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

| [ ] | 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 November 1, 2010 |   |
|-----------------------------------------|--------|------------------------------------|--------|
| Common stock, par value $0.10 per share |   |  2,760,895                    |   |

----

|       |                                                                                        |   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                                  | 34                     |
| Item 4.    | Controls and Procedures                                                                     | 35                     |
| PART II -  | OTHER INFORMATION                                                                           |                   |
|       |                                                                                        |                   |
| Item 1.    | Legal Proceedings                                                                           | 36                     |
| Item 1A.   | Risk Factors                                                                                | 36                     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                 | 36                     |
| Item 3.    | Defaults upon Senior Securities                                                             | 36                     |
| Item 4.    | Reserved                                                                                    | 36                     |
| Item 5.    | Other Information                                                                           | 36                     |
| Item 6.    | Exhibits                                                                                    | 36                     |
|       |                                                                                        |                   |
| Signatures |                                                                                        | 38                     |

----

|                                                                                                                                              |   | September 30, |         |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------------|--------|--------------|--------|
|                                                                                                                                              |   | 2010          |         |   | 2009         |   |
| ASSETS                                                                                                                                            |   |          |         |   |         |   |
| Cash and due from banks                                                                                                                           |   | $             | 9,057        |   |         | $      | 6,498 |   |
| Interest bearing deposits with banks                                                                                                              |   |          | 7,696        |   |         |   | 7,857 |   |
| Federal funds sold                                                                                                                                |   |          | 3,000        |   |         |   | 3,000 |   |
|           Cash and cash equivalents                                                             |   |          | 19,753       |   |         |   | 17,355 |   |
|                                                                                                                                              |   |          |         |   |         |   |   |   |
| Securities available for sale                                                                                                                     |   |          | 139,308      |   |         |   | 130,577 |   |
| Securities held to maturity, fair value 2010:   $177, 2009: $722                                                                   |   |          |  169    |   |         |   |  708 |   |
| Loans receivable (net of unearned income)                                                                                                         |   |          | 358,354      |   |         |   | 363,474 |   |
|    Less:  Allowance for loan losses                                                                                      |   |          |  5,513  |   |         |   | 5,453 |   |
| Net loans receivable                                                                                                                              |   |          | 352,841      |   |         |   | 358,021 |   |
| Investment in FHLB Stock, at cost                                                                                                                 |   |          | 3,538        |   |         |   | 3,538 |   |
| Bank premises and equipment, net                                                                                                                  |   |          | 5,012        |   |         |   | 5,189 |   |
| Bank owned life insurance                                                                                                                         |   |          | 8,161        |   |         |   | 7,889 |   |
| Accrued interest receivable                                                                                                                       |   |          | 2,342        |   |         |   | 2,200 |   |
| Foreclosed real estate owned                                                                                                                      |   |          | 748          |   |         |   | 392 |   |
| Other assets                                                                                                                                      |   |          | 2,685        |   |         |   | 3,827 |   |
|   TOTAL ASSETS                                                                                                                          |   | $             | 534,557      |   |         | $      | 529,696 |   |
|                                                                                                                                              |   |          |         |   |         |   |   |   |
| LIABILITIES                                                                                                                                       |   |          |         |   |         |   |   |   |
|   Deposits:                                                                                                                             |   |          |         |   |         |   |   |   |
|       Non-interest bearing demand                                                                                   |   | $             | 66,331       |   |         | $      | 59,820 |   |
|       Interest-bearing                                                                                              |   |          | 332,321      |   |         |   | 331,653 |   |
|         Total deposits                                                                                    |   |          | 398,652      |   |         |   | 391,473 |   |
|   Short-term borrowings                                                                                                                 |   |          | 24,530       |   |         |   | 25,803 |   |
|   Other borrowings                                                                                                                      |   |          | 38,000       |   |         |   | 43,000 |   |
|   Accrued interest payable                                                                                                              |   |          | 1,652        |   |         |   | 2,057 |   |
|   Other liabilities                                                                                                                     |   |          |  3,280  |   |         |   | 2,892 |   |
|   TOTAL LIABILITIES                                                                                                                     |   |          | 466,114      |   |         |   | 465,225 |   |
|                                                                                                                                              |   |          |         |   |         |   |   |   |
|  STOCKHOLDERS’ EQUITY                                                                                                                  |   |          |         |   |         |   |   |   |
|     Common stock, $.10 par value per share, authorized      10,000,000; shares issued 2,840,872 |   |          |  284    |   |         |   |  284 |   |
|     Surplus                                                                                                                   |   |          | 9,815        |   |         |   | 9,764 |   |
|     Retained  earnings                                                                                              |   |          | 57,642       |   |         |   | 54,455 |   |
|     Treasury stock at cost: 2010: 79,977 shares, 2009:      68,436                              |   |          |  (2,437 | )      |         |   | (2,122 | ) |
|     Accumulated other comprehensive income                                                                                    |   |          |  3,139  |   |         |   | 2,090 |   |
|     TOTAL STOCKHOLDERS’ EQUITY                                                                                          |   |          | 68,443       |   |         |   | 64,471 |   |
|     TOTAL LIABILITIES AND   STOCKHOLDERS’ EQUITY                                                         |   | $             | 534,557      |   |         | $      |  529,696 |   |

