| [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 August 2, 2010 |
|-----------------------------------------|--------|----------------------------------|
| Common stock, par value $0.10 per share |   | 2,760,166                        |

----

|       |                                                                                        |   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                                  | 33                     |
| Item 4.    | Controls and Procedures                                                                     | 34                     |
| PART II -  | OTHER INFORMATION                                                                           |                   |
|       |                                                                                        |                   |
| Item 1.    | Legal Proceedings                                                                           | 35                     |
| Item 1A.   | Risk Factors                                                                                | 35                     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                 | 35                     |
| Item 3.    | Defaults upon Senior Securities                                                             | 35                     |
| Item 4.    | Reserved                                                                                    | 35                     |
| Item 5.    | Other Information                                                                           | 35                     |
| Item 6.    | Exhibits                                                                                    | 35                     |
|       |                                                                                        |                   |
| Signatures |                                                                                        | 37                     |

----

|                                                                                                                                              |   | June 30,  2010 |         |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------------|--------|------------------------|--------|
|  ASSETS                                                                                                                                      |   |                |         |   |                   |   |
| Cash and due from banks                                                                                                                           |   | $                   | 6,168        |   |                   | $      | 6,498 |   |
| Interest bearing deposits with banks                                                                                                              |   |                | 25,374       |   |                   |   | 7,857 |   |
| Federal funds sold                                                                                                                                |   |                | 3,000        |   |                   |   | 3,000 |   |
|           Cash and cash equivalents                                                             |   |                | 34,542       |   |                   |   | 17,355 |   |
|                                                                                                                                              |   |                |         |   |                   |   |   |   |
| Securities available for sale                                                                                                                     |   |                | 141,245      |   |                   |   | 130,577 |   |
| Securities held to maturity, fair value 2010:      $179, 2009: $722                                                 |   |                |  169    |   |                   |   | 708 |   |
| Loans receivable (net of unearned income)                                                                                                         |   |                | 353,933      |   |                   |   | 363,474 |   |
|       Less:  Allowance for loan losses                                                                    |   |                |  5,421  |   |                   |   | 5,453 |   |
| Net loans receivable                                                                                                                              |   |                | 348,512      |   |                   |   | 358,021 |   |
| Investment in FHLB Stock, at cost                                                                                                                 |   |                | 3,538        |   |                   |   | 3,538 |   |
| Bank premises and equipment, net                                                                                                                  |   |                | 5,061        |   |                   |   | 5,189 |   |
| Bank owned life insurance                                                                                                                         |   |                | 8,074        |   |                   |   | 7,889 |   |
| Accrued interest receivable                                                                                                                       |   |                | 2,113        |   |                   |   | 2,200 |   |
| Foreclosed real estate owned                                                                                                                      |   |                | 382          |   |                   |   | 392 |   |
| Other assets                                                                                                                                      |   |                | 2,944        |   |                   |   | 3,827 |   |
|   TOTAL ASSETS                                                                                                                          |   | $                   | 546,580      |   |                   | $      | 529,696 |   |
|                                                                                                                                              |   |                |         |   |                   |   |   |   |
| LIABILITIES                                                                                                                                       |   |                |         |   |                   |   |   |   |
|   Deposits:                                                                                                                             |   |                |         |   |                   |   |   |   |
|       Non-interest bearing demand                                                                                   |   | $                   | 63,408       |   |                   | $      | 59,820 |   |
|       Interest-bearing                                                                                              |   |                | 344,355      |   |                   |   | 331,653 |   |
|           Total deposits                                                                             |   |                | 407,763      |   |                   |   | 391,473 |   |
|   Short-term borrowings                                                                                                                 |   |                | 24,378       |   |                   |   | 25,803 |   |
|   Other borrowings                                                                                                                      |   |                | 43,000       |   |                   |   | 43,000 |   |
|   Accrued interest payable                                                                                                              |   |                | 1,617        |   |                   |   | 2,057 |   |
|   Other liabilities                                                                                                                     |   |                |  3,056  |   |                   |   | 2,892 |   |
|   TOTAL LIABILITIES                                                                                                                     |   |                | 479,814      |   |                   |   | 465,225 |   |
|                                                                                                                                              |   |                |         |   |                   |   |   |   |
|  STOCKHOLDERS’ EQUITY                                                                                                                  |   |                |         |   |                   |   |   |   |
|     Common stock, $.10 par value per share, authorized      10,000,000; shares issued 2,840,872 |   |                |  284    |   |                   |   | 284 |   |
|     Surplus                                                                                                                   |   |                | 9,777        |   |                   |   | 9,764 |   |
|     Retained  earnings                                                                                              |   |                | 56,526       |   |                   |   | 54,455 |   |
|     Treasury stock at cost: 2010: 80,977 shares, 2009: 68,436                                                                 |   |                |  (2,467 | )      |                   |   | (2,122 | ) |
|     Accumulated other comprehensive income                                                                                    |   |                |  2,646  |   |                   |   | 2,090 |   |
|     TOTAL STOCKHOLDERS’ EQUITY                                                                                          |   |                | 66,766       |   |                   |   | 64,471 |   |
|     TOTAL LIABILITIES AND      STOCKHOLDERS’ EQUITY                                       |   | $                   | 546,580      |   |                   | $      | 529,696 |   |

