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

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

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

| Pennsylvania                                                  |   | 23-2828306                           |
|---------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction ofIncorporation 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)) |

| Large accelerated filer  o                | Accelerated filer  x         |
|-----------------------------------------------------|----------------------------------------|
| Non-accelerated filer   o            | Smaller reporting company  o |
| (Do not check if a smaller reporting company)  |

| Class                                   |   | Outstanding as of May 3, 2010 |
|-----------------------------------------|--------|-------------------------------|
| Common stock, par value $0.10 per share |   | 2,755,499                     |

----

|       |                                                                                        |   PageNumber |
|------------|---------------------------------------------------------------------------------------------|------------------------|
| PART I -   | CONSOLIDATED FINANCIAL INFORMATION OF NORWOODFINANCIAL CORP.                                |                   |
|       |                                                                                        |                   |
| Item 1.    | Financial Statements                                                                        |   3          |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18                     |
| Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                                  | 29                     |
| Item 4.    | Controls and Procedures                                                                     | 30                     |
| PART II -  | OTHER INFORMATION                                                                           |                   |
|       |                                                                                        |                   |
| Item 1.    | Legal Proceedings                                                                           | 31                     |
| Item 1A.   | Risk Factors                                                                                | 31                     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                 | 31                     |
| Item 3.    | Defaults upon Senior Securities                                                             | 32                     |
| Item 4.    | Reserved                                                                                    | 32                     |
| Item 5.    | Other Information                                                                           | 32                     |
| Item 6.    | Exhibits                                                                                    | 32                     |
|       |                                                                                        |                   |
| Signatures |                                                                                        | 34                     |

----

|                                                                                                                                  |   | March 31, |         |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------------|--------|--------------|--------|
|                                                                                                                                  |   | 2010      |         |   | 2009         |   |
| ASSETS                                                                                                                                |   |      |         |   |         |   |
| Cash and due from banks                                                                                                               |   | $         | 7,945        |   |         | $      | 6,498 |   |
| Interest bearing deposits with banks                                                                                                  |   |      | 14,672       |   |         |   | 7,857 |   |
| Federal funds sold                                                                                                                    |   |      | 3,000        |   |         |   | 3,000 |   |
|           Cash and cash equivalents                                                 |   |      | 25,617       |   |         |   | 17,355 |   |
|                                                                                                                                  |   |      |         |   |         |   |   |   |
| Securities available for sale                                                                                                         |   |      | 125,653      |   |         |   | 130,577 |   |
| Securities held to maturity, fair value 2010:   $177, 2009: $722                                                       |   |      |  168    |   |         |   | 708 |   |
| Loans receivable (net of unearned income)                                                                                             |   |      | 357,587      |   |         |   | 363,474 |   |
|    Less:  Allowance for loan losses                                                                          |   |      |  5,362  |   |         |   | 5,453 |   |
| Net loans receivable                                                                                                                  |   |      | 352,225      |   |         |   | 358,021 |   |
| Investment in FHLB Stock, at cost                                                                                                     |   |      | 3,538        |   |         |   | 3,538 |   |
| Bank premises and equipment, net                                                                                                      |   |      | 5,126        |   |         |   | 5,189 |   |
| Bank owned life insurance                                                                                                             |   |      | 7,987        |   |         |   | 7,889 |   |
| Accrued interest receivable                                                                                                           |   |      | 2,414        |   |         |   | 2,200 |   |
| Foreclosed real estate owned                                                                                                          |   |      | 392          |   |         |   | 392 |   |
| Other assets                                                                                                                          |   |      | 3,397        |   |         |   | 3,827 |   |
|     TOTAL ASSETS                                                                                                  |   | $         | 526,517      |   |         | $      | 529,696 |   |
|                                                                                                                                  |   |      |         |   |         |   |   |   |
| LIABILITIES                                                                                                                           |   |      |         |   |         |   |   |   |
|   Deposits:                                                                                                                 |   |      |         |   |         |   |   |   |
|       Non-interest bearing demand                                                                       |   | $         | 60,144       |   |         | $      | 59,820 |   |
|       Interest-bearing                                                                                  |   |      | 331,512      |   |         |   | 331,653 |   |
|         Total deposits                                                                        |   |      | 391,656      |   |         |   | 391,473 |   |
|   Short-term borrowings                                                                                                     |   |      | 21,781       |   |         |   | 25,803 |   |
|   Other borrowings                                                                                                          |   |      | 43,000       |   |         |   | 43,000 |   |
|   Accrued interest payable                                                                                                  |   |      | 1,580        |   |         |   | 2,057 |   |
|   Other liabilities                                                                                                         |   |      |  3,397  |   |         |   | 2,892 |   |
| TOTAL LIABILITIES                                                                                                                     |   |      | 461,414      |   |         |   | 465,225 |   |
|                                                                                                                                  |   |      |         |   |         |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                            |   |      |         |   |         |   |   |   |
|     Common stock, $.10 par value per share, authorized    10,000,000; shares issued 2,840,872 |   |      |  284    |   |         |   | 284 |   |
|     Surplus                                                                                                       |   |      | 9,787        |   |         |   | 9,764 |   |
|     Retained  earnings                                                                                  |   |      | 55,481       |   |         |   | 54,455 |   |
|     Treasury stock at cost: 2010: 86,007 shares, 2009:        68,436      |   |      |  (2,620 | )      |         |   | (2,122 | ) |
|   Accumulated other comprehensive income                                                                                    |   |      |  2,171  |   |         |   | 2,090 |   |
|   TOTAL STOCKHOLDERS’ EQUITY                                                                                          |   |      | 65,103       |   |         |   | 64,471 |   |
|   TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                               |   | $         | 526,517      |   |         | $      | 529,696 |   |

