
Available for Sale, Amortized Cost, Mortgage-backed securities- government sponsored agencies	59,544
Available for Sale, Amortized Cost, Total	152,253
Available for Sale, Fair Value, Due in one year or less	3,462
Available for Sale, Fair Value, Due after one year through five years	13,579
Available for Sale, Fair Value, Due after five years through ten years	35,831
Available for Sale, Fair Value, Due after ten years	38,776
Available for Sale, Fair Value, Mortgage-backed securities- government sponsored agencies	58,775
Available for Sale, Fair Value, Total	150,423
Held to Maturity, Amortized Cost, Due in one year or less	173
Held-to-maturity Securities, Total	173	173
Held to Maturity, Fair Value, Due in one year or less	177
Held to Maturity, Fair Value	$ 177	$ 177

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Securities (Gross Realized Gains and Losses on Sales of Securities Available-for-Sale) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Securities [Abstract]
Gross realized gains	$ 254	$ 285	$ 410	$ 687
Gross realized losses			(18)
Net realized gain	254	285	392	687
Proceeds from sale of securities	$ 7,896	$ 7,716	$ 15,299	$ 18,349

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Off-Balance Sheet Financial Instruments and Guarantees

6 Months Ended

Jun. 30, 2013

Off-Balance Sheet Financial Instruments and Guarantees [Abstract]

Off-Balance Sheet Financial Instruments and Guarantees

5.         Off-Balance Sheet Financial Instruments and Guarantees

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the Bank’s financial instrument commitments is as follows:

(in thousands)	June 30,
	2013		2012
Unfunded availability under loan commitments	$	25,772	$	50,754
Unfunded commitments under lines of credit		46,597		37,462
Standby letters of credit		6,991		11,248
	$	79,360	$	99,464

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.  The Bank evaluates each customer’s credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.

The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Bank, generally, holds collateral and/or personal guarantees supporting these commitments.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The current amount of the liability as of June 30, 2013 for guarantees under standby letters of credit issued is not material.

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Accumulated Other Comprehensive Income (Components of Accumulated Other Comprehensive Income and Accumulated Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Balance as of			$ 2,797
Other comprehensive loss	(3,323)	3	(3,984)	(156)
Balance as of	(1,187)		(1,187)
Unrealized gains on available for sale securities [Member]
Balance as of	2,135		2,797
Other comprehensive loss before reclassification	(3,154)		(3,725)
Amount reclassified from accumulated other comprehensive income	(168)		(259)
Other comprehensive loss	(3,322)		(3,984)
Balance as of	$ (1,187)		$ (1,187)

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Loans Receivable and Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) (USD $)	12 Months Ended								3 Months Ended	6 Months Ended
	Dec. 31, 2012	Jun. 30, 2013	Jun. 30, 2013 Residential Real Estate Loans [Member]	Dec. 31, 2012 Residential Real Estate Loans [Member]	Jun. 30, 2013 Construction Real Estate Loans [Member]	Dec. 31, 2012 Construction Real Estate Loans [Member]	Jun. 30, 2013 Commercial Real Estate Loans [Member]	Dec. 31, 2012 Commercial Real Estate Loans [Member]	Jun. 30, 2013 Commercial Loans [Member]	Jun. 30, 2013 Commercial Loans [Member]	Dec. 31, 2012 Commercial Loans [Member]	Jun. 30, 2013 Consumer Loans [Member]	Dec. 31, 2012 Consumer Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current					$ 17,315,000	$ 13,363,000			$ 24,689,000	$ 24,689,000	$ 24,785,000	$ 14,348,000	$ 14,029,000
31-60 Days Past Due	2,613,000	874,000	86,000	94,000	4,000	72,000	710,000	2,333,000	34,000	34,000		40,000	114,000
61-90 Days Past Due	865,000	5,054,000	121,000	256,000			4,923,000	598,000				10,000	11,000
Non-Accrual	13,200,000	11,581,000	2,408,000	2,846,000			9,173,000	10,026,000			328,000
Total Past Due and Non-Accrual	16,678,000	17,509,000	2,615,000	3,196,000	4,000	72,000	14,806,000	12,957,000	34,000	34,000	328,000	50,000	125,000
Total Loans	477,229,000	481,239,000	158,595,000	150,043,000	17,319,000	13,435,000	266,204,000	274,484,000	24,723,000	24,723,000	25,113,000	14,398,000	14,154,000
Financing Receivable, Modifications, Pre-Modification Recorded Investment									1,259,000	1,259,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	9,000
Financing Receivable, Modifications, Post-Modification Recorded Investment									$ 1,259,000	$ 1,259,000