----

|                                                           |   | Three Months Ended  |         |   |  Six Months Ended |   |
|----------------------------------------------------------------|--------|--------------------------|--------------|--------|------------------------|--------|
|                                                           |   | June 30,            |         |   |  June 30,         |   |
|                                                           |   | 2010                     |         |   | 2009                   |   |   | 2010 |   |   | 2009 |   |
| INTEREST INCOME                                                |   |                     |         |   |                   |   |   |   |   |   |   |   |
|   Loans receivable, including fees                   |   | $                        | 5,218        |   |                   | $      | 5,426 |   |   | $ | 10,628 |   |   | $ | 10,713 |   |
|   Securities                                         |   |                     | 1,141        |   |                   |   | 1,316 |   |   |   | 2,362 |   |   |   | 2,713 |   |
|   Other                                              |   |                     |  18     |   |                   |   |  1 |   |   |   | 29 |   |   |   | 7 |   |
|   Total interest income                              |   |                     | 6,377        |   |                   |   | 6,743 |   |   |   | 13,019 |   |   |   | 13,433 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST EXPENSE                                               |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|   Deposits                                           |   |                     | 1,102        |   |                   |   | 1,420 |   |   |   | 2,301 |   |   |   | 2,921 |   |
|   Short-term borrowings                              |   |                     | 27           |   |                   |   | 73 |   |   |   | 61 |   |   |   | 169 |   |
|   Other borrowings                                   |   |                     |  416    |   |                   |   |  415 |   |   |   | 828 |   |   |   | 827 |   |
|   Total interest expense                             |   |                     | 1,545        |   |                   |   | 1,908 |   |   |   | 3,190 |   |   |   | 3,917 |   |
| NET INTEREST INCOME                                            |   |                     | 4,832        |   |                   |   | 4,835 |   |   |   | 9,829 |   |   |   | 9,516 |   |
| PROVISION FOR LOAN LOSSES                                      |   |                     |  150    |   |                   |   |  220 |   |   |   | 480 |   |   |   | 445 |   |
| NET INTEREST INCOME AFTER  PROVISION FOR LOAN LOSSES |   |                     |   4,682 |   |                   |   |   4,615 |   |   |   | 9,349 |   |   |   | 9,071 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME                                                   |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|   Service charges and fees                           |   |                     | 570          |   |                   |   | 642 |   |   |   | 1,093 |   |   |   | 1,240 |   |
|   Income from fiduciary activities                   |   |                     | 93           |   |                   |   | 82 |   |   |   | 179 |   |   |   | 164 |   |
|   Net realized gains on sales of securities          |   |                     | 64           |   |                   |   | 172 |   |   |   | 219 |   |   |   | 333 |   |
|   Gains on sale of loans and servicing rights        |   |                     | 130          |   |                   |   | 121 |   |   |   | 205 |   |   |   | 254 |   |
|   Gains on sale of deposits                          |   |                     | -            |   |                   |   | - |   |   |   | - |   |   |   | 150 |   |
|   Other                                              |   |                     |  159    |   |                   |   |  151 |   |   |   | 322 |   |   |   | 308 |   |
|   Total other income                                 |   |                     |  1,016  |   |                   |   |  1,168 |   |   |   | 2,018 |   |   |   | 2,449 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER EXPENSES                                                 |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|   Salaries and employee benefits                     |   |                     | 1,572        |   |                   |   | 1,595 |   |   |   | 3,187 |   |   |   | 3,209 |   |
|   Occupancy, furniture & equipment, net          |   |                     | 408          |   |                   |   | 379 |   |   |   | 802 |   |   |   | 864 |   |
|   Data processing related                            |   |                     | 216          |   |                   |   | 203 |   |   |   | 412 |   |   |   | 399 |   |
|   Taxes, other than income                           |   |                     | 150          |   |                   |   | 139 |   |   |   | 297 |   |   |   | 275 |   |
|   Professional fees                                  |   |                     | 138          |   |                   |   | 104 |   |   |   | 277 |   |   |   | 202 |   |
|   FDIC Insurance assessment                          |   |                     | 118          |   |                   |   | 358 |   |   |   | 236 |   |   |   | 484 |   |
|   Other                                              |   |                     | 574          |   |                   |   | 542 |   |   |   | 1,125 |   |   |   | 1,162 |   |
|   Total other expenses                               |   |                     | 3,176        |   |                   |   | 3,320 |   |   |   | 6,336 |   |   |   | 6,595 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                     |   |                     | 2,522        |   |                   |   | 2,463 |   |   |   | 5,031 |   |   |   | 4,925 |   |
| INCOME TAX EXPENSE                                             |   |                     |  704    |   |                   |   |  714 |   |   |   | 1,416 |   |   |   | 1,439 |   |
| NET INCOME                                                     |   | $                        | 1,818        |   |                   | $      | 1,749 |   |   | $ | 3,615 |   |   | $ | 3,486 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| BASIC EARNINGS PER SHARE                                       |   | $                        | 0.66         |   |                   | $      | 0.64 |   |   | $ | 1.31 |   |   | $ | 1.27 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| DILUTED EARNINGS PER SHARE                                     |   | $                        | 0.66         |   |                   | $      | 0.63 |   |   | $ | 1.31 |   |   | $ | 1.26 |   |
|                                                           |   |                     |         |   |                   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                                         |   |  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                                                                                                                                                                       |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | 3,615  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,615 |   |
| Change in unrealized gains on  securities available or sale, net  of  reclassification  adjustments  and  tax  effects |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   556 |   |   |   |   556 |   |
| Total comprehensive income                                                                                                                                                                   |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 4,171 |   |
|                                                                                                                                                                                         |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                         |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends declared $.56 per  share                                                                                                                                            |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          | (1,544 | )      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,544 | ) |
| Acquisition of  treasury  stock                                                                                                                                          |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   | 18,571 |   |   |   | (529 | ) |   |   |   |   |   |   | (529 | ) |
| Stock options exercised                                                                                                                                                                      |   |               |      |   |   |   |   |           |   |   | (95                  | )      |   |                          |   |   |   |   | (6,030 | ) |   |   | 184 |   |   |   |   |   |   |   | 89 |   |
| Tax benefit on stock options   exercised                                                                                                                                           |   |               |      |   |   |   |   |           |   |   | 30                   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30 |   |
| Compensation expense related   to stock options                                                                                                                                    |   |               |      |   |   |   |   |           |   |   | 78                   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 78 |   |
|                                                                                                                                                                                         |   |               |      |   |   |   |   |           |   |   |                 |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2010                                                                                                                                                                       |   |               | 2,840,872 |   |   | $      | 284    |           |   | $      | 9,777                |   |   | $                             | 56,526 |   |   |   | 80,977 |   |   | $ | (2,467 | ) |   | $ | 2,646 |   |   | $ | 66,766 |   |