----

|                                                           |   | Three Months Ended |         |
|----------------------------------------------------------------|--------|--------------------|--------------|
|                                                           |   | March 31,          |         |
|                                                           |   | 2010               |         |   | 2009 |   |
| INTEREST INCOME                                                |   |               |         |   |   |   |
|   Loans receivable, including fees                   |   | $                  | 5,410        |   |   | $ | 5,287 |   |
|   Securities                                         |   |               | 1,221        |   |   |   | 1,397 |   |
|   Other                                              |   |               |  11     |   |   |   |  6 |   |
|   Total interest income                              |   |               | 6,642        |   |   |   | 6,690 |   |
|                                                           |   |               |         |   |   |   |   |   |
| INTEREST EXPENSE                                               |   |               |         |   |   |   |   |   |
|   Deposits                                           |   |               | 1,199        |   |   |   | 1,501 |   |
|   Short-term borrowings                              |   |               | 34           |   |   |   | 96 |   |
|   Other borrowings                                   |   |               |  412    |   |   |   |  412 |   |
|   Total interest expense                             |   |               | 1,645        |   |   |   | 2,009 |   |
| NET INTEREST INCOME                                            |   |               | 4,997        |   |   |   | 4,681 |   |
| PROVISION FOR LOAN LOSSES                                      |   |               |  330    |   |   |   |  225 |   |
| NET INTEREST INCOME AFTER  PROVISION FOR LOAN LOSSES |   |               |   4,667 |   |   |   |   4,456 |   |
|                                                           |   |               |         |   |   |   |   |   |
| OTHER INCOME                                                   |   |               |         |   |   |   |   |   |
|   Service charges and fees                           |   |               | 523          |   |   |   | 598 |   |
|   Income from fiduciary activities                   |   |               | 86           |   |   |   | 82 |   |
|   Net realized gains on sales of securities          |   |               | 155          |   |   |   | 161 |   |
|   Gains on sale of loans and servicing rights        |   |               | 75           |   |   |   | 133 |   |
|   Gains on sale of deposits                          |   |               | -            |   |   |   | 150 |   |
|   Other                                              |   |               |  163    |   |   |   |  157 |   |
|   Total other income                                 |   |               |  1,002  |   |   |   |  1,281 |   |
|                                                           |   |               |         |   |   |   |   |   |
| OTHER EXPENSES                                                 |   |               |         |   |   |   |   |   |
|   Salaries and employee benefits                     |   |               | 1,615        |   |   |   | 1,614 |   |
|   Occupancy, furniture & equipment, net          |   |               | 394          |   |   |   | 485 |   |
|   Data processing related                            |   |               | 196          |   |   |   | 196 |   |
|   Taxes, other than income                           |   |               | 147          |   |   |   | 136 |   |
|   Professional fees                                  |   |               | 139          |   |   |   | 98 |   |
|   FDIC Insurance assessment                          |   |               | 118          |   |   |   | 126 |   |
|   Foreclosed real estate owned                       |   |               | 16           |   |   |   | 12 |   |
|   Other                                              |   |               | 535          |   |   |   | 608 |   |
|   Total other expenses                               |   |               | 3,160        |   |   |   | 3,275 |   |
|                                                           |   |               |         |   |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                     |   |               | 2,509        |   |   |   | 2,462 |   |
| INCOME TAX EXPENSE                                             |   |               |  712    |   |   |   |  725 |   |
| NET INCOME                                                     |   | $                  | 1,797        |   |   | $ | 1,737 |   |
|                                                           |   |               |         |   |   |   |   |   |
| BASIC EARNINGS PER SHARE                                       |   | $                  | 0.65         |   |   | $ | 0.63 |   |
|                                                           |   |               |         |   |   |   |   |   |
| DILUTED EARNINGS PER SHARE                                     |   | $                  | 0.65         |   |   | $ | 0.63 |   |
|                                                           |   |               |         |   |   |   |   |   |

----

|                                                                                                                                                                                                |   |  Common Stock |      |   |   |   |   |  Retained |   |   |  Treasury Stock |   |   | AccumulatedOtherComprehensive |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|--------|--------|--------|----------------|--------|--------|----------------------|--------|--------|-------------------------------|--------|--------|--------|--------|
|                                                                                                                                                                                                |   | Shares             |      |   | Amount |   |   | Surplus        |   |   | Earnings             |   |   | Shares                        |   |   | Amount |   |   | Income(Loss) |   |   | Total |   |
| Balance December 31, 2009                                                                                                                                                                           |   |               | 2,840,872 |   |   | $      | 284    |           |   | $      | 9,764                |   |   | $                             | 54,455 |   |   |   | 68,436 |   |   | $ | (2,122 | ) |   | $ | 2,090 |   |   | $ | 64,471 |   |
| Comprehensive Income:                                                                                                                                                                               |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Net Income                                                                                                                                                                              |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | 1,797  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,797 |   |
| Change in unrealized gains on   securities available for sale,   net of  reclassification  adjustments and  tax  effects |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   81 |   |   |   |   81 |   |
| Total comprehensive income                                                                                                                                                                          |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 1,878 |   |
|                                                                                                                                                                                                |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends declared $.28   per share                                                                                                                                                  |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | (771   | )      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (771 | ) |
| Acquisition of  treasury  stock                                                                                                                                                 |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   | 18,571 |   |   |   | (529 | ) |   |   |   |   |   |   | (529 | ) |
| Stock options exercised                                                                                                                                                                             |   |               |      |   |   |   |   |           |   |   | (21                  | )      |   |                          |   |   |   |   | (1,000 | ) |   |   | 31 |   |   |   |   |   |   |   | 10 |   |
| Tax benefit on stock options   exercised                                                                                                                                                  |   |               |      |   |   |   |   |           |   |   | 5                    |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5 |   |
| Compensation expense related to   stock options                                                                                                                                      |   |               |      |   |   |   |   |           |   |   | 39                   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 39 |   |
|                                                                                                                                                                                                |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, March 31, 2010                                                                                                                                                                             |   |               | 2,840,872 |   |   | $      | 284    |           |   | $      | 9,787                |   |   | $                             | 55,481 |   |   |   | 86,007 |   |   | $ | (2,620 | ) |   | $ | 2,171 |   |   | $ | 65,103 |   |

----

|                                                                                                    |   | Thee Months Ended |    |
|---------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                    |   | March 31,         |    |
|                                                                                                    |   | 2010              |    |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                    |   |              |    |   |   |   |
| Net Income                                                                                              |   | $                 | 1,797   |   |   | $ | 1,737 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:            |   |              |    |   |   |   |   |   |
|   Provision for loan losses                                                                   |   |              | 330     |   |   |   | 225 |   |
|   Depreciation                                                                                |   |              | 117     |   |   |   | 148 |   |
|   Amortization of intangible assets                                                           |   |              | 13      |   |   |   | 13 |   |
|   Deferred income taxes                                                                       |   |              | 28      |   |   |   | 94 |   |
|   Net amortization of securities premiums and discounts                                       |   |              | 59      |   |   |   | 19 |   |
|   Net realized gain on sales of securities                                                    |   |              | (155    | ) |   |   | (161 | ) |
|   Gain on sale of deposits                                                                    |   |              | -       |   |   |   | (150 | ) |
|   Net increase in investment in life insurance                                                |   |              | (95     | ) |   |   | (81 | ) |
|   Net gain on sale of mortgage loans and servicing rights                                     |   |              | (75     | ) |   |   | (133 | ) |
|   Mortgage loans originated for sale                                                          |   |              | (4,300  | ) |   |   | (9,795 | ) |
|   Proceeds from sale of mortgage loans originated for sale                                    |   |              | 4,375   |   |   |   | 9,928 |   |
|   Compensation expense related to stock options                                               |   |              | 39      |   |   |   | 32 |   |
|   Decrease in accrued interest receivable and other assets                                    |   |              | 199     |   |   |   | 127 |   |
|   Increase (decrease) in accrued interest payable and other liabilities                       |   |              | 33      |   |   |   | (6 | ) |
|     Net cash provided by operating activities                                       |   |              | 2,365   |   |   |   | 1,997 |   |
|                                                                                                    |   |              |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                    |   |              |    |   |   |   |   |   |
|   Securities available for sale:                                                              |   |              |    |   |   |   |   |   |
|     Proceeds from sales                                                             |   |              | 8,837   |   |   |   | 4,973 |   |
|     Proceeds from maturities and principal reductions on mortgage-backed securities |   |              | 15,055  |   |   |   | 16,950 |   |
|     Purchases                                                                       |   |              | (18,748 | ) |   |   | (15,143 | ) |
|   Securities held to maturity, proceeds from maturities                                       |   |              | 540     |   |   |   | - |   |
|   Net (increase) decrease  in loans                                                 |   |              | 5,396   |   |   |   | (2,206 | ) |
|   Purchase of bank premises and equipment                                                     |   |              | (54     | ) |   |   | (71 | ) |
|   Net cash provided by investing activities                                                   |   |              | 11,026  |   |   |   | 4,503 |   |
|                                                                                                    |   |              |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                    |   |              |    |   |   |   |   |   |
|   Net increase in deposits                                                                    |   |              | 183     |   |   |   | 14,538 |   |
|   Net decrease in short-term borrowings                                                       |   |              | (4,022  | ) |   |   | (8,714 | ) |
|   Stock options exercised                                                                     |   |              | 10      |   |   |   | 9 |   |
|   Tax benefit of stock options exercised                                                      |   |              | 5       |   |   |   | 5 |   |
|   Acquisition of treasury stock                                                               |   |              | (529    | ) |   |   | (68 | ) |
|   Cash dividends paid                                                                         |   |              | (776    | ) |   |   | (739 | ) |
|    Net cash provided by (used in) financing activities                                   |   |              | (5,129  | ) |   |   | 5,031 |   |
|    Increase in cash and cash equivalents                                                 |   |              | 8,262   |   |   |   | 11,531 |   |
|                                                                                                    |   |              |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                          |   |              | 17,355  |   |   |   | 6,480 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                |   | $                 | 25,617  |   |   | $ | 18,011 |   |
|                                                                                                    |   |              |    |   |   |   |   |   |