----

|                                                           |   | Three Months Ended |         |   | Nine Months Ended |   |
|----------------------------------------------------------------|--------|--------------------|--------------|--------|-------------------|--------|
|                                                           |   | September 30,      |         |   | September 30,     |   |
|                                                           |   | 2010               |         |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| INTEREST INCOME                                                |   |               |         |   |              |   |   |   |   |   |   |   |
|   Loans receivable, including fees                   |   | $                  | 5,266        |   |              | $      | 5,382 |   |   | $ | 15,894 |   |   | $ | 16,095 |   |
|   Securities                                         |   |               | 1,115        |   |              |   | 1,297 |   |   |   | 3,477 |   |   |   | 4,010 |   |
|   Other                                              |   |               |  14     |   |              |   |  1 |   |   |   | 43 |   |   |   | 8 |   |
|   Total interest income                              |   |               | 6,395        |   |              |   | 6,680 |   |   |   | 19,414 |   |   |   | 20,113 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST EXPENSE                                               |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   Deposits                                           |   |               | 1,031        |   |              |   | 1,433 |   |   |   | 3,332 |   |   |   | 4,354 |   |
|   Short-term borrowings                              |   |               | 26           |   |              |   | 60 |   |   |   | 87 |   |   |   | 229 |   |
|   Other borrowings                                   |   |               |  419    |   |              |   |  421 |   |   |   | 1,247 |   |   |   | 1,248 |   |
|   Total interest expense                             |   |               | 1,476        |   |              |   | 1,914 |   |   |   | 4,666 |   |   |   | 5,831 |   |
| NET INTEREST INCOME                                            |   |               | 4,919        |   |              |   | 4,766 |   |   |   | 14,748 |   |   |   | 14,282 |   |
| PROVISION FOR LOAN LOSSES                                      |   |               |  250    |   |              |   |  140 |   |   |   | 730 |   |   |   | 585 |   |
| NET INTEREST INCOME AFTER  PROVISION FOR LOAN LOSSES |   |               |   4,669 |   |              |   |   4,626 |   |   |   |  14,018 |   |   |   |  13,697 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME                                                   |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   Service charges and fees                           |   |               | 587          |   |              |   | 614 |   |   |   | 1,680 |   |   |   | 1,854 |   |
|   Income from fiduciary activities                   |   |               | 121          |   |              |   | 99 |   |   |   | 300 |   |   |   | 263 |   |
|   Net realized gains on sales of securities          |   |               | 161          |   |              |   | 90 |   |   |   | 380 |   |   |   | 423 |   |
|   Gains on sale of loans and servicing rights        |   |               | 3            |   |              |   | 42 |   |   |   | 208 |   |   |   | 296 |   |
|   Gains on sale of deposits                          |   |               | -            |   |              |   | - |   |   |   | - |   |   |   | 150 |   |
|   Other                                              |   |               |  163    |   |              |   |  173 |   |   |   | 485 |   |   |   | 481 |   |
|   Total other income                                 |   |               |  1,035  |   |              |   |  1,018 |   |   |   | 3,053 |   |   |   | 3,467 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| OTHER EXPENSES                                                 |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   Salaries and employee benefits                     |   |               | 1,657        |   |              |   | 1,611 |   |   |   | 4,844 |   |   |   | 4,820 |   |
|   Occupancy, furniture & equipment, net          |   |               | 388          |   |              |   | 367 |   |   |   | 1,190 |   |   |   | 1,231 |   |
|   Data processing related                            |   |               | 195          |   |              |   | 194 |   |   |   | 607 |   |   |   | 593 |   |
|   Taxes, other than income                           |   |               | 77           |   |              |   | 139 |   |   |   | 374 |   |   |   | 414 |   |
|   Professional fees                                  |   |               | 81           |   |              |   | 100 |   |   |   | 358 |   |   |   | 302 |   |
|   FDIC Insurance assessment                          |   |               | 121          |   |              |   | 133 |   |   |   | 357 |   |   |   | 617 |   |
|   Other real estate owned                            |   |               | 3            |   |              |   | 130 |   |   |   | 32 |   |   |   | 148 |   |
|   Other                                              |   |               | 590          |   |              |   | 500 |   |   |   | 1,686 |   |   |   | 1,644 |   |
|   Total other expenses                               |   |               | 3,112        |   |              |   | 3,174 |   |   |   | 9,448 |   |   |   | 9,769 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                     |   |               | 2,592        |   |              |   | 2,470 |   |   |   | 7,623 |   |   |   | 7,395 |   |
| INCOME TAX EXPENSE                                             |   |               |  702    |   |              |   |  695 |   |   |   | 2,118 |   |   |   | 2,134 |   |
| NET INCOME                                                     |   | $                  | 1,890        |   |              | $      | 1,775 |   |   | $ | 5,505 |   |   | $ | 5,261 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| BASIC EARNINGS PER SHARE                                       |   | $                  | 0.68         |   |              | $      | 0.64 |   |   | $ | 1.99 |   |   | $ | 1.92 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| DILUTED EARNINGS PER SHARE                                     |   | $                  | 0.68         |   |              | $      | 0.64 |   |   | $ | 1.99 |   |   | $ | 1.90 |   |
|                                                           |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                                 |   |  Common Stock |      |   |   |   |   |  Retained |   |   |  Treasury Stock |   |   | AccumulatedOtherComprehensive |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|--------|--------|--------|----------------|--------|--------|----------------------|--------|--------|-------------------------------|--------|--------|--------|--------|
|                                                                                                                                                                                                 |   | Shares             |      |   | Amount |   |   | Surplus        |   |   | Earnings             |   |   | Shares                        |   |   | Amount |   |   | Income |   |   | 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                                                                                                                                                                               |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | 5,505  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,505 |   |
| Change in unrealized gains on   securities  available for sale,   net of  reclassification  adjustments and  tax  effects |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |  1,049 |   |   |   |  1,049 |   |
| Total comprehensive income                                                                                                                                                                           |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 6,554 |   |
|                                                                                                                                                                                                 |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                 |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends declared $.84   per share                                                                                                                                                   |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | (2,318 | )      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,318 | ) |
| Acquisition of  treasury  stock                                                                                                                                                  |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   | 18,571 |   |   |   | (529 | ) |   |   |   |   |   |   | (529 | ) |
| Stock options exercised                                                                                                                                                                              |   |               |      |   |   |   |   |           |   |   | (103                 | )      |   |                          |   |   |   |   | (7,030 | ) |   |   | 214 |   |   |   |   |   |   |   | 111 |   |
| Tax benefit on stock options   exercised                                                                                                                                                   |   |               |      |   |   |   |   |           |   |   | 32                   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 32 |   |
| Compensation expense related   to stock options                                                                                                                                  |   |               |      |   |   |   |   |           |   |   |  122            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  122 |   |
|                                                                                                                                                                                                 |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, September 30, 2010                                                                                                                                                                          |   |               | 2,840,872 |   |   | $      | 284    |           |   | $      | 9,815                |   |   | $                             | 57,642 |   |   |   | 79,977 |   |   | $ | (2,437 | ) |   | $ | 3,139 |   |   | $ | 68,443 |   |

----

|                                                                                                    |   | Nine Months EndedSeptember 30, |    |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                                    |   | 2010                           |    |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                    |   |                           |    |   |   |   |
| Net Income                                                                                              |   | $                              | 5,505   |   |   | $ | 5,261 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:            |   |                           |    |   |   |   |   |   |
|   Provision for loan losses                                                                   |   |                           | 730     |   |   |   | 585 |   |
|   Depreciation                                                                                |   |                           | 347     |   |   |   | 422 |   |
|   Amortization of intangible assets                                                           |   |                           | 39      |   |   |   | 39 |   |
|   Deferred income taxes                                                                       |   |                           | (36     | ) |   |   | 779 |   |
|   Net amortization of securities premiums and discounts                                       |   |                           | 273     |   |   |   | 102 |   |
|   Net realized gain on sales of securities                                                    |   |                           | (380    | ) |   |   | (423 | ) |
|   Gain on sale of deposits                                                                    |   |                           | -       |   |   |   | (150 | ) |
|   Earnings on life insurance                                                                  |   |                           | (270    | ) |   |   | (261 | ) |
|   Loss (gain) on sale of bank premises and equipment and foreclosed real estate               |   |                           | (3      | ) |   |   | 118 |   |
|   Net gain on sale of mortgage loans and servicing rights                                     |   |                           | (208    | ) |   |   | (296 | ) |
|   Mortgage loans originated for sale                                                          |   |                           | (10,537 | ) |   |   | (21,565 | ) |
|   Proceeds from sale of mortgage loans originated for sale                                    |   |                           | 10,745  |   |   |   | 21,861 |   |
|   Compensation expense related to stock options                                               |   |                           | 122     |   |   |   | 98 |   |
|   Decrease (increase) in accrued interest receivable and other assets                         |   |                           | 569     |   |   |   | (653 | ) |
|   Increase (decrease) in accrued interest payable and other liabilities                       |   |                           | (14     | ) |   |   | 862 |   |
|     Net cash provided by operating activities                                       |   |                           | 6,882   |   |   |   | 6,779 |   |
|                                                                                                    |   |                           |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                    |   |                           |    |   |   |   |   |   |
|   Securities available for sale:                                                              |   |                           |    |   |   |   |   |   |
|     Proceeds from sales                                                             |   |                           | 23,778  |   |   |   | 13,586 |   |
|     Proceeds from maturities and principal reductions on mortgage-backed securities |   |                           | 51,704  |   |   |   | 34,456 |   |
|     Purchases                                                                       |   |                           | (82,518 | ) |   |   | (41,854 | ) |
|   Securities held to maturity, proceeds from maturities                                       |   |                           | 540     |   |   |   | - |   |
|   Net (increase) decrease  in loans                                                 |   |                           | 3,886   |   |   |   | (10,446 | ) |
|   Purchase of bank premises and equipment                                                     |   |                           | (175    | ) |   |   | (193 | ) |
|   Proceeds from sale of bank premises and equipment and foreclosed real estate                |   |                           | 100     |   |   |   | 121 |   |
|   Net cash used in investing activities                                                       |   |                           | (2,685  | ) |   |   | (4,330 | ) |
|                                                                                                    |   |                           |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                    |   |                           |    |   |   |   |   |   |
|   Net increase in deposits                                                                    |   |                           | 7,179   |   |   |   | 26,984 |   |
|   Deposits sold                                                                               |   |                           | -       |   |   |   | (3,606 | ) |
|   Net decrease in short-term borrowings                                                       |   |                           | (1,274  | ) |   |   | (18,573 | ) |
|   Repayment of long-term debt                                                                 |   |                           | (5,000  | ) |   |   | - |   |
|   Stock options exercised                                                                     |   |                           | 111     |   |   |   | 457 |   |
|   Tax benefit of stock options exercised                                                      |   |                           | 32      |   |   |   | 146 |   |
|   Acquisition of treasury stock                                                               |   |                           | (529    | ) |   |   | (68 | ) |
|   Cash dividends paid                                                                         |   |                           | (2,318  | ) |   |   | (2,220 | ) |
|    Net cash provided by (used in) financing activities                                   |   |                           | (1,799  | ) |   |   | 3,120 |   |
|    Increase in cash and cash equivalents                                                 |   |                           | 2,398   |   |   |   | 5,569 |   |
|                                                                                                    |   |                           |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                          |   |                           | 17,355  |   |   |   | 6,480 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                |   | $                              | 19,753  |   |   | $ | 12,049 |   |