----

|                                                                                                    |   | Six Months Ended June 30,  |    |
|---------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                                    |   | 2010                            |    |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                    |   |                            |    |   |   |   |
| Net Income                                                                                              |   | $                               | 3,615   |   |   | $ | 3,486 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:            |   |                            |    |   |   |   |   |   |
|   Provision for loan losses                                                                   |   |                            | 480     |   |   |   | 445 |   |
|   Depreciation                                                                                |   |                            | 233     |   |   |   | 290 |   |
|   Amortization of intangible assets                                                           |   |                            | 26      |   |   |   | 26 |   |
|   Deferred income taxes                                                                       |   |                            | 10      |   |   |   | 144 |   |
|   Net amortization of securities premiums and discounts                                       |   |                            | 141     |   |   |   | 60 |   |
|   Net realized gain on sales of securities                                                    |   |                            | (219    | ) |   |   | (333 | ) |
|   Gain on sale of deposits                                                                    |   |                            | -       |   |   |   | (150 | ) |
|   Earnings on life insurance                                                                  |   |                            | (182    | ) |   |   | (166 | ) |
|   Net gain on sale of mortgage loans and servicing rights                                     |   |                            | (205    | ) |   |   | (254 | ) |
|   Mortgage loans originated for sale                                                          |   |                            | (10,451 | ) |   |   | (15,674 | ) |
|   Proceeds from sale of mortgage loans originated for sale                                    |   |                            | 10,656  |   |   |   | 15,928 |   |
|   Compensation expense related to stock options                                               |   |                            | 78      |   |   |   | 65 |   |
|   Decrease in accrued interest receivable and other assets                                    |   |                            | 755     |   |   |   | 145 |   |
|   Increase (decrease) in accrued interest payable and other liabilities                       |   |                            | (273    | ) |   |   | 800 |   |
|     Net cash provided by operating activities                                       |   |                            | 4,664   |   |   |   | 4,812 |   |
|                                                                                                    |   |                            |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                    |   |                            |    |   |   |   |   |   |
|   Securities available for sale:                                                              |   |                            |    |   |   |   |   |   |
|     Proceeds from sales                                                             |   |                            | 12,611  |   |   |   | 11,141 |   |
|     Proceeds from maturities and principal reductions on mortgage-backed securities |   |                            | 32,567  |   |   |   | 25,278 |   |
|     Purchases                                                                       |   |                            | (54,926 | ) |   |   | (28,428 | ) |
|   Securities held to maturity, proceeds from maturities                                       |   |                            | 540     |   |   |   | - |   |
|   Net (increase) decrease  in loans                                                 |   |                            | 8,928   |   |   |   | (11,506 | ) |
|   Purchase of bank premises and equipment                                                     |   |                            | (105    | ) |   |   | (100 | ) |
|   Proceeds from sale of bank premises and equipment and foreclosed real estate                |   |                            | -       |   |   |   | 2 |   |
|   Net cash used in investing activities                                                       |   |                            | (385    | ) |   |   | (3,613 | ) |
|                                                                                                    |   |                            |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                    |   |                            |    |   |   |   |   |   |
|   Net increase in deposits                                                                    |   |                            | 16,290  |   |   |   | 18,274 |   |
|   Deposits sold                                                                               |   |                            | -       |   |   |   | (3,606 | ) |
|   Net decrease in short-term borrowings                                                       |   |                            | (1,425  | ) |   |   | (13,530 | ) |
|   Stock options exercised                                                                     |   |                            | 89      |   |   |   | 215 |   |
|   Tax benefit of stock options exercised                                                      |   |                            | 30      |   |   |   | 67 |   |
|   Acquisition of treasury stock                                                               |   |                            | (529    | ) |   |   | (68 | ) |
|   Cash dividends paid                                                                         |   |                            | (1,547  | ) |   |   | (1,477 | ) |
|    Net cash provided by (used in) financing activities                                   |   |                            | 12,908  |   |   |   | (125 | ) |
|    Increase in cash and cash equivalents                                                 |   |                            | 17,187  |   |   |   | 1,074 |   |
|                                                                                                    |   |                            |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                          |   |                            | 17,355  |   |   |   | 6,480 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                |   | $                               | 34,542  |   |   | $ | 7,554 |   |
|                                                                                                    |   |                            |    |   |   |   |   |   |