----

|                                            |   | Three Months Ended |   |
|-------------------------------------------------|--------|--------------------|--------|
|                                            |   | March 31,          |   |
|                                            |   | 2010               |   |   | 2009 |   |
| Basic EPS weighted average shares outstanding   |   |               | 2,768  |   |   |   | 2,737 |   |
| Dilutive effect of stock options                |   |               | 7      |   |   |   | 18 |   |
| Diluted EPS weighted average shares outstanding |   |               | 2,775  |   |   |   | 2,755 |   |
|                                            |   |               |   |   |   |   |   |   |

----

|                                              |     Options |   | Weighted AverageExercise PricePer Share |        |  Weighted Average RemainingContractual Terms |      | Aggregate IntrinsicValue ($000) |   |
|---------------------------------------------------|---------------------------------|--------|-----------------------------------------|-------------|---------------------------------------------------|-----------|---------------------------------|--------|
|                                              |                            |   |                                    |        |                                              |      |                            |   |   |   |   |
|                                              |                            |   |                                    |        |                                              |      |                            |   |   |   |   |
|     Outstanding at January 1, 2010 | 170,915                         |   | $                                       | 28.07       |                                              |  6.8 |  Yrs.                      |   | $ | 286 |   |
|     Granted                        | 1,000                           |   |                                    | 26.88       |                                              | 9.9       | Yrs.                            |   |   | - |   |
|     Exercised                 | (1,000)                         |   |                                    |  10.36 |                                              | .7        | Yrs                             |   |   |   |   |
|     Outstanding at March 31, 2010  | 170,915                         |   | $                                       | 28.17       |                                              | 6.5       | Yrs.                            |   | $ | 190 |   |
|                                              |                            |   |                                    |        |                                              |      |                            |   |   |   |   |
|     Exercisable at March 31, 2010  | 145,930                         |   | $                                       | 28.09       |                                              | 5.1       | Yrs.                            |   | $ | 190 |   |
|                                              |                            |   |                                    |        |                                              |      |                            |   |   |   |   |

----

| (in thousands)                                                                |   | Three Months EndedMarch 31, |   |
|------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                               |   | 2010                        |   |   | 2009 |   |
|    Unrealized holding gains (losses) on available for sale securities    |   | $                           | 279    |   |   | $ | 901 |       |
|    Reclassification adjustment for gains (losses) realized in net income |   |                        | (155   | ) |   |   | (161 | ) |
| Net unrealized gains (losses)                                                      |   |                        | 124    |   |   |   | 740 |   |
|    Income tax (benefit), expense                                         |   |                        | 43     |   |   |   | 254 |        |
|    Other comprehensive income (loss)                                     |   | $                           | 81     |   |   | $ | 486 |   |
|                                                                               |   |                        |   |   |   |   |   |   |

| (in  thousands)                               |   | March 31, |   |
|---------------------------------------------------------|--------|-----------|--------|
|                                                    |   | 2010      |   |   | 2009 |   |
|    Commitments to grant loans                 |   | $         | 16,473 |   |   | $ | 15,441 |   |
|    Unfunded commitments under lines of credit |   |      | 37,020 |   |   |   | 37,527 |    |
|    Standby letters of credit                  |   |      | 3,438  |   |   |   | 1,695 |   |
|                                                    |   |      |   |   |   |   |   |   |
|                                                    |   | $         | 56,931 |   |   | $ | 54,663 |   |

----

|                              |   | March 31, 2010 |    |
|-----------------------------------|--------|----------------|---------|
|                              |   | AmortizedCost  |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                              |   | (In Thousands) |    |
| Available for Sale:               |   |           |    |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies          |   | $              | 38,104  |   |   | $ | 299 |   |   | $ | (29 | ) |   | $ | 38,374 |   |
| States and political subdivisions |   |           | 34,129  |   |   |   | 885 |   |   |   | (62 | ) |   |   | 34,952 |   |
| Corporate obligations             |   |           | 5,037   |   |   |   | 243 |   |   |   | - |   |   |   | 5,280 |   |
| Mortgage-backed securities        |   |           | 44,758  |   |   |   | 1,493 |   |   |   | (68 | ) |   |   | 46,183 |   |
|                              |   |           | 120,028 |   |   |   | 2,920 |   |   |   | (159 | ) |   |   | 124,789 |   |
| Equity securities                 |   |           | 330     |   |   |   | 537 |   |   |   | (3 | ) |   |   | 864 |   |
|                              |   | $              | 122,358 |   |   | $ | 3,457 |   |   | $ | (162 | ) |   | $ | 125,653 |   |
| Held to Maturity:                 |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| States and political subdivisions |   | $              | 168     |   |   | $ | 9 |   |   | $ | - |   |   | $ | 177 |   |
|                              |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                              |   | December 31, 2009 |    |
|-----------------------------------|--------|-------------------|---------|
|                              |   | AmortizedCost     |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                              |   | (In Thousands)    |    |
| Available for Sale:               |   |              |    |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies          |   | $                 | 39,607  |   |   | $ | 295 |   |   | $ | (130 | ) |   | $ | 39,772 |   |
| States and political subdivisions |   |              | 30,872  |   |   |   | 780 |   |   |   | (17 | ) |   |   | 31,635 |   |
| Corporate obligations             |   |              | 5,043   |   |   |   | 200 |   |   |   | (3 | ) |   |   | 5,240 |   |
| Mortgage-backed securities        |   |              | 51,554  |   |   |   | 1,618 |   |   |   | (18 | ) |   |   | 53,154 |   |
|                              |   |              | 127,076 |   |   |   | 2,893 |   |   |   | (168 | ) |   |   | 129,801 |   |
| Equity securities                 |   |              | 330     |   |   |   | 451 |   |   |   | (5 | ) |   |   | 776 |   |
|                              |   | $                 | 127,406 |   |   | $ | 3,344 |   |   | $ | (173 | ) |   | $ | 130,577 |   |
| Held to Maturity:                 |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| States and political subdivisions |   | $                 | 708     |   |   | $ | 14 |   |   | $ | - |   |   | $ | 722 |   |
|                              |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                              |   | March 31, 2010      |   |
|-----------------------------------|--------|---------------------|--------|
|                              |   | 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          |   | $                   | 10,470 |   |   | $ | (29 | ) |   | $ | - |   |   | $ | - |   |   | $ | 10,470 |   |   | $ | (29 | ) |
| States and political subdivisions |   |                | 2,428  |   |   |   | (53 | ) |   |   | 491 |   |   |   | (9 | ) |   |   | 2,919 |   |   |   | (62 | ) |
| Corporate obligations             |   |                | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage-backed securities        |   |                | 9,629  |   |   |   | (68 | ) |   |   | - |   |   |   | - |   |   |   | 9,629 |   |   |   | (68 | ) |
| Equity securities                 |   |                | 52     |   |   |   | (2 | ) |   |   | 7 |   |   |   | (1 | ) |   |   | 59 |   |   |   | (3 | ) |
|                              |   | $                   | 22,579 |   |   | $ | (152 | ) |   | $ | 498 |   |   | $ | (10 | ) |   | $ | 23,077 |   |   | $ | (162 | ) |

