ex99-1.htm

FOR IMMEDIATE RELEASE

NORWOOD FINANCIAL CORP

ANNOUNCES EARNINGS FOR THE THIRD QUARTER

October 20, 2011-Honesdale, PA

Lewis J. Critelli, President and Chief Executive Officer of Norwood Financial Corp. (Nasdaq Global Market-NWFL) and its subsidiary, Wayne Bank, announced earnings for the three months ended September 30, 2011 of $2,215,000. This represents an increase of $325,000, or 17.2%, over the $1,890,000 earned in the third quarter of 2010. Earnings per share (fully diluted) were $.67 in the 2011 period, down slightly from the $.68 earned in the similar period of last year due to the increased number of shares outstanding resulting from the North Penn Bancorp, Inc. (“North Penn”) acquisition. Annualized return on average assets for the three months ended September 30, 2011 was 1.28% with an annualized return on average equity of 10.17%. Net income for the nine months ended September 30, 2011 totaled $5,359,000, which is $146,000 lower than the similar period of 2010 due primarily to merger-related costs. Earnings per share (fully diluted) for the nine months ended September 30, 2011 totaled $1.79 per share compared to $1.99 per share in the 2010 period.

Total assets as of September 30, 2011 were $678.9 million with loans receivable of $454.8 million, deposits of $526.5 million and stockholders’ equity of $86.9 million. Total assets have increased $144.3 million during the twelve months ended September 30, 2011 due primarily to balances acquired in the North Penn transaction.

Loans receivable increased $96.5 million from September 30, 2010 due to the acquisition, including a $73.8 million increase in commercial loans and a $22.7 million increase in retail loans.

Non-performing assets, which include non-performing loans and foreclosed real estate owned, totaled $9.6 million and 1.42% of total assets as of September 30, 2011 compared to $10.6 million and 1.50% of assets as of June 30, 2011 and $4.4 million or .82% of total assets as of September 30, 2010. The increase in non-performing assets from the prior year is due in part to loans acquired in the merger. Net charge-offs were $347,000 for the quarter and totaled $1,346,000 for the nine months ended September 30, 2011 compared to $158,000 and $670,000, respectively, for the similar periods in 2010. The increase in charge-offs in 2011 is due primarily to one credit which had been carried in non-accrual status. Based on the increase in charge-offs, the Company determined that it would be appropriate to provide $425,000 and $1,075,000 for potential future losses for the three and nine month periods ended September 30, 2011, respectively, compared to $250,000 and $730,000, respectively, for the similar periods in 2010. The allowance for loan losses totaled $5,345,000 as of September 30, 2011 and represented 1.18% of total loans, decreasing from $5,513,000 as of September 30, 2010 and 1.54% of total loans.

For the three months ended September 30, 2011, net interest income, on a fully taxable equivalent basis (fte), totaled $6,573,000, which represents an increase of $1.4 million, or 26.6%, compared to $5,192,000 for the similar period in 2010. The increase can be attributed to the benefits realized since closing on the North Penn transaction. Net interest margin (fte) for the 2011 period was 4.13% compared to 4.03% for the similar period in 2010. The improvement in the net interest margin was principally due to yields on loans in excess of the cost of deposits acquired from North Penn. Net interest income (fte) for the nine months ended September 30, 2011 totaled $17,216,000, an increase of $1,755,000, or 11.3%, over the similar period in 2010. Net interest margin (fte) year to date for the 2011 period was 4.03% compared to 4.05% in 2010.

Other income for the three months ended September 30, 2011 totaled $1,506,000 compared to $1,035,000 for the similar period in 2010. The increase was principally due to increased gains on the sales of investment securities during the period. For the nine months ended September 30, 2011, other income totaled $3,707,000 compared to $3,053,000 in the 2010 period. The 2011 year-to-date period includes $282,000 in gains and servicing rights on the sale of $8.7 million of residential mortgage loans compared to $208,000 in similar gains on sales of $10.5 million of mortgage loans in the 2010 period. Gains on the sales of investment securities totaled $768,000 on sales of $27.7 million for the 2011 year-to-date period compared to $380,000 on sales of $23.8 million in the 2010 period. The proceeds from investment securities sales were reinvested to improve credit quality, provide current period income and to add protection from rising interest rates.