----

|                                                  |   | Three Months Ended  |   |   | Six Months Ended |   |
|-------------------------------------------------------|--------|-------------------------------|--------|--------|------------------|--------|
|                                                  |   | June 30,                      |   |   | June 30,         |   |
|                                                  |   | 2010                          |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
|  Basic EPS weighted average shares outstanding   |   |                          | 2,758  |   |             |   | 2,741 |   |   |   | 2,763 |   |   |   | 2,739 |   |
|  Dilutive effect of stock options                |   |                          | 4      |   |             |   | 19 |   |   |   | 4 |   |   |   | 19 |    |
|  Diluted EPS weighted average shares outstanding |   |                          | 2,762  |   |             |   | 2,760 |   |   |   | 2,767 |   |   |   | 2,758 |   |
|                                                  |   |                          |   |   |             |   |   |   |   |   |   |   |   |   |   |   |

----

|                                        | Options |   | Weighted Average Exercise PricePer Share |        | Weighted Average Remaining Contractual Term |   | AggregateIntrinsic Value ($000) |   |
|---------------------------------------------|---------|--------|------------------------------------------|-------------|---------------------------------------------|--------|---------------------------------|--------|
|                                        |    |   |                                     |        |                                        |   |                            |   |   |   |   |   |
|    Outstanding at January 1, 2010 | 170,915 |   | $                                        | 28.07       |                                        |   | 6.8                             | Yrs.   |   | $ | 286 |   |
|    Granted                        | 1,000   |   |                                     | 26.88       |                                        |   | 9.7                             | Yrs.   |   |   | - |   |
|    Exercised                      | (6,030) |   |                                     |  14.83 |                                        |   | 1.3                             | Yrs    |   |   | 74 |      |
|    Outstanding at June 30, 2010   | 165,885 |   | $                                        | 28.55       |                                        |   | 6.4                             | Yrs.   |   | $ |          85 |   |
|                                        |    |   |                                     |        |                                        |   |                            |   |   |   |   |   |
|    Exercisable at June 30, 2010   | 141,900 |   | $                                        | 28.33       |                                        |   | 5.0                             | Yrs.   |   | $ |           85 |   |
|                                        |    |   |                                     |        |                                        |   |                            |   |   |   |   |   |

----

|                                                                 |   | Three Months Ended |   |   | Six Months Ended |   |
|----------------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                                 |   | June 30,           |   |   | June 30,         |
|                                                                 |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Unrealized holding gains  on available for sale securities |   | $                  | 783    |   |             | $      | (368 | ) |   | $ | 1,062 |   |   | $ | 533 |   |
| Reclassification adjustment for gains  realized in income  |   |               | 64     |   |             |   | (172 | ) |   |   | 219 |   |   |   | (333 | ) |
| Net unrealized gains                                                 |   |               | 719    |   |             |   | (540 | ) |   |   | 843 |   |   |   | 200 |   |
| Income tax expense                                                   |   |               | 244    |   |             |   | (182 | ) |   |   | 287 |   |   |   | 72 |   |
| Other comprehensive income                                           |   | $                  | 475    |   |             | $      | (358 | ) |   | $ | 556 |   |   | $ | 128 |   |
|                                                                 |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |

|                                       |   | June 30, |   |
|--------------------------------------------|--------|----------|--------|
|                                       |   | 2010     |   |   | 2009 |   |
|  Commitments to grant loans           |   | $        | 15,908 |   |   | $ | 15,991 |   |
| Unfunded commitments under lines of credit |   |     | 33,915 |   |   |   | 41,482 |   |
| Standby letters of credit                  |   |     | 3,269  |   |   |   | 2,079 |   |
|                                       |   |     |   |   |   |   |   |   |
|                                       |   | $        | 53,092 |   |   | $ | 59,522 |   |

----

|                              |   | June 30, 2010  |    |
|-----------------------------------|--------|----------------|---------|
|                              |   | AmortizedCost  |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                              |   | (In Thousands) |    |
| Available for Sale:               |   |           |    |   |   |   |   |   |   |   |   |   |
| U.S. Government agencies          |   | $              | 46,602  |   |   | $ | 615 |   |   | $ | (1 | ) |   | $ | 47,216 |   |
| States and political subdivisions |   |           | 40,203  |   |   |   | 1,015 |   |   |   | (83 | ) |   |   | 41,135 |   |
| Corporate obligations             |   |           | 5,031   |   |   |   | 215 |   |   |   | - |   |   |   | 5,246 |   |
| Mortgage-backed securities        |   |           | 45,065  |   |   |   | 1,760 |   |   |   | (2 | ) |   |   | 46,823 |   |
|                              |   |           | 136,901 |   |   |   | 3,605 |   |   |   | (86 | ) |   |   | 140,420 |   |
| Equity securities                 |   |           | 330     |   |   |   | 498 |   |   |   | (3 | ) |   |   | 825 |   |
|                              |   | $              | 137,231 |   |   | $ | 4,103 |   |   | $ | (89 | ) |   | $ | 141,245 |   |
| Held to Maturity:                 |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| States and political subdivisions |   | $              | 169     |   |   | $ | 10 |   |   | $ | - |   |   | $ | 179 |   |
|                              |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                              |   | 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 |   |
|                              |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                              |   | June 30, 2010       |   |
|-----------------------------------|--------|---------------------|--------|
|                              |   | Less than 12 Months |   |   | 12 Months or More |   |   | Total |   |
|                              |   | FairValue           |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
| U.S. Government agencies          |   | $                   | 999    |   |   | $ | (1 | ) |   | $ | - |   |   | $ | - |   |   | $ | 999 |   |   | $ | (1 | ) |
| States and political subdivisions |   |                | 7,420  |   |   |   | (83 | ) |   |   | - |   |   |   | - |   |   |   | 7,420 |   |   |   | (83 | ) |
| Mortgage-backed securities        |   |                | 758    |   |   |   | (2 | ) |   |   | - |   |   |   | - |   |   |   | 758 |   |   |   | (2 | ) |
| Equity securities                 |   |                | 15     |   |   |   | (1 | ) |   |   | 5 |   |   |   | (2 | ) |   |   | 20 |   |   |   | (3 | ) |
|                              |   | $                   | 9,192  |   |   | $ | (87 | ) |   | $ | 5 |   |   | $ | (2 | ) |   | $ | 9,197 |   |   | $ | (89 | ) |
|                              |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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