|                              |   | December 31, 2009   |   |
|-----------------------------------|--------|---------------------|--------|
|                              |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|                              |   | FairValue           |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|  U.S. Government agencies    |   | $                   | 15,366 |   |   | $ | (130 | ) |   | $ | - |   |   | $ | - |   |   | $ | 15,366 |   |   | $ | (130 | ) |
| States and political subdivisions |   |                | 1,413  |   |   |   | (17 | ) |   |   | - |   |   |   | - |   |   |   | 1,413 |   |   |   | (17 | ) |
| Corporate obligations             |   |                | 997    |   |   |   | (3 | ) |   |   | - |   |   |   | - |   |   |   | 997 |   |   |   | (3 | ) |
| Mortgage-backed securities        |   |                | 3,655  |   |   |   | (18 | ) |   |   | - |   |   |   | - |   |   |   | 3,655 |   |   |   | (18 | ) |
| Equity securities                 |   |                | 49     |   |   |   | (3 | ) |   |   | 5 |   |   |   | (2 | ) |   |   | 54 |   |   |   | (5 | ) |
|                              |   | $                   | 21,480 |   |   | $ | (171 | ) |   | $ | 5 |   |   | $ | (2 | ) |   | $ | 21,485 |   |   | $ | (173 | ) |

----

|                                   | Available for Sale |   | Held to Maturity |
|----------------------------------------|--------------------|--------|------------------|
|                                   | Amortized Cost     |   | Fair Value       |   | Amortized Cost |   | Fair Value |
|                                   | (In Tnhousands)    |
| Due in one year or less                | $2,015             |   | $2,049           |   | $     - |   |   $     - |
| Due after one year through five years  | 36,758             |   | 37,304           |   | - |   | - |
| Due after five years through ten years | 24,940             |   | 25,390           |   | 168 |   | 177 |
| Due after ten years                    | 13,557             |   | 13,863           |   | - |   | - |
|                                   | 77,270             |   | 78,606           |   | 168 |   | 177 |
| Mortgage-backed securities             | 44,758             |   | 46,183           |   | - |   | - |
|                                   | $122,028           |   | $124,789         |   | $168 |   | $177 |

|                              |   | Three months    |   |
|-----------------------------------|--------|-----------------|--------|
|                              |   | Ended March 31, |   |
|                              |   | 2010            |   |   | 2009 |   |
| Gross realized gains              |   | $               | 155    |   |   | $ | 161 |   |
| Gross realized losses             |   | -               |   |   | - |   |
| Net realized gain/(loss)          |   | $               | 155    |   |   | $ | 161 |   |
| Proceeds from sales of securities |   | $               | 8,837  |   |   | $ | 4,973 |   |

|   | Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 2: | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). |
|--------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                |   | Fair Value Measurement Reporting Date Using |    |
|-------------------------------------|--------|---------------------------------------------|---------|
|     Description |   |    Total                     |    |   | (Level 1)Quoted Prices inActive MarketsFor IdenticalAssets |   |   | (Level 2)SignificantOtherObservableInputs |   |   | (Level 3)SignificantUnobservableInputs |   |
|                                |   | (In thousands)                              |    |
| March 31, 2010                      |   |                                        |    |   |   |   |   |   |   |   |   |   |
| Available for Sale:                 |   |                                        |    |   |   |   |   |   |   |   |   |   |
| US Government agencies              |   | $                                           | 38,374  |   |   |   |   |   | $ | 38,374 |   |   |   |   |
| States and political subdivisions   |   |                                        | 34,952  |   |   |   |   |   |   | 34,952 |   |   |   |   |
| Corporate securities                |   |                                        | 5,280   |   |   |   |   |   |   | 5,280 |   |   |   |   |
| Mortgage-backed securities          |   |                                        | 46,183  |   |   |   |   |   |   | 46,183 |   |   |   |   |
| Equity securities                   |   |                                        | 864     |   |   | $ | 864 |   |   |   |   |   |   |   |
| Total                               |   | $                                           | 125,653 |   |   | $ | 864 |   |   | $ | 124,789 |   |   | $ | - |   |
|                                |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                   |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for Sale:                 |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government agencies              |   | $                                           | 39,772  |   |   |   |   |   |   | $ | 39,772 |   |   |   |   |   |
| States and political subdivisions   |   |                                        | 31,635  |   |   |   |   |   |   |   | 31,635 |   |   |   |   |   |
| Corporate securities                |   |                                        | 5,240   |   |   |   |   |   |   |   | 5,240 |   |   |   |   |   |
| Mortgage-backed securities          |   |                                        | 53,154  |   |   |   |   |   |   |   | 53,154 |   |   |   |   |   |
| Equity securities                   |   |                                        | 776     |   |   | $ | 776 |   |   |   |   |   |   |   |
| Total                               |   | $                                           | 130,577 |   |   | $ | 776 |   |   | $ | 129,801 |   |   | $ | - |   |

|                         |   |  Fair Value Measurement Reporting Date using |   |
|------------------------------|--------|---------------------------------------------------|--------|
|                         |   |                                              |   |   | (Level 1) |   |   | (Level 2) |   |   |   |   |
| (In thousands)               |   |                                              |   |   | Quoted Prices in |   |   | Significant |   |   | (Level 3) |   |
|                         |   |                                              |   |   | Active Markets |   |   | Other |   |   | Significant |   |
|                         |   |                                              |   |   | For Identical |   |   | Observable |   |   | Unobservable |   |
| Description                  |   | Total                                             |   |   | Assets |   |   | Inputs |   |   | Inputs |   |
| March 31, 2010               |   |                                              |   |
| Impaired Loans               |   | $                                                 | 7,087  |   |   |   |   |   | $ | 7,087 |   |   |   |   |
| Foreclosed Real Estate Owned |   |                                              | 392    |   |   |   |   |   |   | 392 |   |   |   |   |
|                         |   | $                                                 | 7,479  |   |   | $ | - |   |   | $ | 7,479 |   |   | $ | - |   |
|                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009            |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired Loans               |   | $                                                 | 7,991  |   |   |   |   |   |   | $ | 7,991 |   |   | $ | - |   |
| Foreclosed Real Estate Owned |   |                                              | 392    |   |   | $ | - |   |   |   | 392 |   |   | $ | - |   |
|                         |   | $                                                 | 8,383  |   |   | $ | - |   |   | $ | 8,383 |   |   | $ | - |   |