----

|                                            |   | Three Months Ended |   |   | Nine Months Ended |   |
|-------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                            |   | September 30,      |   |   | September 30,     |   |
|                                            |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Basic EPS weighted average shares outstanding   |   |               | 2,760  |   |              |   | 2,757 |   |   |   | 2,762 |   |   |   | 2,745 |   |
| Dilutive effect of stock options                |   |               | 4      |   |              |   | 20 |   |   |   | 5 |   |   |   | 18 |   |
| Diluted EPS weighted average shares outstanding |   |               | 2,764  |   |              |   | 2,777 |   |   |   | 2,767 |   |   |   | 2,763 |   |

----

|                              | Options |   | Weighted Average Exercise PricePer Share | Weighted Average Remaining Contractual Term |   | Aggregate Intrinsic Value ($000) |   |
|-----------------------------------|---------|--------|------------------------------------------|---------------------------------------------|--------|----------------------------------|--------|
|                              |    |   |                                     |                                        |   |                             |   |   |   |   |   |
| Outstanding at January 1, 2010    | 170,915 |   | $                                        | 28.07                                       |   | 6.8 Yrs.                         | .      |   | $ | 286 |   |
| Granted                           | 1,000   |   |                                     | 26.88                                       |   | 9.7 Yrs.                         | .      |   |   | 1 |   |
| Exercised                         | (7,030) |   |                                     |  15.94                                 |   | 1.3 Yrs.                         |   |   |   | 80 |   |
| Outstanding at September 30, 2010 | 164,885 |   | $                                        | 28.57                                       |   | 6.2 Yrs.                         |   |   | $ |          169 |   |
|                              |    |   |                                     |                                        |   |                             |   |   |   |   |   |
| Exercisable at September 30, 2010 | 140,885 |   | $                                        | 28.37                                       |   | 4.8 Yrs.                         |   |   | $ |           168 |   |
|                              |    |   |                                     |                                        |   |                             |   |   |   |   |   |

----

|                                                                 |   | Three Months Ended |      |   | Nine Months Ended |   |
|----------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| (in thousands)                                                       |   | September 30,      |      |   | September 30,     |   |
|                                                                 |   | 2010               |      |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Unrealized holding gains  on available for sale securities |   | $                  |  908 |   |              | $      |  1,989 |   |   | $ |  1,970 |   |   | $ |  2,522 |   |
| Reclassification adjustment for gains  Realized in income  |   |               | (161      | )      |              |   | (90 | ) |   |   | (380 | ) |   |   | (423 | ) |
| Net unrealized gains                                                 |   |               | 747       |   |              |   | 1,899 |   |   |   | 1,590 |   |   |   | 2,099 |   |
| Income tax expense                                                   |   |               | 254       |   |              |   | 646 |   |   |   | 541 |   |   |   | 718 |   |
| Other comprehensive income                                           |   | $                  | 493       |   |              | $      | 1,253 |   |   | $ | 1,049 |   |   | $ | 1,381 |   |
|                                                                 |   |               |      |   |              |   |   |   |   |   |   |   |   |   |   |   |

| (in thousands)                             |   | September 30, |         |
|--------------------------------------------|--------|---------------|--------------|
|                                       |   | 2010          |         |   | 2009 |   |
|  Commitments to grant loans           |   | $             |  19,867 |   |   | $ |  11,686 |   |
| Unfunded commitments under lines of credit |   |          | 30,992       |   |   |   | 35,117 |   |
| Standby letters of credit                  |   |          | 3,195        |   |   |   | 2,060 |   |
|                                       |   |          |         |   |   |   |   |   |
|                                       |   | $             | 54,054       |   |   | $ | 48,863 |   |

----

|                              |   | September 30, 2010 |    |
|-----------------------------------|--------|--------------------|---------|
|                              |   | AmortizedCost      |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                              |   | (In Thousands)     |    |
| Available for Sale:               |   |               |    |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies          |   | $                  | 30,196  |   |   | $ | 526 |   |   | $ | - |   |   | $ | 30,722 |   |
| States and political subdivisions |   |               | 46,802  |   |   |   | 1,944 |   |   |   | - |   |   |   | 48,746 |   |
| Corporate obligations             |   |               | 4,025   |   |   |   | 281 |   |   |   | - |   |   |   | 4,306 |   |
| Mortgage-backed securities        |   |               | 53,200  |   |   |   | 1,663 |   |   |   | (74 | ) |   |   | 54,789 |   |
|                              |   |               | 134,223 |   |   |   | 4,414 |   |   |   | (74 | ) |   |   | 138,563 |   |
| Equity securities                 |   |               | 324     |   |   |   | 425 |   |   |   | (4 | ) |   |   | 745 |   |
|                              |   | $                  | 134,547 |   |   | $ | 4,839 |   |   | $ | (78 | ) |   | $ | 139,308 |   |
| Held to Maturity:                 |   |               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| States and political subdivisions |   | $                  | 169     |   |   | $ | 8 |   |   | $ | - |   |   | $ | 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 |   |
|                              |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                              |   | September 30, 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          |   | $                   |  -      |   |   | $ |   - |   |   | $ |  - |   |   | $ |  - |   |   | $ |  - |   |   | $ |   - |   |
| States and political subdivisions |   |                |  -      |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |   |   |  - |   |
| Mortgage-backed securities        |   |                |  11,751 |   |   |   | (74 | ) |   |   |  - |   |   |   |  - |   |   |   |  11,751 |   |   |   | (74 | ) |
| Equity securities                 |   |                | 50           |   |   |   | (2 | ) |   |   | 5 |   |   |   | (2 | ) |   |   | 55 |   |   |   | (4 | ) |
|                              |   | $                   | 11,801       |   |   | $ | (76 | ) |   | $ | 5 |   |   | $ | (2 | ) |   | $ | 11,806 |   |   | $ | (78 | ) |
|                              |   |                |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                              |   | December 31, 2009   |         |
|-----------------------------------|--------|---------------------|--------------|
|                              |   | 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    |   | $                   |  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 Thousands)     |    |
| Due in one year or less                |   | $                  | 1,006   |   |             | $      | 1,020 |   |   | $ | - |   |   | $ | - |   |
| Due after one year through five years  |   |               | 33,279  |   |             |   | 34,159 |   |   |   | 169 |   |   |   | 177 |   |
| Due after five years through ten years |   |               | 19,225  |   |             |   | 19,992 |   |   |   | - |   |   |   | - |   |
| Due after ten years                    |   |               | 27,513  |   |             |   | 28,603 |   |   | - |   |   | - |   |
|                                   |   |               | 81,023  |   |             |   | 83,774 |   |   |   | 169 |   |   |   | 177 |   |
| Mortgage-backed securities             |   |               | 53,200  |   |             |   | 54,789 |   |   | - |   |   | - |   |
|                                   |   | $                  | 134,223 |   |             | $      | 138,563 |   |   | $ | 169 |   |   | $ | 177 |   |

|                              |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                              |   | September 30,      |   |   | September 30,     |   |
|                              |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Gross realized gains              |   | $                  | 161    |   |              | $      | 90 |   |   | $ | 380 |   |   | $ | 526 |   |
| Gross realized losses             |   | -                  |   |   | -                 |   |   |   | - |   |   |   | (103 | ) |
| Net realized gain/(loss)          |   | $                  | 161    |   |              | $      | 90 |   |   | $ | 380 |   |   | $ | 423 |   |
| Proceeds from sales of securities |   | $                  | 11,091 |   |              | $      | 2,445 |   |   | $ | 23,778 |   |   | $ | 13,586 |   |