----

|                                   |   | Available for Sale |    |   | Held to Maturity |   |
|----------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                   |   | Amortized Cost     |    |   | Fair Value       |   |   | Amortized Cost |   |   | Fair Value |   |
|                                   |   | (In Thousands)     |    |
| Due in one year or less                |   | $                  | 2,010   |   |             | $      | 2,032 |   |   | $ | - |   |   | $ | - |   |
| Due after one year through five years  |   |               | 42,756  |   |             |   | 43,532 |   |   |   | 169 |   |   |   | 179 |   |
| Due after five years through ten years |   |               | 26,659  |   |             |   | 27,268 |   |   |   | - |   |   |   | - |   |
| Due after ten years                    |   |               | 20,411  |   |             |   | 20,765 |   |   | _ _- |   |   | __- |   |
|                                   |   |               | 91,836  |   |             |   | 93,597 |   |   |   | 169 |   |   |   | 179 |   |
| Mortgage-backed securities             |   |               | 45,065  |   |             |   | 46,823 |   |   | ___- |   |   | ___- |   |
|                                   |   | $                  | 136,901 |   |             | $      | 140,420 |   |   | $ | 169 |   |   | $ | 179 |   |

|                              |   | Three Months Ended |   |   | Six Months Ended |
|-----------------------------------|--------|--------------------|--------|--------|------------------|
|                              |   | June 30,           |   |   | June 30,         |   |
|                              |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Gross realized gains              |   | $                  | 64     |   |             | $ | 172 |   |   | $ | 219 |   |   | $ | 436 |   |
| Gross realized losses             |   | -                  |   |   | -                |   |   |   | - |   |   |   | (103 | ) |
| Net realized gain/(loss)          |   | $                  | 64     |   |             | $ | 172 |   |   | $ | 219 |   |   | $ | 333 |   |
| Proceeds from sales of securities |   | $                  | 3,774  |   |             | $ | 6,168 |   |   | $ | 12,611 |   |   | $ | 11,141 |   |

|   | 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)                              |    |
| June 30, 2010                       |   |                                        |    |   |   |   |   |   |   |   |   |   |
| Available for Sale:                 |   |                                        |    |   |   |   |   |   |   |   |   |   |
| US Government agencies              |   | $                                           | 47,216  |   |   |   |   |   | $ | 47,216 |   |   | $ | - |   |
| States and political subdivisions   |   |                                        | 41,135  |   |   |   |   |   |   | 41,135 |   |   |   | - |   |
| Corporate securities                |   |                                        | 5,246   |   |   |   |   |   |   | 5,246 |   |   |   | - |   |
| Mortgage-backed securities          |   |                                        | 46,823  |   |   |   |   |   |   | 46,823 |   |   |   | - |   |
| Equity securities                   |   |                                        | 825     |   |   | $ | 825 |   |   |   |   |   | - |   |
| Total                               |   | $                                           | 141,245 |   |   | $ | 825 |   |   | $ | 140,420 |   |   | $ | - |   |
|                                |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                   |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for Sale:                 |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government agencies              |   | $                                           | 39,772  |   |   |   |   |   |   | $ | 39,772 |   |   | $ | - |   |
| States and political subdivisions   |   |                                        | 31,635  |   |   |   |   |   |   |   | 31,635 |   |   |   | - |   |
| Corporate securities                |   |                                        | 5,240   |   |   |   |   |   |   |   | 5,240 |   |   |   | - |   |
| Mortgage-backed securities          |   |                                        | 53,154  |   |   |   |   |   |   |   | 53,154 |   |   |   | - |   |
| Equity securities                   |   |                                        | 776     |   |   | $ | 776 |   |   |   |   |   | - |   |
| Total                               |   | $                                           | 130,577 |   |   | $ | 776 |   |   | $ | 129,801 |   |   | $ | - |   |

|                         |   |  Fair Value Measurement Reporting Date using |   |
|------------------------------|--------|---------------------------------------------------|--------|
| (In thousands)               |   |                                              |   |   | (Level 1)Quoted Prices in |   |   | (Level 2)Significant |   |   | (Level 3) |   |
|                         |   |                                              |   |   | Active Markets |   |   | Other |   |   | Significant |   |
|                         |   |                                              |   |   | For Identical |   |   | Observable |   |   | Unobservable |   |
| Description                  |   | Total                                             |   |   | Assets |   |   | Inputs |   |   | Inputs |   |
| June 30, 2010                |   |                                              |   |
| Impaired Loans               |   | $                                                 | 7,115  |   |   |   |   |   | $ | 7,115 |   |   |   |   |
| Foreclosed Real Estate Owned |   |                                              | 382    |   |   |   |   |   |   | 382 |   |   |   |   |
|                         |   | $                                                 | 7,497  |   |   | $ | - |   |   | $ | 7,497 |   |   | $ | - |   |
|                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009            |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired Loans               |   | $                                                 | 7,991  |   |   |   |   |   |   | $ | 7,991 |   |   | $ | - |   |
| Foreclosed Real Estate Owned |   |                                              | 392    |   |   | $ | - |   |   |   | 392 |   |   | $ | - |   |
|                         |   | $                                                 | 8,383  |   |   | $ | - |   |   | $ | 8,383 |   |   | $ | - |   |