----

----

----

|                                                                                                                    |   | March 31, 2010  |    |   | December 31, 2009 |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|-------------------|--------|
|                                                                                                                    |   | Carrying Amount |    |   | Fair Value        |   |   | Carrying Amount |   |   | Fair Value |   |
|                                                                                                                    |   | (In Thousands)  |    |
| Financial assets:                                                                                                       |   |            |    |   |              |   |   |   |   |   |   |   |
|   Cash and due from banks, interest-bearing  deposits with banks and federal funds sold             |   | $               | 25,617  |   |              | $      | 25,617 |   |   | $ | 17,355 |   |   | $ | 17,355 |   |
| Securities                                                                                                              |   |            | 125,821 |   |              |   | 125,830 |   |   |   | 131,285 |   |   |   | 131,299 |   |
| Loans receivable, net                                                                                                   |   |            | 357,587 |   |              |   | 367,216 |   |   |   | 358,021 |   |   |   | 368,180 |   |
| Investment in FHLB stock                                                                                                |   |            | 3,538   |   |              |   | 3,538 |   |   |   | 3,538 |   |   |   | 3,538 |   |
| Accrued interest receivable                                                                                             |   |            | 2,414   |   |              |   | 2,414 |   |   |   | 2,200 |   |   |   | 2,200 |   |
|                                                                                                                    |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                                                                                  |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                |   |            | 391,656 |   |              |   | 392,640 |   |   |   | 391,473 |   |   |   | 392,445 |   |
| Short-term borrowings                                                                                                   |   |            | 21,781  |   |              |   | 21,781 |   |   |   | 25,803 |   |   |   | 25,803 |   |
| Other borrowings                                                                                                        |   |            | 43,000  |   |              |   | 45,550 |   |   |   | 43,000 |   |   |   | 45,591 |   |
| Accrued interest payable                                                                                                |   |            | 1,580   |   |              |   | 1,580 |   |   |   | 2,057 |   |   |   | 2,057 |   |
|                                                                                                                    |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance sheet financial instruments: Commitments to extend credit and  outstanding letters of credit |   |            | -       |   |              |   | - |   |   |   | - |   |   |   | - |   |

----

----

----

----

|                              |   | March 31, 2010 |      |   | December 31, 2009 |   |
|-----------------------------------|--------|----------------|-----------|--------|-------------------|--------|
| (dollars in thousands)            |   | Amount         |      |   | % of portfolio    |   |   | Amount |   |   | % of portfolio |   |
|                              |   |           |      |   |              |   |   |   |   |   |   |   |
| US Government agencies            |   | $              | 38,374    |   |              |   | 30.5 | % |   | $ | 39,772 |   |   |   | 30.3 | % |
| States and political subdivisions |   |           | 35,120    |   |              |   | 27.9 |   |   |   | 32,343 |   |   |   | 24.6 |   |
| Corporate securities              |   |           | 5,280     |   |              |   | 4.2 |   |   |   | 5,240 |   |   |   | 4.0 |   |
| Mortgage-backed securities        |   |           | 46,183    |   |              |   | 36.7 |   |   |   | 53,154 |   |   |   | 40.5 |   |
| Equity securities                 |   |           |  864 |   |              |   | 0.7 |   |   |   |  776 |   |   |   |  0.6 |   |
|   Total                 |   | $              | 125,821   |   |              |   | 100.0 | % |   | $ | 131,285 |   |   |   | 100.0 | % |

----

| Types of loans                                                                                             |   |           |    |   |              |   |
|------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| (dollars in thousands)                                                                                     |   | March 31, 2010 |    |   | December 31, 2009 |   |
| Real Estate-Residential                                                                                    |   | $              | 128,830 |   |              |   | 36.0 | % |   | $ | 130,318 |   |   |   | 35.8 | % |
|                 Commercial |   |           | 179,665 |   |              |   | 50.2 |   |   |   | 180,266 |   |   |   | 49.5 |   |
|                 Construction    |   |           | 12,311  |   |              |   | 3.4 |   |   |   | 14,405 |   |   |   | 4.0 |   |
| Commercial, financial and agricultural                                                                     |   |           | 23,468  |   |              |   | 6.6 |   |   |   | 24,116 |   |   |   | 6.6 |   |
| Consumer loans to individuals                                                                              |   |           | 13,778  |   |              |   | 3.8 |   |   |   | 14,850 |   |   |   | 4.1 |   |
|   Total loans                                                                                    |   |           | 358,052 |   |              |   | 100.0 | % |   |   | 363,955 |   |   |   | 100.0 | % |
|                                                                                                       |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   Deferred fees (net)                                                                            |   |           | (465    | )      |              |   |   |   |   |   | (481 | ) |   |   |   |   |
|                                                                                                       |   |           | 357,587 |   |              |   |   |   |   |   | 363,474 |   |   |   |   |   |
|   Allowance for loan losses                                                                      |   |           | (5,362  | )      |              |   |   |   |   |   | (5,453 | ) |   |   |   |   |
|   Net loans receivable                                                                           |   | $              | 352,225 |   |              |   |   |   |   | $ | 358,021 |   |   |   |   |   |

|                                                                                          |   | Three Months   |   |
|-----------------------------------------------------------------------------------------------|--------|----------------|--------|
|  (dollars in thousands)                                                                  |   | Ended March 31 |   |
|                                                                                          |   | 2010           |   |   | 2009 |   |
| Balance, beginning                                                                            |   | $              | 5,453  |   |   | $ | 4,233 |   |
| Provision for loan losses                                                                     |   |           | 330    |   |   |   | 225 |   |
| Charge-offs                                                                                   |   |           | (429   | ) |   |   | (62 | ) |
| Recoveries                                                                                    |   |           | 8      |   |   |   | 17 |   |
|   Net charge-offs                                                                   |   |           | (421   | ) |   |   | (45 | ) |
| Balance, ending                                                                               |   | $              | 5,362  |   |   | $ | 4,413 |   |
|                                                                                          |   |           |   |   |   |   |   |   |
| Allowance to total loans                                                                      |   |           | 1.50   | % |   |   | 1.26 | % |
|   Net (charge-offs) recoveries to average loans    (annualized) |   |           | .47    | % |   |   | .05 | % |