Other expenses totaled $4,354,000 for the three months ended September 30, 2011, compared to $3,112,000 in the similar period of 2010. The increase includes $693,000 of costs related to the five offices added through merger, as well as $282,000 foreclosed real estate costs due primarily to one property transferred during the quarter. For the nine months ended September 30, 2011, other expenses total $11,824,000 compared to $9,448,000 for the similar period in 2010, an increase of $2.4 million due to merger related costs and increased foreclosed real estate expenses.

Mr. Critelli commented, “We are beginning to see the benefits of the North Penn acquisition. Net interest income improved $670,000 over the second quarter of this year, and the $2.2 million of net income recorded in the third quarter represents a significant improvement over the prior period and the same period of last year. Our net interest margin continues to show improvement, earnings per share for the quarter are comparable to last year, and our capital levels exceed the regulatory “Well Capitalized” targets. Our

earnings through nine months of 2011 are down slightly from 2010, but this was primarily due to one-time merger related expenses. A fragile economy and high unemployment will continue to impact our markets and customer base for the foreseeable future, but we remain committed to provide the products and services required from a true community bank during this trough in the economic cycle. We believe that we are well positioned to take advantage of the opportunities available to us, and we look forward to serving our growing customer base as the economy rebounds from the recent difficulties.”

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

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words “believes”, “anticipates”, “contemplates”, “expects”, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in federal and state laws, changes in interest rates, risks associated with the acquisition of North Penn Bancorp, the ability to control costs and expenses, demand for real estate and general economic conditions. The Company 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.

Non-GAAP Financial Measures

This release references tax-equivalent net interest income which is a non-GAAP financial measures. Tax-equivalent net interest income is derived from GAAP interest income and net interest income using an assumed tax rate of 34%. We believe the presentation of net interest income on a tax–equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

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

	Three months ended				Nine months ended
(dollars in thousands)	September 30				September 30
	2011		2010		2011		2010
Net interest income	$	6,263	$	4,919	$	16,362	$	14,748
Tax equivalent basis adjustment using 34% marginal tax rate		310		273		854		713
Net interest income on a fully taxable equivalent basis	$	6,573	$	5,192	$	17,216	$	15,461

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


NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets
(dollars in thousands, except share data)
(unaudited)
	September 30
	2011			2010
ASSETS
Cash and due from banks	$	12,472		$	9,057
Interest-bearing deposits with banks		25,577			7,696
Federal funds sold		0			3,000
Cash and cash equivalents		38,049			19,753

Securities available for sale		145,734			139,308
Securities held to maturity, fair value 2011: $177 and 2010: $177		171			169
Loans receivable (net of unearned Income)		454,832			358,354
Less: Allowance for loan losses		5,345			5,513
Net loans receivable		449,487			352,841
Investment in FHLB Stock, at cost		3,782			3,538
Bank premises and equipment, net		7,601			5,012
Bank owned life insurance		11,767			8,161
Foreclosed real estate owned		3,355			748
Accrued interest receivable		2,758			2,342
Goodwill and other intangibles		10,323			26
Other assets		5,854			2,659
TOTAL ASSETS	$	678,881		$	534,557

LIABILITIES
Deposits:
Non-interest bearing demand	$	78,500		$	66,331
Interest-bearing		448,013			332,321
Total deposits		526,513			398,652
Short-term borrowings		31,976			24,530
Other borrowings		27,716			38,000
Accrued interest payable		1,489			1,652
Other liabilities		4,274			3,280
TOTAL LIABILITIES		591,968			466,114

STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, authorized 10,000,000 shares
issued: 2011: 3,371,866 shares, 2010: 2,840,872 shares		337			284
Surplus		24,647			9,815
Retained earnings		61,296			57,642
Treasury stock, at cost: 2011: 79,500 shares, 2010: 79,977 shares		(2,404	)		(2,437	)
Accumulated other comprehensive income		3,037			3,139
TOTAL STOCKHOLDERS' EQUITY		86,913			68,443

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	678,881		$	534,557


NORWOOD FINANCIAL CORP.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
	Three Months Ended September 30				Nine Months ended September 30
	2011		2010		2011		2010
INTEREST INCOME
Loans receivable, including fees	$	6,521	$	5,266	$	16,917	$	15,894
Securities		1,116		1,115		3,341		3,477
Other		18		14		42		43
Total Interest income		7,655		6,395		20,300		19,414