|   | 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)                              |    |
| September 30, 2010                  |   |                                        |    |   |   |   |   |   |   |   |   |   |
| Available for Sale:                 |   |                                        |    |   |   |   |   |   |   |   |   |   |
| US Government agencies              |   | $                                           | 30,722  |   |   | $ | - |   |   | $ | 30,722 |   |   | $ | - |   |
| States and political subdivisions   |   |                                        | 48,746  |   |   | - |   |   |   | 48,746 |   |   |   | - |   |
| Corporate securities                |   |                                        | 4,306   |   |   |  - |   |   |   | 4,306 |   |   |   | - |   |
| Mortgage-backed securities          |   |                                        | 54,789  |   |   |  - |   |   |   | 54,789 |   |   |   | - |   |
| Equity securities                   |   |                                        | 745     |   |   |   | 745 |   |   | - |   |   | - |   |
| Total available for sale            |   |                                        | 139,308 |   |   |   | 745 |   |   |   | 138,563 |   |   |   | - |   |
| Mortgage servicing rights           |   |                                        | 247     |   |   |   | - |   |   |   | - |   |   |   | 247 |   |
| Total                               |   | $                                           | 139,555 |   |   | $ | 745 |   |   | $ | 138,563 |   |   | $ | 247 |   |
|                                |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 available for sale            |   |                                        | 130,577 |   |   |   | 776 |   |   |   | 129,801 |   |   |   | - |   |
| Mortgage servicing rights           |   |                                        | 179     |   |   |   | - |   |   |   | - |   |   |   | 179 |   |
| Total                               |   | $                                           | 130,756 |   |   | $ | 776 |   |   | $ | 129,801 |   |   | $ | 179 |   |

|                         |   |  Fair Value Measurement Reporting Date Using |   |
|------------------------------|--------|---------------------------------------------------|--------|
| Description                  |   | Total                                             |   |   | (Level 1)Quoted Price in Active Markets For IdenticalAssets |   |   | (Level 2)Significant Other Observable Inputs |   |   | (Level 3)Significant Unobservable Inputs |   |
| September 30, 2010           |   |                                              |   |
| Impaired Loans               |   | $                                                 | 13,343 |   |   | $ |  - |   |   | $ | 13,343 |   |   | $ | - |   |
| Foreclosed Real Estate Owned |   |                                              | 748    |   |   |  - |   |   |   | 748 |   |   |  - |   |
|                         |   | $                                                 | 14,091 |   |   | $ | - |   |   | $ | 14,091 |   |   | $ | - |   |
|                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009            |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired Loans               |   | $                                                 | 7,991  |   |   | $ | - |   |   | $ | 7,991 |   |   | $ | - |   |
| Foreclosed Real Estate Owned |   |                                              | 392    |   |   |   | - |   |   |   | 392 |   |   |   | - |   |
|                         |   | $                                                 | 8,383  |   |   | $ | - |   |   | $ | 8,383 |   |   | $ | - |   |

----

----

|                                                          |   | September 30, 2010 |        |
|---------------------------------------------------------------|--------|--------------------|-------------|
|  (in thousands)                                          |   | Carrying Value     |        |   | Valuation Allowance |   |   | CumulativeCharge-offs Recognized |   |
| Impaired loans requiring a valuation  allowance     |   | $                  |  8,827 |   |   | $ |  1,268 |   |   | $ |  480 |   |
| Impaired loans not requiring a valuation  allowance |   |               |  4,516 |   |   |   |  - |   |   |   |  210 |   |
|                                                          |   |               |        |   |   |   |   |   |   |   |   |   |
| Total                                                         |   | $                  | 13,343      |   |   | $ | 1,268 |   |   | $ | 690 |   |

|                                                          |   | December 31, 2009 |        |
|---------------------------------------------------------------|--------|-------------------|-------------|
|                                                          |   | Carrying Value    |        |   | Valuation Allowance |   |   | CumulativeCharge-offs Recognized |   |
| Impaired loans requiring a valuation  allowance     |   | $                 |  1,029 |   |   | $ |  36 |   |   | $ |  480 |   |
| Impaired loans not requiring a valuation  allowance |   |              |  6,962 |   |   |   |  - |   |   |   |  154 |   |
|                                                          |   |              |        |   |   |   |   |   |   |   |   |   |
| Total                                                         |   | $                 | 7,991       |   |   | $ | 36 |   |   | $ | 634 |   |

----

|                                                                                                                    |   | September 30, 2010 |         |   | December 31, 2009 |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------------|--------|-------------------|--------|
|                                                                                                                    |   | Carrying           |         |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                                                                                                    |   | Amount             |         |   | Value             |   |   | Amount |   |   | Value |   |
| Financial assets:                                                                                                       |   |               |         |   |              |   |   |   |   |   |   |   |
| Cash and due from banks, interest-bearing  deposits with banks and federal funds sold                         |   | $                  |  19,753 |   |              | $      |  19,753 |   |   | $ |  17,355 |   |   | $ |  17,355 |   |
| Securities                                                                                                              |   |               | 139,477      |   |              |   | 139,485 |   |   |   | 131,285 |   |   |   | 131,299 |   |
| Loans receivable, net                                                                                                   |   |               | 352,841      |   |              |   | 366,940 |   |   |   | 358,021 |   |   |   | 368,180 |   |
| Investment in FHLB stock                                                                                                |   |               | 3,538        |   |              |   | 3,538 |   |   |   | 3,538 |   |   |   | 3,538 |   |
| Accrued interest receivable                                                                                             |   |               | 2,342        |   |              |   | 2,342 |   |   |   | 2,200 |   |   |   | 2,200 |   |
|                                                                                                                    |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                                                                                  |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                |   |               | 398,652      |   |              |   | 400,109 |   |   |   | 391,473 |   |   |   | 392,445 |   |
| Short-term borrowings                                                                                                   |   |               | 24,530       |   |              |   | 24,530 |   |   |   | 25,803 |   |   |   | 25,803 |   |
| Other borrowings                                                                                                        |   |               | 38,000       |   |              |   | 40,998 |   |   |   | 43,000 |   |   |   | 45,591 |   |
| Accrued interest payable                                                                                                |   |               | 1,652        |   |              |   | 1,652 |   |   |   | 2,057 |   |   |   | 2,057 |   |
|                                                                                                                    |   |               |         |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance sheet financial instruments: Commitments to extend credit and  outstanding letters of credit |   |               |  -      |   |              |   |  - |   |   |   |  - |   |   |   |  - |   |

----

----

----

----

|                              |   | September 30, 2010 |      |   | December 31, 2009 |   |
|-----------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| (dollars in thousands)            |   | Amount             |      |   | % of portfolio    |   |   | Amount |   |   | % of portfolio |   |
|                              |   |               |      |   |              |   |   |   |   |   |   |   |
| US Government agencies            |   | $                  | 30,722    |   |              |   | 22.0 | % |   | $ | 39,772 |   |   |   | 30.3 | % |
| States and political subdivisions |   |               | 48,915    |   |              |   | 35.1 |   |   |   | 32,343 |   |   |   | 24.6 |   |
| Corporate securities              |   |               | 4,306     |   |              |   | 3.1 |   |   |   | 5,240 |   |   |   | 4.0 |   |
| Mortgage-backed securities        |   |               | 54,789    |   |              |   | 39.3 |   |   |   | 53,154 |   |   |   | 40.5 |   |
| Equity securities                 |   |               |  745 |   |              |   | 0.5 |   |   |   |  776 |   |   |   |  0.6 |   |
|   Total                 |   | $                  | 139,477   |   |              |   | 100.0 | % |   | $ | 131,285 |   |   |   | 100.0 | % |