----

| (dollars in thousands)                                  |   | March 31, 2010 |      |    | December 31, 2009 |   |
|---------------------------------------------------------|--------|----------------|-----------|---------|-------------------|--------|
|   Loans accounted for on a non-accrual basis: |   |           |      |    |              |   |
|    Commercial and all other              |   | $              | -         |    |              | $      | - |   |
|    Real Estate                           |   |           | 3,906     |    |              |   | 4,916 |   |
|    Consumer                              |   |           |  -   |    |              |   |  - |   |
|    Total                                 |   |           | 3,906     |    |              |   | 4,916 |   |
|                                                    |   |           |      |    |              |   |   |   |
| Accruing loans which are contractually                  |   |           |      |    |              |   |   |   |
|   past due 90 days or more                    |   |           |  90  |    |              |   |  99 |   |
| Total non-performing loans                              |   |           | 3,996     |    |              |   | 5,015 |   |
| Foreclosed real estate                                  |   |           |  392 |    |              |   |  392 |   |
| Total non-performing assets                             |   | $              | 4,388     |    |              | $      | 5,407 |   |
| Allowance for loans losses                              |   | $              | 5,362     |    |              | $      | 5,453 |   |
| Coverage of non-performing loans                        |   |           | 1.34      | x  |              |   | 1.09 | x  |
| Non-performing loans to total loans                     |   |           | 1.12      | %       |              |   | 1.38 | % |
| Non-performing loans to total assets                    |   |           | .76       | %       |              |   | .95 | % |
| Non-performing assets to total assets                   |   |           | .83       | %       |              |   | 1.02 | % |

----

| (dollars in thousands)              |   | March 31, 2010 |         |   | December 31, 2009 |   |
|-------------------------------------|--------|----------------|--------------|--------|-------------------|--------|
|                                |   |           |         |   |              |   |
| Non-interest bearing demand         |   | $              | 60,144       |   |              | $      | 59,820 |   |
| Interest bearing demand             |   |           | 36,005       |   |              |   | 34,410 |   |
| Money market deposit accounts       |   |           | 65,635       |   |              |   | 60,035 |   |
| Savings                             |   |           | 47,863       |   |              |   | 44,423 |   |
| Time deposits <$100,000          |   |           | 121,732      |   |              |   | 126,154 |   |
| Time deposits >$100,000          |   |           |  60,277 |   |              |   |  66,631 |   |
|                                |   |           |         |   |              |   |   |   |
|      Total |   | $              | 391,656      |   |              | $      | 391,473 |   |
|                                |   |           |         |   |              |   |   |   |

|                                           |   | March 31, 2010 |      |   | December 31, 2009 |   |
|------------------------------------------------|--------|----------------|-----------|--------|-------------------|--------|
| (dollars in thousands)                         |   |           |      |   |              |   |
| Securities sold under agreements to repurchase |   | $              | 21,585    |   |              | $      | 25,606 |   |
| U.S. Treasury demand notes                     |   |           |  196 |   |              |   |  197 |   |
|                                           |   | $              | 21,781    |   |              | $      | 25,803 |   |

|                                        |   | March 31, 2010 |   |   | December 31, 2009 |   |
|---------------------------------------------|--------|----------------|--------|--------|-------------------|--------|
| Notes with the FHLB:                        |   |           |   |   |              |   |
| Fixed rate note due September 2010 at 3.53% |   | $              | 5,000  |   |              | $      | 5,000 |   |
| Convertible note due January 2011 at 5.24%  |   |           | 3,000  |   |              |   | 3,000 |   |
| Convertible note due August 2011 at 2.69%   |   |           | 10,000 |   |              |   | 10,000 |   |
| Fixed rate note due September 2011 at 4.06% |   |           | 5,000  |   |              |   | 5,000 |   |
| Convertible note due October 2012 at 4.37%  |   |           | 5,000  |   |              |   | 5,000 |   |
| Convertible note due May 2013 at 3.015%     |   |           | 5,000  |   |              |   | 5,000 |   |
| Convertible note due January 2017 at 4.71%  |   |           | 10,000 |   |              |   | 10,000 |   |
|                                        |   | $              | 43,000 |   |              | $      | 43,000 |   |

----

|                                       |   | March 31, 2010 |   |   | December 31, 2009 |   |
|--------------------------------------------|--------|---------------------|--------|--------|------------------------|--------|
|                                       |   | (in thousands)      |   |
| Commitments to grant loans                 |   | $                   | 16,473 |   |                   | $      | 17,713 |   |
| Unfunded commitments under lines of credit |   |                | 37,020 |   |                   |   | 36,809 |   |
| Standby letters of credit                  |   |                | 3,438  |   |                   |   |  3,679 |   |
|                                       |   |                |   |   |                   |   |   |   |
|                                       |   | $                   | 56,931 |   |                   | $      | 58,201 |   |

|                                              |   |           |   |   |              |   |
|---------------------------------------------------|--------|----------------|--------|--------|-------------------|--------|
|                                              |   | March 31, 2010 |   |   | December 31, 2009 |   |
| Tier 1 Capital                                    |   |           |   |   |              |   |
|     (To average assets)       |   |           | 12.02  | %      |              |   | 11.53 | % |
| Tier 1 Capital                                    |   |           |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |           | 17.39  | %      |              |   | 16.55 | % |
| Total Capital                                     |   |           |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |           | 18.71  | %      |              |   | 17.85 | % |
|                                              |   |           |   |   |              |   |   |   |