INTEREST EXPENSE
Deposits		1,054		1,031		2,871		3,332
Short-term borrowings		24		26		75		87
Other borrowings		314		419		992		1,247
Total Interest expense		1,392		1,476		3,938		4,666
NET INTEREST INCOME		6,263		4,919		16,362		14,748
PROVISION FOR LOAN LOSSES		425		250		1,075		730
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,838		4,669		15,287		14,018

OTHER INCOME
Service charges and fees		581		587		1,722		1,680
Income from fiduciary activities		106		121		324		300
Net realized gains on sales of securities		544		161		768		380
Gains on sale of loans and servicing rights		41		3		282		208
Earnings and proceeds on life insurance policies		130		96		330		294
Other		104		67		281		191
Total other income		1,506		1,035		3,707		3,053

OTHER EXPENSES
Salaries and employee benefits		2,129		1,657		5,712		4,844
Occupancy, furniture and equipment		489		388		1,295		1,190
Data processing related		233		195		635		607
Taxes, other than income		142		77		414		374
Professional Fees		187		81		1,017		358
FDIC Insurance assessment		102		121		317		357
Foreclosed real estate owned		372		3		408		32
Other		700		590		2,026		1,686
Total other expenses		4,354		3,112		11,824		9,448

INCOME BEFORE TAX		2,990		2,592		7,170		7,623
INCOME TAX EXPENSE		775		702		1,811		2,118
NET INCOME	$	2,215	$	1,890	$	5,359	$	5,505

Basic earnings per share	$	0.67	$	0.68	$	1.79	$	1.99

Diluted earnings per share	$	0.67	$	0.68	$	1.79	$	1.99


NORWOOD FINANCIAL CORP.
Financial Highlights (Unaudited)
(dollars in thousands, except per share data)

For the Three Months Ended September 30	2011			2010

Net interest income	$	6,263		$	4,919
Net income		2,215			1,890

Net interest spread (fully taxable equivalent)		3.94	%		3.72	%
Net interest margin (fully taxable equivalent)		4.13	%		4.03	%
Return on average assets		1.28	%		1.39	%
Return on average equity		10.17	%		10.98	%
Basic earnings per share	$	0.67		$	0.68
Diluted earnings per share	$	0.67		$	0.68

For the Nine Months Ended September 30

Net interest income	$	16,362		$	14,748
Net income		5,359			5,505

Net interest spread (fully taxable equivalent)		3.80	%		3.72	%
Net interest margin (fully taxable equivalent)		4.03	%		4.05	%
Return on average assets		1.18	%		1.38	%
Return on average equity		9.35	%		11.04	%
Basic earnings per share	$	1.79		$	1.99
Diluted earnings per share	$	1.79		$	1.99

As of September 30

Total Assets	$	678,881		$	534,557
Total loans receivable		454,832			358,354
Allowance for loan losses		5,345			5,513
Total deposits		526,513			398,652
Stockholders' equity		86,913			68,443
Trust Assets under management		104,331			109,253

Book value per share	$	26.40		$	24.79
Equity to total assets		12.80	%		12.80	%
Allowance to total loans receivable		1.18	%		1.54	%
Nonperforming loans to total loans		1.38	%		1.02	%
Nonperforming assets to total assets		1.42	%		0.82	%

NORWOOD FINANCIAL CORP.
Consolidated Balance Sheets (unaudited)
(dollars in thousands)
	Sept 30		June 30		March 31		Dec 31		Sept 30
	2011		2011		2011		2010		2010
ASSETS
Cash and due from banks	$	12,472	$	9,269	$	5,670	$	5,782	$	9,057
Interest-bearing deposits with banks		25,577		34,213		13,864		7,843		7,696
Federal funds sold		0		1,729		0		3,000		3,000
Cash and cash equivalents		38,049		45,211		19,534		16,625		19,753