----

| Types of loans                                                                                             |   |               |    |   |              |   |   |   |   |   |    |   |
|------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|--------|--------|--------|--------|---------|--------|
| (dollars in thousands)                                                                                     |   | September 30, 2010 |    |   | December 31, 2009 |   |
|                                                                                                       |   |               |    |   |              |   |   |   |   |   |    |   |
| Real Estate-Residential                                                                                    |   | $                  | 126,745 |   |              |   | 35.3   | %      |   | $      | 130,318 |   |   |   | 35.8 | % |
|                 Commercial |   |               | 181,635 |   |              |   | 50.6   |   |   |   | 180,266 |   |   |   | 49.5 |   |
|                 Construction    |   |               | 11,633  |   |              |   | 3.2    |   |   |   | 14,405  |   |   |   | 4.0 |   |
| Commercial, financial and agricultural                                                                     |   |               | 24,645  |   |              |   | 6.9    |   |   |   | 24,116  |   |   |   | 6.6 |   |
| Consumer loans to individuals                                                                              |   |               | 14,171  |   |              |   | 4.0    |   |   |   | 14,850  |   |   |   | 4.1 |   |
|   Total loans                                                                                    |   |               | 358,829 |   |              |   | 100.0  | %      |   |   | 363,955 |   |   |   | 100.0 | % |
|                                                                                                       |   |               |    |   |              |   |   |   |   |   |    |   |   |   |   |   |
|   Deferred fees (net)                                                                            |   |               | (475    | )      |              |   |   |   |   |   | (481    | )      |   |   |   |   |
|                                                                                                       |   |               | 358,354 |   |              |   |   |   |   |   | 363,474 |   |   |   |   |   |
|   Allowance for loan losses                                                                      |   |               | (5,513  | )      |              |   |   |   |   |   | (5,453  | )      |   |   |   |   |
|   Net loans receivable                                                                           |   | $                  | 352,841 |   |              |   |   |   |   | $      | 358,021 |   |   |   |   |   |

|                                                                                          |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|  (dollars in thousands)                                                                  |   | September 30,      |   |   | September 30,     |   |
|                                                                                          |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning                                                                            |   | $                  | 5,421  |   |              | $      | 4,574 |   |   | $ | 5,453 |   |   | $ | 4,233 |   |
| Provision for loan losses                                                                     |   |               | 250    |   |              |   | 140 |   |   |   | 730 |   |   |   | 585 |   |
| Charge-offs                                                                                   |   |               | (166   | )      |              |   | (58 | ) |   |   | (690 | ) |   |   | (190 | ) |
| Recoveries                                                                                    |   |               | 8      |   |              |   | 7 |   |   |   | 20 |   |   |   | 35 |   |
|   Net charge-offs                                                                   |   |               | (158   | )      |              |   | (51 | ) |   |   | (670 | ) |   |   | (155 | ) |
| Balance, ending                                                                               |   | $                  | 5,513  |   |              | $      | 4,663 |   |   | $ | 5,513 |   |   | $ | 4,663 |   |
|                                                                                          |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Allowance to total loans                                                                      |   |               | 1.54   | %      |              |   | 1.30 | % |   |   | 1.54 | % |   |   | 1.30 | % |
|   Net (charge-offs) recoveries to average loans    (annualized) |   |               | .18    | %      |              |   | .06 | % |   |   | .25 | % |   |   | .06 | % |

----

|   |     • |   | Two loans with a combined current balance of $1,051,000 were granted to a food service corporation in December, 2003.  We have addressed an issue with the customer which we believe to be a temporary cash flow deficiency and the terms of the loans were modified.  Our modification was made before the loan was past due based on ongoing discussions with the customer.  There was no interest rate concession made in the modification. As of September 30, 2010, the borrower is current with all payments under the modified terms of the loan. Based on the current circumstances, management believes that the company will collect all principal and interest due.                                                                                                             |
|--------|---------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |     • |   | A loan with a current balance of $3,047,000 was granted to a limited liability company in August, 2006 for the purpose of operating a hotel. We have addressed an issue with the customer which we believe to be a temporary cash flow deficiency and the terms of the loan were modified.  Our modification was made before the loan was past due based on ongoing discussions with the customer.  There was no interest rate concession made in the modification. As of September 30, 2010, the borrower is current with all payments under the modified terms of the loan. Based on the current circumstances, management believes that the company will collect all principal and interest due.                                                                                                  |
|   |                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |     • |   | A loan with a current balance of $6,500,000 was granted to a limited liability company in December, 2009 for the purpose of refinancing two prior commercial real estate loans. We have addressed an issue with the customer which we believe to be a temporary cash flow deficiency and the terms of the loan were modified.  Our modification was made before the loan was past due based on ongoing discussions with the customer.  Since the modification included an interest rate concession, the loan is considered a troubled debt restructuring. As of September 30, 2010, the borrower is current with all payments under the modified terms of the loan.  Based on the current circumstances, management believes that the company will collect all principal and interest due. |

----

|                                                                                                                                                  |   | September 30, |      |   |  December 31, |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------------|---------|
| (dollars in thousands)                                                                                                                                |   | 2010          |      |   | 2009               |    |
|   Loans accounted for on a non-accrual basis:                                                                                               |   |          |      |   |               |    |
|    Commercial and all other                                                                                                            |   | $             | 18        |   |               | $       | - |   |
|    Real Estate-Commercial                                                                                                              |   |          | 2,590     |   |               |    | 3,833 |   |
|                        Residential |   |          | 281       |   |               |    | 1,083 |   |
|    Consumer                                                                                                                            |   |          |  762 |   |               |    |  - |   |
|    Total                                                                                                                               |   |          | 3,651     |   |               |    | 4,916 |   |
|                                                                                                                                                  |   |          |      |   |               |    |   |   |
| Accruing loans which are contractually                                                                                                                |   |          |      |   |               |    |   |   |
|   past due 90 days or more                                                                                                                  |   |          |  0   |   |               |    |  99 |   |
| Total non-performing loans                                                                                                                            |   |          | 3,651     |   |               |    | 5,015 |   |
| Foreclosed real estate                                                                                                                                |   |          |  748 |   |               |    |  392 |   |
| Total non-performing assets                                                                                                                           |   | $             | 4,399     |   |               | $       | 5,407 |   |
| Allowance for loans losses                                                                                                                       |   | $        | 5,513     |   |               | $  |  5,453 |   |
| Coverage of non-performing loans                                                                                                                      |   |          | 1.51x     |   |               |    |  1.09x |   |
| Non-performing loans to total loans                                                                                                                   |   |          | 1.02      | %      |               |    | 1.38 | % |
| Non-performing loans to total assets                                                                                                                  |   |          | .68       | %      |               |    | .95 | % |
| Non-performing assets to total assets                                                                                                                 |   |          | .82       | %      |               |    | 1.02 | % |

|                                |   | September 30, |         |   | December 31,  |   |
|-------------------------------------|--------|---------------|--------------|--------|--------------------|--------|
| (dollars in thousands)              |   | 2010          |         |   | 2009               |   |
|                                |   |          |         |   |               |   |
| Non-interest bearing demand         |   | $             | 66,331       |   |               | $      | 59,820 |   |
| Interest bearing demand             |   |          | 39,438       |   |               |   | 34,410 |   |
| Money market deposit accounts       |   |          | 78,336       |   |               |   | 60,035 |   |
| Savings                             |   |          | 49,283       |   |               |   | 44,423 |   |
| Time deposits <$100,000          |   |          | 114,127      |   |               |   | 126,154 |   |
| Time deposits >$100,000          |   |          |  51,137 |   |               |   |  66,631 |   |
|                                |   |          |         |   |               |   |   |   |
|      Total |   | $             | 398,652      |   |               | $      | 391,473 |   |
|                                |   |          |         |   |               |   |   |   |

----

|                                           |   | September 30, |      |   | December 31, |   |
|------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|                                           |   | 2010          |      |   | 2009         |   |
| (dollars in thousands)                         |   |          |      |   |         |   |
| Securities sold under agreements to repurchase |   | $             | 24,339    |   |         | $      | 25,606 |   |
| U.S. Treasury demand notes                     |   |          |  191 |   |         |   |  197 |   |
|                                           |   | $             | 24,530    |   |         | $      | 25,803 |   |

|                                        |   | September 30, |   |   | December 31,  |   |
|---------------------------------------------|--------|---------------|--------|--------|--------------------|--------|
|                                        |   | 2010          |   |   | 2009               |   |
| Notes with the FHLB:                        |   |          |   |   |               |   |
| Fixed rate note due September 2010 at 3.53% |   | $             | -      |   |               | $      | 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 |   |
|                                        |   | $             | 38,000 |   |               | $      | 43,000 |   |