----

----

| (Tax-Equivalent Basis, dollars in thousands)                                            |   | Three Months Ended March 31, |    |
|-----------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                    |   | 2010                         |    |   | 2009 |   |
|                                                                                    |   | AverageBalance(2)            |    |   | Interest(1) |   |   | Average Rate(3) |   |   | AverageBalance(2) |   |   | Interest(1) |   |   | Average Rate(3) |   |
| Assets                                                                                  |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                                                      |   | $                            | 3,000   |   |   | $ | 2 |   |   |   | 0.27 | % |   | $ | 3,024 |   |   | $ | 2 |   |   |   | 0.26 | % |
|    Interest bearing deposits with banks                                  |   |                         | 11,128  |   |   |   | 9 |   |   |   | 0.32 |   |   |   | 5,725 |   |   |   | 4 |   |   |   | 0.28 |   |
|    Securities held-to-maturity                                           |   |                         | 618     |   |   |   | 13 |   |   |   | 8.41 |   |   |   | 707 |   |   |   | 15 |   |   |   | 8.49 |   |
|    Securities available for sale:                                        |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Taxable                                                   |   |                         | 97,496  |   |   |   | 903 |   |   |   | 3.70 |   |   |   | 102,422 |   |   |   | 1,142 |   |   |   | 4.46 |   |
|      Tax-exempt                                                |   |                         | 31,946  |   |   |   | 468 |   |   |   | 5.86 |   |   |   | 25,471 |   |   |   | 372 |   |   |   | 5.84 |   |
|         Total securities available for sale (1) |   |                         | 129,442 |   |   |   | 1,371 |   |   |   | 4.24 |   |   |   | 127,893 |   |   |   | 1,514 |   |   |   | 4.74 |   |
|      Loans receivable (4) (5)                                  |   |                         | 358,737 |   |   |   | 5,453 |   |   |   | 6.08 |   |   |   | 351,315 |   |   |   | 5,316 |   |   |   | 6.05 |   |
|         Total interest earning assets           |   |                         | 502,925 |   |   |   | 6,848 |   |   |   | 5.45 |   |   |   | 488,664 |   |   |   | 6,851 |   |   |   | 5.61 |   |
| Non-interest earning assets:                                                            |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and due from banks                                               |   |                         | 6,915   |   |   |   |   |   |   |   |   |   |   |   | 6,599 |   |   |   |   |   |   |   |   |   |
|    Allowance for loan losses                                             |   |                         | (5,439  | ) |   |   |   |   |   |   |   |   |   |   | (4,317 | ) |   |   |   |   |   |   |   |   |
|    Other assets                                                          |   |                         | 22,223  |   |   |   |   |   |   |   |   |   |   |   | 17,657 |   |   |   |   |   |   |   |   |   |
|         Total non-interest earning assets       |   |                         | 23,699  |   |   |   |   |   |   |   |   |   |   |   | 19,939 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                            |   | $                            | 526,624 |   |   |   |   |   |   |   |   |   |   | $ | 508,603 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                           |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Interest bearing demand and money     market |   | $                            | 97,214  |   |   |   | 145 |   |   |   | 0.60 |   |   | $ | 97,883 |   |   |   | 200 |   |   |   | 0.82 |   |
|    Savings                                                               |   |                         | 46,069  |   |   |   | 28 |   |   |   | 0.24 |   |   |   | 44,707 |   |   |   | 41 |   |   |   | 0.37 |   |
|    Time                                                                  |   |                         | 186,963 |   |   |   | 1,026 |   |   |   | 2.20 |   |   |   | 167,461 |   |   |   | 1,260 |   |   |   | 3.01 |   |
|       Total interest bearing deposits                     |   |                         | 330,246 |   |   |   | 1,199 |   |   |   | 1.45 |   |   |   | 310,051 |   |   |   | 1,501 |   |   |   | 1.94 |   |
| Short-term borrowings                                                                   |   |                         | 25,010  |   |   |   | 34 |   |   |   | 0.54 |   |   |   | 35,299 |   |   |   | 96 |   |   |   | 1.09 |   |
| Other borrowings                                                                        |   |                         | 43,000  |   |   |   | 412 |   |   |   | 3.83 |   |   |   | 43,000 |   |   |   | 412 |   |   |   | 3.83 |   |
|    Total interest bearing liabilities                                    |   |                         | 398,256 |   |   |   | 1,645 |   |   |   | 1.65 |   |   |   | 388,350 |   |   |   | 2,009 |   |   |   | 2.07 |   |
| Non-interest bearing liabilities:                                                       |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Demand deposits                                                       |   |                         | 58,570  |   |   |   |   |   |   |   |   |   |   |   | 56,290 |   |   |   |   |   |   |   |   |   |
|    Other liabilities                                                     |   |                         | 4,105   |   |   |   |   |   |   |   |   |   |   |   | 4,284 |   |   |   |   |   |   |   |   |   |
|       Total non-interest bearing liabilities              |   |                         | 62,675  |   |   |   |   |   |   |   |   |   |   |   | 60,574 |   |   |   |   |   |   |   |   |   |
|    Stockholders' equity                                                  |   |                         | 65,693  |   |   |   |   |   |   |   |   |   |   |   | 59,679 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity                                              |   | $                            | 526,624 |   |   |   |   |   |   |   |   |   |   | $ | 508,603 |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (tax equivalent basis)                                              |   |                         |    |   |   |   | 5,203 |   |   |   | 3.79 | % |   |   |   |   |   |   | 4,842 |   |   |   | 3.54 | % |
| Tax-equivalent basis adjustment                                                         |   |                         |    |   |   |   | (206 | ) |   |   |   |   |   |   |   |   |   |   | (161 | ) |   |   |   |   |
| Net interest income                                                                     |   |                         |    |   |   | $ | 4,997 |   |   |   |   |   |   |   |   |   |   | $ | 4,681 |   |   |   |   |   |
| Net interest margin (tax equivalent basis)                                              |   |                         |    |   |   |   |   |   |   |   | 4.14 | % |   |   |   |   |   |   |   |   |   |   | 3.96 | % |

| (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. |
|-----------------|--------------------------------------------------------------------------------|

----

|                                                               |   | Increase/(Decrease)                                                                           |      |
|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|-----------|
|                                                               |   | Three months ended March 31, 2010 Compared toThree months ended March 31, 2009Variance due to |      |
|                                                               |   | Volume                                                                                        |      |   | Rate |   |   | Net |   |
|                                                               |   | (dollars in thousands)                                                                        |      |
|                                                               |   |                                                                                          |      |   |   |   |   |   |   |
| Interest earning assets:                                           |   |                                                                                          |      |   |   |   |   |   |   |
| Federal funds sold......................................           |   | $                                                                                             | -         |   |   | $ | - |   |   | $ | - |   |
| Interest bearing deposits with banks.............. |   |                                                                                          | 4         |   |   |   | 1 |   |   |   | 5 |   |
| Securities held to maturity............................            |   |                                                                                          | (2        | ) |   |   | - |   |   |   | (2 | ) |
| Securities available for sale:                                     |   |                                                                                          |      |   |   |   |   |   |   |   |   |   |
| Taxable...................................................         |   |                                                                                          | (53       | ) |   |   | (186 | ) |   |   | (239 | ) |
| Tax-exempt securities..................................            |   |                                                                                          |  95  |   |   |   | 1 |   |   |   | 96 |   |
| Total securities..........................................         |   |                                                                                          | 42        |   |   |   | (185 | ) |   |   | (143 | ) |
| Loans receivable........................................           |   |                                                                                          | 113       |   |   |   | 24 |   |   |   | 137 |   |
| Total interest earning assets...........................           |   |                                                                                          |  157 |   |   |   | (160 | ) |   |   | (3 | ) |
|                                                               |   |                                                                                          |      |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                      |   |                                                                                          |      |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand and money market....                   |   |                                                                                          | (1        | ) |   |   | (54 | ) |   |   | (55 | ) |
| Savings................................................            |   |                                                                                          | 8         |   |   |   | (21 | ) |   |   | (13 | ) |
| Time...................................................            |   |                                                                                          |  750 |   |   |   | (983 | ) |   |   | (233 | ) |
| Total interest bearing deposits.......................             |   |                                                                                          | 757       |   |   |   | (1,058 | ) |   |   | (301 | ) |
| Short-term borrowings................................              |   |                                                                                          | (23       | ) |   |   | (39 | ) |   |   | (62 | ) |
| Other borrowings......................................             |   |                                                                                          |  -   |   |   |   | (1 | ) |   |   | (1 | ) |
| Total interest bearing liabilities.....................            |   |                                                                                          |  734 |   |   |   | (1,098 | ) |   |   | (364 | ) |
| Net interest income (tax-equivalent basis).........                |   | $                                                                                             | (577      | ) |   | $ | 938 |   |   | $ | 361 |   |

----

| (dollars in thousands)                                  |   | Three months endedMarch 31, 2010 to March 31, 2009 |   |
|---------------------------------------------------------|--------|----------------------------------------------------|--------|
| Net income three months ended March 31, 2009            |   | $                                                  | 1,737  |   |
| Change due to:                                          |   |                                               |   |   |
| Net interest income                                     |   |                                               | 316    |   |
| Provision for loan losses                               |   |                                               | (105   | ) |
| Gain on sales of loans, securities & deposits       |   |                                               | (214   | ) |
| Other income                                            |   |                                               | (65    | ) |
| Occupancy, furniture and equipment                      |   |                                               | 91     |   |
| FDIC insurance assessment                               |   |                                               | 8      |   |
| Professional fees                                       |   |                                               | (41    | ) |
| All other expenses                                      |   |                                               | 57     |   |
| Income tax expense                                      |   |                                               | 13     |   |
|                                                    |   |                                               |   |   |
| Net income three months ended  March 31, 2010 |   | $                                                  | 1,797  |   |
|                                                    |   |                                               |   |   |