----

----

|                                                    |   | June 30, 2010  |            |
|---------------------------------------------------------|--------|----------------|-----------------|
|                                                    |   | Carrying Value |            |   | Valuation Allowance |   |   | CumulativeCharge-offs Recognized |   |
| Impaired loans requiring a valuation allowance     |   | $              | 2,434,000       |   |   | $ | 313,000 |   |   | $ | 565,000 |   |
| Impaired loans not requiring a valuation allowance |   |           |  4,681,000 |   |   |   | - |   |   |   |  210,000 |   |
|                                                    |   |           |            |   |   |   |   |   |   |   |   |   |
| Total                                                   |   | $              | 7,115,000       |   |   | $ | 313,000 |   |   | $ | 775,000 |   |

|                                                    |   | December 31, 2009 |            |
|---------------------------------------------------------|--------|-------------------|-----------------|
|                                                    |   | Carrying Value    |            |   | Valuation Allowance |   |   | CumulativeCharge-offs Recognized |   |
| Impaired loans requiring a valuation allowance     |   | $                 | 1,029,000       |   |   | $ | 36,000 |   |   | $ | 480,000 |   |
| Impaired loans not requiring a valuation allowance |   |              |  6,962,000 |   |   |   | - |   |   |   |  154,000 |   |
|                                                    |   |              |            |   |   |   |   |   |   |   |   |   |
| Total                                                   |   | $                 | 7,991,000       |   |   | $ | 36,000 |   |   | $ | 634,000 |   |

----

|                                                                                                                           |   | June 30, 2010   |    |   | December 31, 2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|-------------------|--------|
|                                                                                                                           |   | Carrying Amount |    |   | FairValue         |   |   | CarryingAmount |   |   | FairValue |   |
|                                                                                                                           |   | (In Thousands)  |    |
| Financial assets:                                                                                                              |   |            |    |   |              |   |   |   |   |   |   |   |
|   Cash and due from banks, interest-bearing      deposits with banks and federal funds sold |   | $               | 34,542  |   |              | $      | 34,542 |   |   | $ | 17,355 |   |   | $ | 17,355 |   |
| Securities                                                                                                                     |   |            | 141,414 |   |              |   | 141,424 |   |   |   | 131,285 |   |   |   | 131,299 |   |
| Loans receivable, net                                                                                                          |   |            | 348,512 |   |              |   | 357,850 |   |   |   | 358,021 |   |   |   | 368,180 |   |
| Investment in FHLB stock                                                                                                       |   |            | 3,538   |   |              |   | 3,538 |   |   |   | 3,538 |   |   |   | 3,538 |   |
| Accrued interest receivable                                                                                                    |   |            | 2,113   |   |              |   | 2,113 |   |   |   | 2,200 |   |   |   | 2,200 |   |
|                                                                                                                           |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                                                                                         |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                       |   |            | 407,763 |   |              |   | 409,145 |   |   |   | 391,473 |   |   |   | 392,445 |   |
| Short-term borrowings                                                                                                          |   |            | 24,378  |   |              |   | 24,378 |   |   |   | 25,803 |   |   |   | 25,803 |   |
| Other borrowings                                                                                                               |   |            | 43,000  |   |              |   | 45,781 |   |   |   | 43,000 |   |   |   | 45,591 |   |
| Accrued interest payable                                                                                                       |   |            | 1,617   |   |              |   | 1,617 |   |   |   | 2,057 |   |   |   | 2,057 |   |
|                                                                                                                           |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance sheet financial instruments:   Commitments to extend credit and  outstanding letters of credit |   |            | -       |   |              |   | - |   |   |   | - |   |   |   | - |   |

----

----

----

----

|                              |   | June 30, 2010 |      |   | December 31, 2009 |   |
|-----------------------------------|--------|---------------|-----------|--------|-------------------|--------|
| (dollars in thousands)            |   | Amount        |      |   | % of portfolio    |   |   | Amount |   |   | % of portfolio |   |
|                              |   |          |      |   |              |   |   |   |   |   |   |   |
| US Government agencies            |   | $             | 47,216    |   |              |   | 33.4 | % |   | $ | 39,772 |   |   |   | 30.3 | % |
| States and political subdivisions |   |          | 41,304    |   |              |   | 29.2 |   |   |   | 32,343 |   |   |   | 24.6 |   |
| Corporate securities              |   |          | 5,246     |   |              |   | 3.7 |   |   |   | 5,240 |   |   |   | 4.0 |   |
| Mortgage-backed securities        |   |          | 46,823    |   |              |   | 33.1 |   |   |   | 53,154 |   |   |   | 40.5 |   |
| Equity securities                 |   |          |  825 |   |              |   | 0.6 |   |   |   |  776 |   |   |   |  0.6 |   |
|   Total                 |   | $             | 141,414   |   |              |   | 100.0 | % |   | $ | 131,285 |   |   |   | 100.0 | % |