----

|                                       |   | September 30,  |   |   | December 31, |   |
|--------------------------------------------|--------|----------------|--------|--------|--------------|--------|
|                                       |   | 2010           |   |   | 2009         |   |
|                                       |   | (in thousands) |   |
| Commitments to grant loans                 |   | $              | 19,867 |   |         | $      | 17,713 |   |
| Unfunded commitments under lines of credit |   |           | 30,992 |   |         |   | 36,809 |   |
| Standby letters of credit                  |   |           | 3,195  |   |         |   |  3,679 |   |
|                                       |   |           |   |   |         |   |   |   |
|                                       |   | $              | 54,054 |   |         | $      | 58,201 |   |
|                                       |   |           |   |   |         |   |   |   |

|                                              |   |                    |   |   |              |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|-------------------|--------|
|                                              |   | September 30, 2010 |   |   | December 31, 2009 |   |
| Tier 1 Capital                                    |   |                    |   |   |              |   |
|     (To average assets)       |   |                    | 12.18  | %      |              |   | 11.87 | % |
| Tier 1 Capital                                    |   |                    |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |                    | 18.14  | %      |              |   | 16.97 | % |
| Total Capital                                     |   |                    |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |                    | 19.45  | %      |              |   | 18.27 | % |
|                                              |   |                    |   |   |              |   |   |   |

----

----

| (Tax-Equivalent Basis, dollars in thousands)                                                                         |   |  Three Months Ended September 30, |    |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                                                                 |   |  2010                             |    |   |  2009 |   |
|                                                                                                                 |   | Average Balance(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 | % |   | $ | 1,052 |   |   | $ | 1 |   |   |   | 0.38 | % |
| Interest bearing deposits with banks                                                                                 |   |                                   | 16,529  |   |   |   | 12 |   |   |   | 0.29 |   |   |   | 185 |   |   |   | - |   |   |   | - |   |
| Securities held-to-maturity                                                                                          |   |                                   | 169     |   |   |   | 3 |   |   |   | 7.10 |   |   |   | 708 |   |   |   | 15 |   |   |   | 8.47 |   |
| Securities available for sale:                                                                                       |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Taxable                                                                                |   |                                   | 96,562  |   |   |   | 687 |   |   |   | 2.85 |   |   |   | 97,696 |   |   |   | 990 |   |   |   | 4.05 |   |
|      Tax-exempt(1)                                                                          |   |                                   | 44,583  |   |   |   | 646 |   |   |   | 5.80 |   |   |   | 30,775 |   |   |   | 450 |   |   |   | 5.85 |   |
|         Total securities available for     sale (1) |   |                                   | 141,145 |   |   |   | 1,333 |   |   |   | 3.78 |   |   |   | 128,471 |   |   |   | 1,440 |   |   |   | 4.48 |   |
|      Loans receivable (4) (5)                                                               |   |                                   | 353,953 |   |   |   | 5,318 |   |   |   | 6.01 |   |   |   | 358,644 |   |   |   | 5,431 |   |   |   | 6.06 |   |
|         Total interest earning assets                                        |   |                                   | 514,796 |   |   |   | 6,668 |   |   |   | 5.18 |   |   |   | 489,060 |   |   |   | 6,887 |   |   |   | 5.63 |   |
| Non-interest earning assets:                                                                                         |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and due from banks                                                                            |   |                                   | 7,642   |   |   |   |   |   |   |   |   |   |   |   | 7,664 |   |   |   |   |   |   |   |   |   |
|    Allowance for loan losses                                                                          |   |                                   | (5,481  | ) |   |   |   |   |   |   |   |   |   |   | (4,626 | ) |   |   |   |   |   |   |   |   |
|    Other assets                                                                                       |   |                                   | 23,261  |   |   |   |   |   |   |   |   |   |   |   | 17,352 |   |   |   |   |   |   |   |   |   |
|         Total non-interest earning assets                                    |   |                                   | 25,422  |   |   |   |   |   |   |   |   |   |   |   | 20,390 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                                                         |   | $                                      | 540,218 |   |   |   |   |   |   |   |   |   |   | $ | 509,450 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Interest bearing demand and money market                                                           |   | $                                      | 115,553 |   |   |   | 152 |   |   |   | 0.53 |   |   | $ | 99,990 |   |   |   | 188 |   |   |   | 0.75 |   |
|    Savings                                                                                            |   |                                   | 49,759  |   |   |   | 27 |   |   |   | 0.22 |   |   |   | 44,709 |   |   |   | 42 |   |   |   | 0.38 |   |
|    Time                                                                                               |   |                                   | 171,240 |   |   |   | 852 |   |   |   | 1.99 |   |   |   | 172,787 |   |   |   | 1,203 |   |   |   | 2.78 |   |
|       Total interest bearing deposits                                                  |   |                                   | 336,552 |   |   |   | 1,031 |   |   |   | 1.23 |   |   |   | 317,486 |   |   |   | 1,433 |   |   |   | 1.81 |   |
| Short-term borrowings                                                                                                |   |                                   | 23,933  |   |   |   | 26 |   |   |   | 0.43 |   |   |   | 19,437 |   |   |   | 60 |   |   |   | 1.23 |   |
| Other borrowings                                                                                                     |   |                                   | 42,891  |   |   |   | 419 |   |   |   | 3.92 |   |   |   | 43,000 |   |   |   | 421 |   |   |   | 3.92 |   |
|    Total interest bearing liabilities                                                                 |   |                                   | 403,376 |   |   |   | 1,476 |   |   |   | 1.46 |   |   |   | 379,923 |   |   |   | 1,914 |   |   |   | 2.02 |   |
| Non-interest bearing liabilities:                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Demand deposits                                                                                    |   |                                   | 64,512  |   |   |   |   |   |   |   |   |   |   |   | 61,551 |   |   |   |   |   |   |   |   |   |
|    Other liabilities                                                                                  |   |                                   | 5,508   |   |   |   |   |   |   |   |   |   |   |   | 5,382 |   |   |   |   |   |   |   |   |   |
|       Total non-interest bearing liabilities                                           |   |                                   | 70,020  |   |   |   |   |   |   |   |   |   |   |   | 66,933 |   |   |   |   |   |   |   |   |   |
|    Stockholders' equity                                                                               |   |                                   | 66,822  |   |   |   |   |   |   |   |   |   |   |   | 62,594 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity                                                                           |   | $                                      | 540,218 |   |   |   |   |   |   |   |   |   |   | $ | 509,450 |   |   |   |   |   |   |   |   |   |
|                                                                                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (tax equivalent basis)                                                                           |   |                                   |    |   |   |   | 5,192 |   |   |   | 3.72 | % |   |   |   |   |   |   | 4,973 |   |   |   | 3.62 | % |
| Tax-equivalent basis adjustment                                                                                      |   |                                   |    |   |   |   | (273 | ) |   |   |   |   |   |   |   |   |   |   | (207 | ) |   |   |   |   |
| Net interest income                                                                                                  |   |                                   |    |   |   | $ | 4,919 |   |   |   |   |   |   |   |   |   |   | $ | 4,766 |   |   |   |   |   |
| Net interest margin (tax equivalent basis)                                                                           |   |                                   |    |   |   |   |   |   |   |   | 4.03 | % |   |   |   |   |   |   |   |   |   |   | 4.07 | % |

----

|                                                               |   | Increase/(Decrease)                                                                                               |      |
|--------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|-----------|
|                                                               |   | Three months ended September 30, 2010 Compared to Three months ended September 30, 2009 Variance due to |      |
|                                                               |   |  Volume                                                                                                      |      |   |  Rate |   |   |  Net |   |
|                                                               |   | (dollars in thousands)                                                                                            |      |
|                                                               |   |                                                                                                              |      |   |   |   |   |   |   |
| Interest earning assets:                                           |   |                                                                                                              |      |   |   |   |   |   |   |
| Federal funds sold......................................           |   | $                                                                                                                 | 3         |   |   | $ | (2 | ) |   | $ | 1 |   |
| Interest bearing deposits with banks.............. |   |                                                                                                              | 12        |   |   |   | - |   |   |   | 12 |   |
| Securities held to maturity............................            |   |                                                                                                              | (10       | ) |   |   | (2 | ) |   |   | (12 | ) |
| Securities available for sale:                                     |   |                                                                                                              |      |   |   |   |   |   |   |   |   |   |
| Taxable...................................................         |   |                                                                                                              | (11       | ) |   |   | (292 | ) |   |   | (303 | ) |
| Tax-exempt securities..................................            |   |                                                                                                              |  224 |   |   |   | (28 | ) |   |   | 196 |   |
| Total securities..........................................         |   |                                                                                                              | 213       |   |   |   | (320 | ) |   |   | (107 | ) |
| Loans receivable........................................           |   |                                                                                                              | (71       | ) |   |   | (42 | ) |   |   | (113 | ) |
| Total interest earning assets...........................           |   |                                                                                                              |  147 |   |   |   | (366 | ) |   |   | (219 | ) |
|                                                               |   |                                                                                                              |      |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                      |   |                                                                                                              |      |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand and money market....                   |   |                                                                                                              | 142       |   |   |   | (178 | ) |   |   | (36 | ) |
| Savings................................................            |   |                                                                                                              | 27        |   |   |   | (42 | ) |   |   | (15 | ) |
| Time...................................................            |   |                                                                                                              |  (11 | ) |   |   | (340 | ) |   |   | (351 | ) |
| Total interest bearing deposits.......................             |   |                                                                                                              | 158       |   |   |   | (560 | ) |   |   | (402 | ) |
| Short-term borrowings................................              |   |                                                                                                              | 73        |   |   |   | (107 | ) |   |   | (34 | ) |
| Other borrowings......................................             |   |                                                                                                              |  (2  | ) |   |   | - |   |   |   | (2 | ) |
| Total interest bearing liabilities.....................            |   |                                                                                                              |  229 |   |   |   | (667 | ) |   |   | (438 | ) |
| Net interest income (tax-equivalent basis).........                |   | $                                                                                                                 | (82       | ) |   | $ | 301 |   |   | $ | 219 |   |
|                                                               |   |                                                                                                              |      |   |   |   |   |   |   |   |   |   |