Securities available for sale		145,734		152,275		143,104		145,815		139,308
Securities held to maturity		171		170		170		170		169
Loans receivable (net of unearned Income)		454,832		464,646		350,128		356,855		358,354
Less: Allowance for loan losses		5,345		5,267		5,780		5,616		5,513
Net loans receivable		449,487		459,379		344,348		351,239		352,841
Investment in FHLB stock		3,782		3,981		3,193		3,361		3,538
Bank premises and equipment, net		7,601		7,672		4,798		4,904		5,012
Foreclosed real estate owned		3,355		1,755		948		748		748
Other assets		30,702		33,352		14,831		14,143		13,188
TOTAL ASSETS	$	678,881	$	703,795	$	530,926	$	537,005	$	534,557

LIABILITIES
Deposits:
Non-interest bearing demand	$	78,500	$	73,718	$	62,736	$	62,238	$	66,331
Interest-bearing deposits		448,013		464,571		334,384		331,627		332,321
Total deposits		526,513		538,289		397,120		393,865		398,652
Other borrowings		59,692		74,942		60,465		71,309		62,530
Other liabilities		5,763		5,929		4,766		4,133		4,932
TOTAL LIABILITIES		591,968		619,160		462,351		469,307		466,114

STOCKHOLDERS' EQUITY		86,913		84,635		68,575		67,698		68,443

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	678,881	$	703,795	$	530,926	$	537,005	$	534,557

NORWOOD FINANCIAL CORP.
Consolidated Statements of Income (unaudited)
(dollars in thousands, except per share data)
	30-Sep			30-Jun			31-Mar			31-Dec			30-Sep
Three months ended	2011			2011			2011			2010			2010
INTEREST INCOME
Loans receivable, including fees	$	6,521		$	5,468		$	4,928		$	5,207		$	5,266
Securities		1,116			1,135			1,090			1,052			1,115
Other		18			16			8			14			14
Total Interest income		7,655			6,619			6,026			6,273			6,395

INTEREST EXPENSE
Deposits		1,054			932			885			951			1,031
Borrowings		338			369			360			406			445
Total Interest expense		1,392			1,301			1,245			1,357			1,476
NET INTEREST INCOME		6,263			5,318			4,781			4,916			4,919
PROVISION FOR LOAN LOSSES		425			430			220			270			250
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		5,838			4,888			4,561			4,646			4,669

OTHER INCOME
Service charges and fees		581			592			549			551			587
Income from fiduciary activities		106			105			113			105			121
Net realized gains (losses) on sales of securities		544			12			212			68			161
Gains on sale of loans and servicing rights		41			98			143			99			3
Earnings and proceeds on life insurance		130			106			94			97			96
Other		104			80			97			91			67
Total other income		1,506			993			1,208			1,011			1,035

OTHER EXPENSES
Salaries and employee benefits		2,129			1,882			1,701			1,663			1,657
Occupancy, furniture and equipment , net		489			408			398			370			388
Foreclosed real estate owned		372			17			19			9			3
FDIC insurance assessment		102			95			120			117			121
Other		1,262			1,534			1,296			1,146			943
Total other expenses		4,354			3,936			3,534			3,305			3,112

INCOME BEFORE TAX		2,990			1,945			2,235			2,352			2,592
INCOME TAX EXPENSE		775			461			575			544			702
NET INCOME	$	2,215		$	1,484		$	1,660		$	1,808		$	1,890

Basic earnings per share	$	0.67		$	0.50		$	0.60		$	0.65		$	0.68

Diluted earnings per share	$	0.67		$	0.50		$	0.60		$	0.65		$	0.68

Book Value per share	$	26.40		$	24.79		$	24.78		$	24.45		$	24.79

Return on average equity		10.17	%		7.88	%		9.76	%		10.38	%		10.98	%
Return on average assets		1.28	%		1.00	%		1.27	%		1.33	%		1.39	%

Net interest spread (fte)		3.94	%		3.75	%		3.70	%		3.74	%		3.72	%
Net interest margin (fte)		4.13	%		3.98	%		3.98	%		4.04	%		4.03	%

Allowance for loan losses to total loans		1.18	%		1.13	%		1.65	%		1.57	%		1.54	%
Net charge-offs to average loans (annualized)		1.34	%		1.02	%		0.06	%		0.19	%		0.18	%
Nonperforming loans to total loans		1.38	%		1.90	%		2.11	%		1.14	%		1.02	%
Nonperforming assets to total assets		1.42	%		1.50	%		1.57	%		0.90	%		0.82	%