----

| Types of loansTypes of loans                                                                               |   |
|------------------------------------------------------------------------------------------------------------|--------|
|  (dollars in thousands)                                                                               |   | June 30, 2010  |   |   | December 31, 2009  |   |
|                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real Estate-Residential                                                                                    |   | $ | 125,803 |   |   |   | 35.5 | % |   | $ | 130,318 |   |   |   | 35.8 | % |
|                 Commercial |   |   | 179,599 |   |   |   | 50.7 |   |   |   | 180,266 |   |   |   | 49.5 |   |
|                 Construction    |   |   | 11,376 |   |   |   | 3.2 |   |   |   | 14,405 |   |   |   | 4.0 |   |
| Commercial, financial and agricultural                                                                     |   |   | 24,087 |   |   |   | 6.8 |   |   |   | 24,116 |   |   |   | 6.6 |   |
| Consumer loans to individuals                                                                              |   |   | 13,484 |   |   |   | 3.8 |   |   |   | 14,850 |   |   |   | 4.1 |   |
|   Total loans                                                                                    |   |   | 354,349 |   |   |   | 100.0 | % |   |   | 363,955 |   |   |   | 100.0 | % |
|                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Deferred fees (net)                                                                            |   |   | (416 | ) |   |   |   |   |   |   | (481 | ) |   |   |   |   |
|                                                                                                       |   |   | 353,933 |   |   |   |   |   |   |   | 363,474 |   |   |   |   |   |
|   Allowance for loan losses                                                                      |   |   | (5,421 | ) |   |   |   |   |   |   | (5,453 | ) |   |   |   |   |
|   Net loans receivable                                                                           |   | $ | 348,512 |   |   |   |   |   |   | $ | 358,021 |   |   |   |   |   |

|  (dollars in thousands)                                                                  |   | Three Months Ended |   |   | Six Months Ended |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                                                          |   | June 30,           |   |   | June 30,         |   |
|                                                                                          |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Balance, beginning                                                                            |   | $                  | 5,362  |   |             | $      | 4,413 |   |   | $ | 5,453 |   |   | $ | 4,233 |   |
| Provision for loan losses                                                                     |   |               | 150    |   |             |   | 220 |   |   |   | 480 |   |   |   | 445 |   |
| Charge-offs                                                                                   |   |               | (95    | )      |             |   | (80 | ) |   |   | (524 | ) |   |   | (142 | ) |
| Recoveries                                                                                    |   |               | 4      |   |             |   | 21 |   |   |   | 12 |   |   |   | 38 |   |
|   Net charge-offs                                                                   |   |               | (91    | )      |             |   | (59 | ) |   |   | (512 | ) |   |   | (104 | ) |
| Balance, ending                                                                               |   | $                  | 5,421  |   |             | $      | 4,574 |   |   | $ | 5,421 |   |   | $ | 4,574 |   |
|                                                                                          |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Allowance to total loans                                                                      |   |               | 1.53   | %      |             |   | 1.27 | % |   |   | 1.53 | % |   |   | 1.27 | % |
|   Net (charge-offs) recoveries to average loans    (annualized) |   |               | .10    | %      |             |   | .07 | % |   |   | .29 | % |   |   | .06 | % |

----

| (dollars in thousands)                                                                                                                                |   | June 30, 2010 |        |   | December 31, 2009 |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|--------|-------------------|---------|
|   Loans accounted for on a non-accrual basis:                                                                                               |   |          |        |   |              |    |
|    Commercial and all other                                                                                                            |   | $             | -           |   |              | $       | - |   |
|    Real Estate-Commercial                                                                                                              |   |          | 3,019       |   |              |    | 3,833 |   |
|                        Residential |   |          | 735         |   |              |    | 1,083 |   |
|    Consumer                                                                                                                            |   |          |  -     |   |              |    |  - |   |
|    Total                                                                                                                               |   |          | 3,754       |   |              |    | 4,916 |   |
|                                                                                                                                                  |   |          |        |   |              |    |   |   |
| Accruing loans which are contractually                                                                                                                |   |          |        |   |              |    |   |   |
|   past due 90 days or more                                                                                                                  |   |          |  0     |   |              |    |  99 |   |
| Total non-performing loans                                                                                                                            |   |          | 3,754       |   |              |    | 5,015 |   |
| Foreclosed real estate                                                                                                                                |   |          |  382   |   |              |    |  392 |   |
| Total non-performing assets                                                                                                                           |   | $             | 4,136       |   |              | $       | 5,407 |   |
| Allowance for loans losses                                                                                                                            |   | $        | 5,421       |   |              | $  |  5,453 |   |
| Coverage of non-performing loans                                                                                                                      |   |          |  1.44x |   |              |    | 1.09x |   |
| Non-performing loans to total loans                                                                                                                   |   |          | 1.06        | %      |              |    | 1.38 | % |
| Non-performing loans to total assets                                                                                                                  |   |          | .69         | %      |              |    | .95 | % |
| Non-performing assets to total assets                                                                                                                 |   |          | .76         | %      |              |    | 1.02 | % |

----

| (dollars in thousands)              |   | June 30, 2010 |         |   | December 31, 2009 |   |
|-------------------------------------|--------|---------------|--------------|--------|-------------------|--------|
|                                |   |          |         |   |              |   |
| Non-interest bearing demand         |   | $             | 63,408       |   |              | $      | 59,820 |   |
| Interest bearing demand             |   |          | 41,314       |   |              |   | 34,410 |   |
| Money market deposit accounts       |   |          | 73,510       |   |              |   | 60,035 |   |
| Savings                             |   |          | 49,274       |   |              |   | 44,423 |   |
| Time deposits <$100,000          |   |          | 117,864      |   |              |   | 126,154 |   |
| Time deposits >$100,000          |   |          |  62,393 |   |              |   |  66,631 |   |
|                                |   |          |         |   |              |   |   |   |
|      Total |   | $             | 407,763      |   |              | $      | 391,473 |   |
|                                |   |          |         |   |              |   |   |   |