----

----

|                                             |   | 3 Months |    |   | 3-12 Months |   |    | 1 to 3 Years |   |   | Over3 Years |   |   | Total  |    |
|--------------------------------------------------|--------|----------|---------|--------|-------------|--------|---------|--------------|--------|--------|-------------|--------|--------|--------|---------|
| Federal funds sold and interest bearing deposits |   | $        | 17,422  |   |        | $      | --      |         |   | $      | 250         |   |   | $      | --      |   |   | $ | 17,672 |   |
| Securities                                       |   |     | 25,989  |   |        |   | 29,510  |         |   |   | 29,746      |   |   |   | 43,745  |   |   |   | 128,990 |   |
| Loans Receivable                                 |   |     | 83,345  |   |        |   | 54,806  |         |   |   | 96,456      |   |   |   | 122,980 |   |   |   | 357,587 |   |
|   Total RSA                            |   |     | 126,756 |   |        |   | 84,316  |         |   |   | 126,452     |   |   |   | 166,725 |   |   |   | 504,249 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| Non-maturity interest-bearing deposits           |   |     | 23,653  |   |        |   | 26,292  |         |   |   | 69,475      |   |   |   | 30,088  |   |   |   | 149,508 |   |
| Time Deposits                                    |   |     | 39,786  |   |        |   | 74,190  |         |   |   | 53,792      |   |   |   | 14,239  |   |   |   | 182,007 |   |
| Other                                            |   |     | 4,992   |   |        |   | 15,484  |         |   |   | 29,308      |   |   |   | 15,000  |   |   |   | 64,784 |   |
|   Total RSL                            |   |     | 68,431  |   |        |   | 115,966 |         |   |   | 152,575     |   |   |   | 59,327  |   |   |   | 396,299 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| Interest Sensitivity Gap                         |   | $        | 58,325  |   |        | $      | (31,650 | )            |   | $      | (26,123     | )      |   | $      | 107,398 |   |   | $ | 107,950 |   |
| Cumulative Gap                                   |   |     | 58,325  |   |        |   | 26,675  |         |   |   | 552         |   |   |   | 107,950 |   |   |   |   |   |
| RSA/RSL-cumulative                               |   |     | 185.2   | %      |        |   | 114.5   | %            |   |   | 100.2       | %      |   |   | 127.2   | % |   |   |   |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| December 31, 2009                                |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| Interest Sensitivity Gap                         |   | $        | 26,256  |   |        | $      | (35,423 | )            |   | $      | (20,986     | )      |   | $      | 135,313 |   |   | $ | 105,160 |   |
| Cumulative Gap                                   |   |     | 26,256  |   |        |   | (9,167  | )            |   |   | (30,153     | )      |   |   | 105,160 |   |   |   |   |   |
| RSA/RSL-cumulative                               |   |     | 128.9   | %      |        |   | 95.5    | %            |   |   | 91.2        | %      |   |   | 126.3   | % |   |   |   |   |

----

|                               |   | Issuer Purchases ofEquity Securities |   |
|------------------------------------|--------|-------------------------------------------|--------|
|                               |   | Total number of shares purchased          |   |   | Average price paid per share |   |   | Total number of shares purchased as part of publicly announced plans or programs |   |   | Maximum number of shares (or approximate dollar value) that may yet be purchasedunder the plans or programs (2) |   |
|                               |   |                                      |   |   |   |   |   |   |   |   |   |   |
| January 1–January 31, 2010   |   |                                      | -      |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| February 1–February 28, 2010 |   |                                      | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |
| March 1 – March 31, 2010(1)  |   |                                      | 18,571 |   |   |   |  28.53 |   |   |   | - |   |   |   | 112,000 |   |
|                               |   |                                      | 18,571 |   |   | $ | 28.53 |   |   |   | - |   |   |   | 112,000 |   |

| (1) | Purchases related to the Company’s Employee Stock Ownership Plan (ESOP) related to purchases of shares from terminated employees and voluntary diversification. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | On March 19, 2008 the Company announced its intention to repurchase up to 5% of its outstanding common stock (approximately 137,000 shares) in the open market. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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 (1)                                                                  |
| 10.4†  | Salary Continuation Agreement between the Bank and William W. Davis, Jr. (3)                                   |
| 10.5†  | Salary Continuation Agreement between the Bank and Lewis J. Critelli (3)                                       |
| 10.6†  | Salary Continuation Agreement between the Bank and Edward C. Kasper (3)                                        |
| 10.7†  | 1999 Directors Stock Compensation Plan (3)                                                                     |
| 10.8†  | Salary Continuation Agreement between the Bank and Joseph A. Kneller (4)                                       |
| 10.9†  | Salary Continuation Agreement between the Bank and John H. Sanders (4)                                         |
| 10.10† | 2006 Stock Option Plan (5)                                                                                     |
| 10.11† | First and Second Amendments to Salary Continuation Agreement with William W. Davis, Jr. (6)                    |
| 10.12† | First and Second Amendments to Salary Continuation Agreement with Lewis J. Critelli (6)                        |
| 10.13† | First and Second Amendments to Salary Continuation Agreement with Edward C. Kasper (6)                         |
| 10.14† | First and Second Amendments to Salary Continuation Agreement with Joseph A. Kneller (6)                        |
| 10.15† | First and Second Amendments to Salary Continuation Agreement with John H. Sanders (6)                          |
| 31           | Rule 13a-14(a)/15d-14(a) Certifications of CEO and CFO                                                         |
| 32           | Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002 |

| (1) | Incorporated herein by reference to the identically numbered exhibits of the Registrant’s Form 10 Registration Statement initially filed with the Commission on April 29, 1996. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated herein by reference to the identically numbered exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 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 herein by reference to the identically numbered exhibit to the Registrant’s Form 10-K filed with the Commission on March 22, 2004. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (6) | Incorporated herein by reference from the Exhibits to the Registrant’s Current Report on Form 8-K filed on April 4, 2006. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

----

|                                       |   |      NORWOOD FINANCIAL CORP. |
|--------------------------------------------|--------|--------------------------------------------------|
|                                       |   |                                             |
|                                       |   |                                             |
|      Date:May 10, 2010 |   |                                             |
|                                       |   |                                             |      By: |      /s/ Lewis J. Critelli |
|                                       |   |                                             |   |     Lewis J. Critelli |
|                                       |   |                                             |   |     President and Chief Executive Officer |
|                                       |   |                                             |   |     (Principal Executive Officer) |
|                                       |   |                                             |   |   |
|                                       |   |                                             |   |   |
|                                       |   |                                             |   |   |
|      Date:May 10, 2010 |   |      By:                     | /   /s/ William S. Lance |
|                                       |   |                                             |   |    William S. Lance |
|                                       |   |                                             |   |     Senior Vice President, and |
|                                       |   |                                             |   |     Chief Financial Officer |
|                                       |   |                                             |   |     (Principal Financial Officer) |