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

8.         Fair Value Measurements

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques.  These valuations are significantly affected by discount rates, cash flow assumptions and risk assumptions used.  Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value.  These amounts do not reflect the total value of a going concern organization.  Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Securities:

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.

Impaired loans (generally carried at fair value):

The Company measures impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

Foreclosed real estate owned (carried at fair value):

Real estate properties acquired through, or in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell.  Fair value is based upon independent market prices, appraised value of the collateral or management’s estimation of the value of the collateral.  These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

	Fair Value Measurement Using
	Reporting Date
Description	Total		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
June 30, 2013
Available for Sale:
US Government agencies	$	22,852	$	-	$	22,852	$	-
States and political subdivisions		60,497		-		60,497		-
Corporate obligations		8,299		-		8,299		-
Mortgage-backed securities-government
sponsored agencies		58,775		-		58,775		-
Equity securities-financial services		327		327		-		-
Total	$	150,750	$	327	$	150,423	$	-
December 31, 2012
Available for Sale:
US Government agencies	$	13,092	$	-	$	13,092	$	-
States and political subdivisions		58,786		-		58,786		-
Corporate obligations		8,868		-		8,868		-
Mortgage-backed securities-government		64,325				64,325
sponsored agencies				-				-
Equity securities-financial services		319		319		-		-
Total	$	145,390	$	319	$	145,071	$	-

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

			Fair Value Measurement Reporting Date using
(In thousands)
Description	Total		(Level 1)		(Level 2)		(Level 3)
June 30, 2013
Impaired Loans	$	9,749	$	-	$	-	$	9,749
Foreclosed Real Estate Owned		1,297		-		-		1,297
December 31, 2012
Impaired Loans	$	11,616	$	-	$	-	$	11,616
Foreclosed Real Estate Owned		852		-		-		852

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

		Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
June 30, 2013
Impaired loans	$	9,749	Appraisal of collateral(1)	Appraisal adjustments(2)	0-30% (11.77)%
Foreclosed real estate owned	$	1,297	Appraisal of collateral(1)(3)	Liquidation Expenses(2)	20%

	Quantitative Information about Level 3 Fair Value Measurements
(In thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2012
Impaired loans	$	11,616	Appraisal of collateral(1)	Appraisal adjustments(2)	0-30%(24.10%)
Foreclosed real estate owned	$	852	Appraisal of collateral(1)(3)	Liquidation Expenses(2)	20%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable, less any associated allowance.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2013 and December 31, 2012.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the consolidated balance sheet for cash and short-term instruments approximate those assets’ fair values.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Mortgage servicing rights (generally carried at cost)

The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights.  Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.

Restricted Investment in Federal Home Loan Bank stock (carried at cost):

The Company as a member of the Federal Home Loan Bank (FHLB) system is required to maintain an investment in capital stock of its district FHLB according to a predetermined formula.  This restricted stock has no quoted market value and is carried at cost.

Bank Owned Life Insurance (carried at cost):

The fair value is equal to the cash surrender value of the Bank-owned life insurance.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g. interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings (carried at cost):

The carrying amounts of short-term borrowings approximate their fair values.