----

|                                                        |   | Three months ended    |   |
|-------------------------------------------------------------|--------|-----------------------|--------|
|                                                        |   | September 30, 2010 to |   |
| (dollars in thousands)                                      |   | September 30, 2009    |   |
| Net income three months ended September 30, 2009            |   | $                     | 1,775  |   |
| Change due to:                                              |   |                  |   |   |
| Net interest income                                         |   |                  | 153    |   |
| Provision for loan losses                                   |   |                  | (110   | ) |
| Gain on sales of loans, securities & deposits           |   |                  | 32     |   |
| Other income                                                |   |                  | (15    | ) |
| Salaries and employee benefits                              |   |                  | (46    | ) |
| Occupancy, furniture and equipment                          |   |                  | (21    | ) |
| FDIC insurance assessment                                   |   |                  | 12     |   |
| Other real estate owned                                     |   |                  | 127    |   |
| All other expenses                                          |   |                  | (10    | ) |
| Income tax expense                                          |   |                  | (7     | ) |
|                                                        |   |                  |   |   |
| Net income three months ended  September 30, 2010 |   | $                     | 1,890  |   |
|                                                        |   |                  |   |   |

----

----

| (Tax-Equivalent Basis, dollars in thousands)                                                                    |   | Nine Months Ended September 30, |    |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                                            |   | 2010                            |    |   | 2009 |   |
|                                                                                                            |   | Average Balance(2)              |    |   |  Interest(1) |   |   | AverageRate(3) |   |   | AverageBalance(2) |   |   |  Interest(1) |   |   | AverageRate(3) |   |
| Assets                                                                                                          |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                                        |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Federal funds sold                                                                            |   | $                               | 3,000   |   |   | $ | 7 |   |   |   | 0.31 | % |   | $ | 1,712 |   |   | $ | 8 |   |   |   | 0.62 | % |
|    Interest bearing deposits with banks                                                          |   |                            | 16,712  |   |   |   | 36 |   |   |   | 0.29 |   |   |   | 165 |   |   |   | - |   |   |   | - |   |
|    Securities held-to-maturity(1)                                                                |   |                            | 317     |   |   |   | 20 |   |   |   | 8.41 |   |   |   | 707 |   |   |   | 46 |   |   |   | 8.68 |   |
|    Securities available for sale:                                                                |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Taxable                                                                           |   |                            | 96,307  |   |   |   | 2,372 |   |   |   | 3.28 |   |   |   | 99,786 |   |   |   | 3,164 |   |   |   | 4.23 |   |
|      Tax-exempt(1)                                                                     |   |                            | 37,821  |   |   |   | 1,655 |   |   |   | 5.83 |   |   |   | 28,298 |   |   |   | 1,237 |   |   |   | 5.83 |   |
|         Total securities available for     sale (1) |   |                            | 134,128 |   |   |   | 4,027 |   |   |   | 4.00 |   |   |   | 128,084 |   |   |   | 4,401 |   |   |   | 4.58 |   |
|      Loans receivable (4) (5)                                                          |   |                            | 355,368 |   |   |   | 16,037 |   |   |   | 6.02 |   |   |   | 354,775 |   |   |   | 16,213 |   |   |   | 6.09 |   |
|         Total interest earning assets                                   |   |                            | 509,525 |   |   |   | 20,127 |   |   |   | 5.27 |   |   |   | 485,443 |   |   |   | 20,668 |   |   |   | 5.68 |   |
| Non-interest earning assets:                                                                                    |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and due from banks                                                                       |   |                            | 7,235   |   |   |   |   |   |   |   |   |   |   |   | 9,024 |   |   |   |   |   |   |   |   |   |
|    Allowance for loan losses                                                                     |   |                            | (5,445  | ) |   |   |   |   |   |   |   |   |   |   | (4,477 | ) |   |   |   |   |   |   |   |   |
|    Other assets                                                                                  |   |                            | 22,190  |   |   |   |   |   |   |   |   |   |   |   | 17,422 |   |   |   |   |   |   |   |   |   |
|    Total non-interest earning assets                                                             |   |                            | 23,980  |   |   |   |   |   |   |   |   |   |   |   | 21,969 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                                                    |   | $                               | 533,505 |   |   |   |   |   |   |   |   |   |   | $ | 507,412 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                                            |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                                                   |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Interest bearing demand and money market                                                      |   | $                               | 106,993 |   |   |   | 449 |   |   |   | 0.56 |   |   | $ | 99,520 |   |   |   | 571 |   |   |   | 0.77 |   |
|    Savings                                                                                       |   |                            | 48,260  |   |   |   | 84 |   |   |   | 0.23 |   |   |   | 44,822 |   |   |   | 125 |   |   |   | 0.37 |   |
|    Time                                                                                          |   |                            | 179,546 |   |   |   | 2,799 |   |   |   | 2.08 |   |   |   | 169,260 |   |   |   | 3,658 |   |   |   | 2.88 |   |
|       Total interest bearing deposits                                             |   |                            | 334,799 |   |   |   | 3,332 |   |   |   | 1.33 |   |   |   | 313,602 |   |   |   | 4,354 |   |   |   | 1.85 |   |
| Short-term borrowings                                                                                           |   |                            | 23,790  |   |   |   | 87 |   |   |   | 0.49 |   |   |   | 26,039 |   |   |   | 229 |   |   |   | 1.17 |   |
| Other borrowings                                                                                                |   |                            | 42,963  |   |   |   | 1,247 |   |   |   | 3.87 |   |   |   | 43,000 |   |   |   | 1,248 |   |   |   | 3.87 |   |
|    Total interest bearing liabilities                                                            |   |                            | 401,552 |   |   |   | 4,666 |   |   |   | 1.55 |   |   |   | 382,641 |   |   |   | 5,831 |   |   |   | 2.03 |   |
| Non-interest bearing liabilities:                                                                               |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Demand deposits                                                                               |   |                            | 61,819  |   |   |   |   |   |   |   |   |   |   |   | 58,870 |   |   |   |   |   |   |   |   |   |
|    Other liabilities                                                                             |   |                            | 5,012   |   |   |   |   |   |   |   |   |   |   |   | 4,770 |   |   |   |   |   |   |   |   |   |
|       Total non-interest bearing liabilities                                      |   |                            | 66,831  |   |   |   |   |   |   |   |   |   |   |   | 63,640 |   |   |   |   |   |   |   |   |   |
|    Stockholders' equity                                                                          |   |                            | 65,122  |   |   |   |   |   |   |   |   |   |   |   | 61,131 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity                                                                      |   | $                               | 533,505 |   |   |   |   |   |   |   |   |   |   | $ | 507,412 |   |   |   |   |   |   |   |   |   |
|                                                                                                            |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (tax equivalent basis)                                                                      |   |                            |    |   |   |   | 15,461 |   |   |   | 3.72 | % |   |   |   |   |   |   | 14,837 |   |   |   | 3.64 | % |
| Tax-equivalent basis adjustment                                                                                 |   |                            |    |   |   |   | (713 | ) |   |   |   |   |   |   |   |   |   |   | (555 | ) |   |   |   |   |
| Net interest income                                                                                             |   |                            |    |   |   | $ | 14,748 |   |   |   |   |   |   |   |   |   |   | $ | 14,282 |   |   |   |   |   |
| Net interest margin (tax equivalent basis)                                                                      |   |                            |    |   |   |   |   |   |   |   | 4.05 | % |   |   |   |   |   |   |   |   |   |   | 4.08 | % |