Other borrowings (carried at cost):

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The estimated fair values of the Bank’s financial instruments were as follows at June 30, 2013 and December 31, 2012. (In thousands)

	Fair Value Measurements at June 30, 2013
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	27,297	$	27,297	$	27,297	$	-	$	-
Securities		150,923		150,927		327		150,600		-
Loans receivable, net		474,966		486,212		-		-		486,212
Mortgage servicing rights		221		264		264		-		-
Regulatory Stock		2,527		2,527		2,527		-		-
Bank owned life insurance		14,527		14,527		14,527		-		-
Accrued interest receivable		2,488		2,488		2,488		-		-
Financial liabilities:
Deposits		550,150		551,507		342,184		-		209,323
Short-term borrowings		32,075		32,075		32,075		-		-
Other borrowings		20,150		22,634		-		-		22,634
Accrued interest payable		1,037		1,037		1,037		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of credit		-		-		-		-		-

	Fair Value Measurements at December 31, 2012
					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	12,295	$	12,295	$	12,295	$	-	$	-
Securities		145,563		145,567		319		145,248		-
Loans receivable, net		471,208		485,848		-		-		485,848
Mortgage servicing rights		243		243		-		243		-
Regulatory stock		2,630		2,630		2,630		-		-
Bank owned life insurance		15,357		15,357		15,357		-		-
Accrued interest receivable		2,393		2,393		2,393		-		-
Financial liabilities:
Deposits		524,425		526,081		313,166		-		212,915
Short-term borrowings		28,697		28,697		28,697		-		-
Other borrowings		22,487		25,426		-		-		25,426
Accrued interest payable		1,242		1,242		1,242		-		-
Off-balance sheet financial instruments:
Commitments to extend credit and outstanding letters of  credit		-		-		-		-		-

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

4.Accumulated Other Comprehensive Income

The following table presents the changes in accumulated other comprehensive income (in thousands) by component net of tax for the three months and six months ended June 30, 2013:

	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2012	$	2,797
Other comprehensive loss before reclassification		(3,725)
Amount reclassified from accumulated other comprehensive income		(259)
Total other comprehensive loss		(3,984)
Balance as of June 30, 2013	$	(1,187)

	Unrealized gains on
	available for sale
	securities (a)
Balance as of March 31, 2013	$	2,135
Other comprehensive loss before reclassification		(3,154)
Amount reclassified from accumulated other comprehensive income		(168)
Total other comprehensive loss		(3,322)
Balance as of June 30, 2013	$	(1,187)

(a)  All amounts are net of tax.  Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three months and six months ended June 30, 2013:

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				the Statement Where
	Comprehensive				Net Income is
Details about other comprehensive income	Income (a)				Presented
		Three months		Six months
		ended		ended
		June 30, 2013		June 30, 2013
Unrealized gains on available for sale securities	$	254	$	392	Net realized gains on sales of securities
		(86)		(133)	Income tax expense
	$	168	$	259	Net of tax

(a)  Amounts in parentheses indicate debits to net income

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Consolidated Statements of Changes in Stockholders' Equity (parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2013
Consolidated Statements of Changes in Stockholders' Equity [Abstract]
Common Stock, Dividends, Per Share, Declared	$ 0.60
Common Stock, Dividend Rate, Percentage	10.00%

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Fair Value Measurements and Fair Value of Financial Instruments (Additional Qualitative Information about Level 3 Assets) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Disclosure, Unbservable Input Range		0.00
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Disclosure, Unbservable Input Range		-30%
Weighted Average [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Disclosure, Unbservable Input Range		(24.10%)
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 9,749	$ 11,616
Fair Value Disclosure, Unbservable Input Range	0-30% (11.77)%
Impaired Loans [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques		Appraisal of collateral(1)
Fair Value Disclosure, Unbservable Input Range	Appraisal adjustments(2)	Appraisal adjustments(2)
Impaired Loans [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Appraisal of collateral(1)
Foreclosed Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 1,297	$ 852
Fair Value Disclosure, Unbservable Input Range	20%	20%
Foreclosed Real Estate Owned [Member] | Unobservable Inputs Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Disclosure, Unbservable Input Range		Liquidation Expenses(2)
Foreclosed Real Estate Owned [Member] | Unobservable Inputs - Liquidation Expenses [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques		Appraisal of collateral(1)(3)
Fair Value Disclosure, Unbservable Input Range	Liquidation Expenses(2)
Foreclosed Real Estate Owned [Member] | Significant Unobservable Inputs (Level 3) [Member] | Unobservable Inputs - Liquidation Expenses [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Measurements, Valuation Techniques	Appraisal of collateral(1)(3)