----

|                                       |   | Increase/(Decrease)                              |     |
|--------------------------------------------|--------|--------------------------------------------------|----------|
|                                       |   | Nine Months Ended September 30, 2010 Compared to |     |
|                                       |   | Nine Months Ended September 30, 2009             |     |
|                                       |   | Variance due to                                  |     |
|                                       |   |  Volume                                     |     |   |  Rate |   |   | Net  |   |
|                                       |   | (dollars in thousands)                           |     |
| Interest earning assets:                   |   |                                             |     |   |   |   |   |   |   |
| Federal funds sold                         |   | $                                                | 6        |   |   | $ | (7 | ) |   | $ | (1 | ) |
| Interest bearing deposits with banks       |   |                                             | 36       |   |   |   | - |   |   |   | 36 |   |
| Securities held to maturity                |   |                                             | (25      | ) |   |   | (1 | ) |   |   | (26 | ) |
| Securities available for sale:             |   |                                             |     |   |   |   |   |   |   |   |   |   |
| Taxable                                    |   |                                             | (107     | ) |   |   | (685 | ) |   |   | (792 | ) |
| Tax-exempt securities                      |   |                                             | 417      |   |   |   | 1 |   |   |   | 418 |   |
| Total securities                           |   |                                             | 310      |   |   |   | (684 | ) |   |   | (374 | ) |
| Loans receivable                           |   |                                             | 43       |   |   |   | (219 | ) |   |   | (176 | ) |
| Total interest earning assets              |   |                                             | 370      |   |   |   | (911 | ) |   |   | (541 | ) |
|                                       |   |                                             |     |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:              |   |                                             |     |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand and money market   |   |                                             | 63       |   |   |   | (185 | ) |   |   | (122 | ) |
| Savings                                    |   |                                             | 14       |   |   |   | (55 | ) |   |   | (41 | ) |
| Time                                       |   |                                             | 333      |   |   |   | (1,192 | ) |   |   | (859 | ) |
| Total interest bearing deposits            |   |                                             | 410      |   |   |   | (1,432 | ) |   |   | (1,022 | ) |
| Short-term borrowings                      |   |                                             | (18      | ) |   |   | (124 | ) |   |   | (142 | ) |
| Other borrowings                           |   |                                             |  (1 | ) |   |   |  0 |   |   |   | (1 | ) |
| Total interest bearing liabilities         |   |                                             | 391      |   |   |   | (1,556 | ) |   |   | (1,165 | ) |
| Net interest income (tax-equivalent basis) |   | $                                                | (21      | ) |   | $ | 645 |   |   | $ | 624 |   |
|                                       |   |                                             |     |   |   |   |   |   |   |   |   |   |

----

|                                                       |   | Nine Months Ended     |     |
|------------------------------------------------------------|--------|-----------------------|----------|
|                                                       |   | September 30, 2010 to |     |
|                                                       |   | September 30, 2009    |     |
| (dollars in thousands)                                     |   |                  |     |
| Net income nine months ended September 30, 2009            |   | $                     | 5,261    |   |
|                                                       |   |                  |     |   |
| Change due to:                                             |   |                  |     |   |
| Net interest income                                        |   |                  | 466      |   |
| Provision for loan losses                                  |   |                  | (145     | ) |
| Gain on sales of loans, securities & deposits          |   |                  | (281     | ) |
| Other income                                               |   |                  | (133     | ) |
| Salaries and employee benefits                             |   |                  | (24      | ) |
| Occupancy, furniture and equipment expense, net            |   |                  | 41       |   |
| FDIC insurance assessment                                  |   |                  | 260      |   |
| Other real estate owned                                    |   |                  | 116      |   |
| All other expenses                                         |   |                  | (72      | ) |
| Income tax expense                                         |   |                  |  16 |   |
|                                                       |   |                  |     |   |
| Net income nine months ended  September 30, 2010 |   | $                     | 5,505    |   |
|                                                       |   |                  |     |   |

----

----

|    (dollars in thousands)         |   | 3 Months |    |   | 3-12 Months |   |    | 1 to 3 Years |   |   | Over 3 Years |   |   | Total  |    |
|--------------------------------------------------|--------|----------|---------|--------|-------------|--------|---------|--------------|--------|--------|--------------|--------|--------|--------|---------|
| Federal funds sold and interest bearing deposits |   | $        | 10,123  |   |        | $      | --      |         |   | $      | 250          |   |   | $      | --      |   |   | $ | 10,373 |   |
| Securities                                       |   |     | 16,850  |   |        |   | 22,924  |         |   |   | 43,347       |   |   |   | 55,133  |   |   |   | 138,254 |   |
| Loans Receivable                                 |   |     | 94,118  |   |        |   | 58,912  |         |   |   | 101,107      |   |   |   | 104,217 |   |   |   | 358,354 |   |
|   Total RSA                            |   |     | 121,091 |   |        |   | 81,836  |         |   |   | 144,704      |   |   |   | 159,350 |   |   |   | 506,981 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |         |   |   |   |    |   |   |   |   |   |
| Non-maturity interest-bearing deposits           |   |     | 26,946  |   |        |   | 29,567  |         |   |   | 78,776       |   |   |   | 31,768  |   |   |   | 167,057 |   |
| Time Deposits                                    |   |     | 27,317  |   |        |   | 71,032  |         |   |   | 49,955       |   |   |   | 16,960  |   |   |   | 165,264 |   |
| Other                                            |   |     | 5,672   |   |        |   | 26,311  |         |   |   | 20,546       |   |   |   | 10,000  |   |   |   | 62,529 |   |
|   Total RSL                            |   |     | 59,935  |   |        |   | 126,910 |         |   |   | 149,277      |   |   |   | 58,728  |   |   |   | 394,850 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |         |   |   |   |    |   |   |   |   |   |
| Interest Sensitivity Gap                         |   | $        | 61,156  |   |        | $      | (45,074 | )            |   | $      | (4,573       | )      |   | $      | 100,622 |   |   | $ | 112,131 |   |
| Cumulative Gap                                   |   |     | 61,156  |   |        |   | 16,082  |         |   |   | 11,509       |   |   |   | 112,131 |   |   |   |   |   |
| RSA/RSL-cumulative                               |   |     | 202.0   | %      |        |   | 108.6   | %            |   |   | 103.4        | %      |   |   | 128.4   | % |   |   |   |   |
|                                             |   |     |    |   |        |   |    |         |   |   |         |   |   |   |    |   |   |   |   |   |
| 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   | % |   |   |   |   |

----

| 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 (4)                                                                  |
| 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) Certification of CEO and CFO                                                          |
| 32           | Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of Sarbanes Oxley Act of 2002 |

----

| (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 Registrants Form 10-K filed with the Commission on March 22, 2004.                                                                     |
|   |                                                                                                                                                                                                               |
| (5)    | Incorporated herein by reference to the Registrant’s Form 8-K filed with the Commission on April 25, 2006.                                                                                                   |
|   |                                                                                                                                                                                                               |
| (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:November 5, 2010 |   |                    |
|                  |   |                    | By: | /s/ Lewis J. Critelli |
|                  |   |                    |   | Lewis J. Critelli |
|                  |   |                    |   | President and Chief Executive Officer |
|                  |   |                    |   | (Principal Executive Officer) |
|                  |   |                    |   |   |
|                  |   |                    |   |   |
|                  |   |                    |   |   |
| Date:November 5, 2010 |   | By:                     | /s/ William S. Lance |
|                  |   |                    |   | William S. Lance |
|                  |   |                    |   | Senior Vice President, and |
|                  |   |                    |   | Chief Financial Officer |
|                  |   |                    |   | (Principal Financial Officer) |