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Securities (Amortized Cost and Fair Values of Securities) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Schedule of Investments [Line Items]
Available for Sale, Fair Value	$ 150,750	$ 145,390
Held to Maturity, Amortized Cost	173	173
Held to Maturity, Fair Value	177	177
U.S. Government Agencies [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	23,663	13,076
Available-for-sale Securities, Gross Unrealized Gains		36
Available for Sale, Gross Unrealized Losses	(811)	(20)
Available for Sale, Fair Value	22,852	13,092
States and political subdivisions [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	60,860	55,864
Available-for-sale Securities, Gross Unrealized Gains	1,065	2,995
Available for Sale, Gross Unrealized Losses	(1,428)	(73)
Available for Sale, Fair Value	60,497	58,786
Held to Maturity, Amortized Cost	173	173
Held to Maturity, Gross Unrealized Gains	4	4
Held to Maturity, Fair Value	177	177
Corporate obligations [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	8,186	8,521
Available-for-sale Securities, Gross Unrealized Gains	211	347
Available for Sale, Gross Unrealized Losses	(98)
Available for Sale, Fair Value	8,299	8,868
Mortgage-backed securities-government sponsored entities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	59,544	63,397
Available-for-sale Securities, Gross Unrealized Gains	396	1,041
Available for Sale, Gross Unrealized Losses	(1,165)	(113)
Available for Sale, Fair Value	58,775	64,325
Equity securities-financial services [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	292	292
Available-for-sale Securities, Gross Unrealized Gains	38	27
Available for Sale, Gross Unrealized Losses	(3)
Available for Sale, Fair Value	327	319
Total Securities [Member]
Schedule of Investments [Line Items]
Available for Sale, Amortized Cost	152,545	141,150
Available-for-sale Securities, Gross Unrealized Gains	1,710	4,446
Available for Sale, Gross Unrealized Losses	(3,505)	(206)
Available for Sale, Fair Value	$ 150,750	$ 145,390

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Earnings Per Share (Policy)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share, Policy [Policy Text Block]

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.

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Loans Receivable and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2013

Loans Receivable and Allowance for Loan Losses [Abstract]

Loans Receivable and Allowance for Loan Losses

7.        Loans Receivable and Allowance for Loan Losses

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

	Types of loans
	(dollars in thousands)
	June 30, 2013			December 31, 2012
Real Estate-Residential	$	158,595	33.0%	$	150,043	31.4%
Commercial		266,204	55.3		274,484	57.5
Construction		17,319	3.6		13,435	2.8
Commercial, financial and agricultural		24,723	5.1		25,113	5.3
Consumer loans to individuals		14,398	3.0		14,154	3.0
Total loans		481,239	100.0%		477,229	100.0%
Deferred fees, net		(524)			(519)
Total loans receivable		480,715			476,710
Allowance for loan losses		(5,749)			(5,502)
Net loans receivable	$	474,966		$	471,208

Changes in the accretable yield for purchased credit-impaired loans were as follows for the six months ended June 30 (in thousands):

	2013		2012
Balance at beginning of period	$	76	$	171
Accretion		(42)		(47)
Reclassification and other		-		-
Balance at end of period	$	34	$	124

The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

	June 30, 2013		December 30, 2012
Outstanding Balance	$	1,081	$	1,145
Carrying Amount	$	1,046	$	1,069

There were no material increases or decreases in the expected cash flows of these loans between May 31, 2011 (the “acquisition date”) and June 30, 2013.  There has been no allowance for loan losses recorded for acquired loans with or without specific evidence of deterioration in credit quality as of May 31, 2011 as well as those acquired without specific evidence of deterioration in credit quality as of June 30, 2013.  In addition, there has been no allowance for loan losses reversed.

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.  Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.  Specific loan loss allowances are established for identified losses based on a review of such information.  A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probably that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.  All loans identified as impaired are evaluated independently.  We do not aggregate such loans for evaluation purposes.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company grants a concession to the borrower because of the borrower’s financial condition that it would not otherwise consider.  Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. 

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
June 30, 2013	(In thousands)
Individually evaluated for  impairment	$	-	$	8,703	$	-	$	-	$	-	$	8,703
Loans acquired with deteriorated credit quality		250		796		-		-		-		1,046
Collectively evaluated for impairment		158,345		256,705		17,319		24,723		14,398		471,490
Total Loans	$	158,595	$	266,204	$	17,319	$	24,723	$	14,398	$	481,239

	Real Estate Loans
							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total
	(In thousands)
December 31, 2012
Individually evaluated for impairment	$	-	$	10,246	$	-	$	310	$	-	$	10,556
Loans acquired with deteriorated credit quality		270		799		-		-		-		1,069
Collectively evaluated for impairment		149,773		263,439		13,435		24,803		14,154		465,604
Total Loans	$	150,043	$	274,484	$	13,435	$	25,113	$	14,154	$	477,229

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.  Also presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired.

			Unpaid Principal
	Recorded		Principal		Associated
	Investment		Balance		Allowance
June 30, 2013
With no related allowance recorded:
Real Estate Loans
Residential	$	250	$	259	$	-
Commercial		9,499		9,525		-
Subtotal		9,749		9,784		-
With an allowance recorded:
Subtotal		-		-		-
Total:
Real Estate Loans
Residential		250		259		-
Commercial		9,499		9,525		-
Total Impaired Loans	$	9,749	$	9,784	$	-

			Unpaid Principal
	Recorded		Principal		Associated
	Investment		Balance		Allowance
December 31, 2012
With no related allowance recorded:
Real Estate Loans
Residential	$	270	$	286	$	-
Commercial		10,494		10,554		-
Commercial Loans		310		310		-
Subtotal		11,074		11,120		-
With an allowance recorded:
Real Estate Loans
Commercial		551		551		9
Subtotal		551		551		9
Total:
Real Estate Loans
Residential		270		286		-
Commercial		11,045		11,105		9
Commercial Loans		310		310		-
Total Impaired Loans	$	11,625	$	11,701	$	9

The following information for impaired loans is presented (in thousands) for the six months ended June 30, 2013 and 2012:

	Average Recorded				Interest Income
	Investment				Recognized
	2013		2012		2013		2012
Total:
Real Estate Loans
Residential	$	258	$	289	$	2	$	2
Commercial		10,359		13,666		17		146
Commercial Loans		-		-		-		-
Total Loans	$	10,617	$	13,955	$	19	$	148

The following information for impaired loans is presented (in thousands) for the three months ended June 30, 2013 and 2012:

	Average Recorded				Interest Income
	Investment				Recognized
	2013		2012		2013		2012
Total:
Real Estate Loans
Residential	$	252	$	275	$	1	$	1
Commercial		9,856		13,536		-		71
Commercial Loans		309		385		-		-
Total Loans	$	10,417	$	14,916	$	1	$	72

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.  As of June 30, 2013, troubled debt restructured loans totaled $6.0 million and had no specific reserves. During 2013, one loan with a balance of $1.3 million was classified as a troubled debt restructuring.  The restructuring resulted in a decrease in the borrower’s debt but the remaining balance was classified as troubled debt since it would be unlikely that the borrower could obtain comparable financing elsewhere.  As of December 31, 2012, troubled debt restructured loans totaled $5.6 million and resulted in specific reserves of $9,000.  For the period ended June 30, 2013, there were no loans identified as troubled debt restructurings that subsequently defaulted during the period. For the period ended June 30, 2012, there were no new loans identified as troubled debt restructurings, nor were there any loan modifications classified as troubled debt restructurings that subsequently defaulted during the period.

The following is a summary of troubled debt restructurings granted during the three and six month periods ended June 30, 2013 (dollars in thousands):

	For the Three Months Ended June 30, 2013
			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
	Number of Contracts		Investment		Investment
Troubled Debt Restructurings
Real Estate Loans:
Commercial	1	$	1,259	$	1,259

	For the Six Months Ended June 30, 2013
			Pre-Modification		Post-Modification
			Outstanding Recorded		Outstanding Recorded
	Number of Contracts		Investment		Investment
Troubled Debt Restructurings
Real Estate Loans:
Commercial	1	$	1,259	$	1,259

Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio.  The first four categories are considered not criticized, and are aggregated as “Pass” rated.  The criticized rating categories utilized by management generally follow bank regulatory definitions.  The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.  Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as non performance, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Loan Review Department is responsible for the timely and accurate risk rating of the loans on an ongoing basis.  Every credit which must be approved by Loan Committee or the Board of Directors is assigned a risk rating at time of consideration.  Loan Review also annually reviews relationships of $500,000 and over to assign or re-affirm risk ratings.  Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of  June 30, 2013 and December 31, 2012 (in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Total
June 30, 2013
Commercial real estate loans	$	240,670	$	15,194	$	10,340	$	-	$	266,204
Commercial loans		24,723		-		-		-		24,723
Total	$	265,393	$	15,194	$	10,340	$	-	$	290,927

			Special
	Pass		Mention		Substandard		Doubtful		Total
December 31, 2012
Commercial real estate loans	$	251,484	$	11,245	$	11,755	$	-	$	274,484
Commercial loans		24,427		318		368		-		25,113
Total	$	275,911	$	11,563	$	12,123	$	-	$	299,597

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.  The following table presents the recorded investment in the loan classes based on payment activity as of June 30, 2013 and December 31, 2012 (in thousands):

	Performing		Nonperforming		Total
June 30, 2013
Residential real estate loans	$	156,187	$	2,408	$	158,595
Construction		17,319		-		17,319
Consumer loans		14,398		-		14,398
Total	$	187,904	$	2,408	$	190,312

	Performing		Nonperforming		Total
December 31, 2012
Residential real estate loans	$	147,197	$	2,846	$	150,043
Construction		13,435		-		13,435
Consumer loans		14,154		-		14,154
Total	$	174,786	$	2,846	$	177,632

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2013 and December 31, 2012 (in thousands):

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
June 30, 2013
Real Estate loans
Residential	$	155,980251,398155,980		86		121		-		2,408		2,615		158,595
Commercial		251,398251,398		710		4,923		-		9,173		14,806		266,204
Construction		17,315		4		-		-		-		4		17,319
Commercial  loans		24,689		34		-		-		-		34		24,723
Consumer  loans		14,348		40		10		-		-		50		14,398
Total	$	463,730463,730		874		5,054		-		11,581		17,509		481,239

	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due and still accruing		Non-Accrual		Total Past Due and Non-Accrual		Total Loans
December 31, 2012
Real Estate loans
Residential	$	146,847146,847	$	94	$	256	$	-	$	2,846	$	3,196	$	150,043
Commercial		261,527261,527		2,333		598		-		10,026		12,957		274,484
Construction		13,363		72		-		-		-		72		13,435
Commercial  loans		24,785		-		-		-		328		328		25,113
Consumer  loans		14,029		114		11		-		-		125		14,154
Total	$	460,551460,551	$	2,613	$	865	$	-	$	13,200	$	16,678	$	477,229

The following table presents the allowance for loan losses by the classes of the loan portfolio:

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2012	$	1,797	$	3,183	$	119	$	223	$	180	$	5,502
Charge Offs		(390)		(928)		-		-		(46)		(1,364)
Recoveries		-		-		-		-		11		11
Provision Expense		357		1,063		244		(76)		12		1,600
Ending balance, June 30, 2013	$	1,764		3,318		363		147		157		5,749
Ending balance individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance collectively evaluated for impairment	$	1,764	$	3,318	$	363	$	147	$	157	$	5,749

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, March 31, 2013	$	1,974	$	3,290	$	124	$	176	$	162	$	5,726
Charge Offs		(140)		(615)		-		-		(27)		(782)
Recoveries		-		-		-		-		5		5
Provision Expense		(70)		643		239		(29)		17		800
Ending balance, June 30, 2013	$	1,764		3,318		363		147		157		5,749

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, December 31, 2011	$	1,257	$	3,838	$	72	$	147	$	144	$	5,458
Charge Offs		(308)		(96)		(7)		-		(33)		(444)
Recoveries		1		-		-		-		10		11
Provision Expense		609		(51)		22		116		54		750
Ending balance, June 30, 2012	$	1,559	$	3,691	$	87	$	263	$	175	$	5,775
Ending balance individually evaluated for impairment	$	-	$	1,120	$	-	$	-	$	-	$	1,120
Ending balance collectively evaluated for impairment	$	1,559	$	2,571	$	87	$	263	$	175	$	4,655

(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Beginning balance, March 31, 2012	$	1,199	$	4,007	$	75	$	191	$	146	$	5,618
Charge Offs		(247)		-		-		-		(1)		(248)
Recoveries		-		-		-		-		5		5
Provision Expense		607		(316		12		72		25		400
Ending balance, June 30, 2012	$	1,559	$	3,691	$	87	$	263	$	175	$	5,775

The Company’s primary business activity is with customers located in northeastern Pennsylvania. Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to honor their contracts is influenced by the region’s economy.

As of June 30, 2013, the Company considered its concentration of credit risk to be acceptable.  The highest concentrations are in the hospitality lodging industry, property owners associations and bars/restaurants with loans outstanding of $37.8 million, or40.4% of capital, to the hospitality lodging industry, $11.7 million, or 12.5% of capital, to property owners associations, and $10.0 million, or 10.7% of capital, to bars/restaurants. There were no losses recognized on loans within these concentrations during the current period.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $32,000 and $7,000 respectively, in the first six months of 2013 compared to $74,000 and $0, respectively, in the same period in 2012.  The proceeds from the sales of residential mortgage loans totaled $1.6 million and $2.3 million for the six months ended June 30, 2013 and 2012, respectively.

Gross realized gains and gross realized losses on sales of residential mortgage loans were $14,000 and $0 respectively, for the three months ended June 30, 2013 compared to $69,000 and $0, respectively, in the same period in 2012.  The proceeds from the sales of residential mortgage loans totaled $523,000 and $2.2 million for the three months ended June 30, 2013 and 2012, respectively.

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Income [Abstract]

Components of Accumulated Other Comprehensive Income [Table Text Block]

	Unrealized gains on
	available for sale
	securities (a)
Balance as of December 31, 2012	$	2,797
Other comprehensive loss before reclassification		(3,725)
Amount reclassified from accumulated other comprehensive income		(259)
Total other comprehensive loss		(3,984)
Balance as of June 30, 2013	$	(1,187)

	Unrealized gains on
	available for sale
	securities (a)
Balance as of March 31, 2013	$	2,135
Other comprehensive loss before reclassification		(3,154)
Amount reclassified from accumulated other comprehensive income		(168)
Total other comprehensive loss		(3,322)
Balance as of June 30, 2013	$	(1,187)

Items Reclassified Out of Each Component of OCI [Table Text Block]

	Amount Reclassified
	From Accumulated				Affected Line Item in
	Other				the Statement Where
	Comprehensive				Net Income is
Details about other comprehensive income	Income (a)				Presented
		Three months		Six months
		ended		ended
		June 30, 2013		June 30, 2013
Unrealized gains on available for sale securities	$	254	$	392	Net realized gains on sales of securities
		(86)		(133)	Income tax expense
	$	168	$	259	Net of tax

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Table Text Block]

(in thousands)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Basic EPS weighted average shares outstanding	3,621	3,604	3,624	3,608
Dilutive effect of stock options	13	4	13	3
Diluted EPS weighted average shares outstanding	3,634	3,608	3,637	3,611

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 01, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Entity Registrant Name	NORWOOD FINANCIAL CORP
Entity Central Index Key	0001013272
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		3,621,969
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Summary of Stock Option Activity [Table Text Block]

		Weighted
		Average Exercise		Weighted Average		Aggregate
		Price		Remaining		Intrinsic Value
	Options	Per Share		Contractual Term		($000)
Outstanding at January 1, 2013	225,670	$	26.39	6.1	Yrs.	$	256
Granted	1,100		27.56	9.5	Yrs.		-
Exercised	(7,433)		24.15	2.1	Yrs.		-
Forfeited	(6,175)		29.94	4.8	Yrs.		-
Outstanding at June 30, 2013	213,162	$	26.38	5.8	Yrs.	$	560
Exercisable at June 30, 2013	182,362	$	26.26	5.1	Yrs.	$	500