|                                           |   | June 30, 2010 |     |   | December 31, 2009 |   |
|------------------------------------------------|--------|---------------|----------|--------|-------------------|--------|
| (dollars in thousands)                         |   |          |     |   |              |   |
| Securities sold under agreements to repurchase |   | $             | 24,291   |   |              | $      | 25,606 |   |
| U.S. Treasury demand notes                     |   |          |  87 |   |              |   |  197 |   |
|                                           |   | $             | 24,378   |   |              | $      | 25,803 |   |

|                                        |   | June 30, 2010 |   |   | December 31, 2009 |   |
|---------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
| Notes with the FHLB:                        |   |          |   |   |              |   |
| Fixed rate note due September 2010 at 3.53% |   | $             | 5,000  |   |              | $      | 5,000 |   |
| Convertible note due January 2011 at 5.24%  |   |          | 3,000  |   |              |   | 3,000 |   |
| Convertible note due August 2011 at 2.69%   |   |          | 10,000 |   |              |   | 10,000 |   |
| Fixed rate note due September 2011 at 4.06% |   |          | 5,000  |   |              |   | 5,000 |   |
| Convertible note due October 2012 at 4.37%  |   |          | 5,000  |   |              |   | 5,000 |   |
| Convertible note due May 2013 at 3.015%     |   |          | 5,000  |   |              |   | 5,000 |   |
| Convertible note due January 2017 at 4.71%  |   |          | 10,000 |   |              |   | 10,000 |   |
|                                        |   | $             | 43,000 |   |              | $      | 43,000 |   |

----

|                                       |   | June 30,  2010 |   |   | December 31, 2009 |   |
|--------------------------------------------|--------|--------------------------|--------|--------|-------------------|--------|
|                                       |   | (in thousands)           |   |
| Commitments to grant loans                 |   | $                        | 15,908 |   |              | $      | 17,713 |   |
| Unfunded commitments under lines of credit |   |                     | 33,915 |   |              |   | 36,809 |   |
| Standby letters of credit                  |   |                     | 3,269  |   |              |   |  3,679 |   |
|                                       |   |                     |   |   |              |   |   |   |
|                                       |   | $                        | 53,092 |   |              | $      | 58,201 |   |
|                                       |   |                     |   |   |              |   |   |   |

|                                              |   |          |   |   |              |   |
|---------------------------------------------------|--------|---------------|--------|--------|-------------------|--------|
|                                              |   | June 30, 2010 |   |   | December 31, 2009 |   |
| Tier 1 Capital                                    |   |          |   |   |              |   |
|     (To average assets)       |   |          | 12.05  | %      |              |   | 11.53 | % |
| Tier 1 Capital                                    |   |          |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |          | 17.86  | %      |              |   | 16.55 | % |
| Total Capital                                     |   |          |   |   |              |   |   |   |
|     (To risk-weighted assets) |   |          | 19.18  | %      |              |   | 17.85 | % |
|                                              |   |          |   |   |              |   |   |   |

----

----

| (Tax-Equivalent Basis, dollars in thousands)                                            |   |  Three Months Ended June 30, |    |
|-----------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                    |   | 2010                              |    |   | 2009 |   |
|                                                                                    |   | AverageBalance(2)                 |    |   | Interest(1) |   |   | Average Rate(3) |   |   | AverageBalance(2) |   |   | Interest(1) |   |   | Average Rate(3) |   |
| Assets                                                                                  |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                                                      |   | $                                 | 3,000   |   |   | $ | 2 |   |   |   | 0.33 | % |   | $ | 1,082 |   |   | $ | 1 |   |   |   | 0.37 | % |
|    Interest bearing deposits with banks                                  |   |                              | 22,263  |   |   |   | 15 |   |   |   | 0.27 |   |   |   | 512 |   |   |   | - |   |   |   | - |   |
|    Securities held-to-maturity                                           |   |                              | 169     |   |   |   | 3 |   |   |   | 8.12 |   |   |   | 707 |   |   |   | 16 |   |   |   | 9.05 |   |
|    Securities available for sale:                                        |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Taxable                                                   |   |                              | 95,367  |   |   |   | 782 |   |   |   | 3.28 |   |   |   | 99,290 |   |   |   | 1,032 |   |   |   | 4.16 |   |
|      Tax-exempt(1)                                             |   |                              | 36,795  |   |   |   | 541 |   |   |   | 5.88 |   |   |   | 28,589 |   |   |   | 398 |   |   |   | 5.57 |   |
|         Total securities available for sale (1) |   |                              | 132,162 |   |   |   | 1,323 |   |   |   | 4.00 |   |   |   | 127,879 |   |   |   | 1,430 |   |   |   | 4.47 |   |
|      Loans receivable (4) (5)                                  |   |                              | 353,468 |   |   |   | 5,267 |   |   |   | 5.96 |   |   |   | 354,284 |   |   |   | 5,466 |   |   |   | 6.17 |   |
|         Total interest earning assets           |   |                              | 511,062 |   |   |   | 6,610 |   |   |   | 5.17 |   |   |   | 484,464 |   |   |   | 6,913 |   |   |   | 5.71 |   |
| Non-interest earning assets:                                                            |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and due from banks                                               |   |                              | 7,295   |   |   |   |   |   |   |   |   |   |   |   | 6,932 |   |   |   |   |   |   |   |   |   |
|    Allowance for loan losses                                             |   |                              | (5,414  | ) |   |   |   |   |   |   |   |   |   |   | (4,483 | ) |   |   |   |   |   |   |   |   |
|    Other assets                                                          |   |                              | 22,129  |   |   |   |   |   |   |   |   |   |   |   | 17,263 |   |   |   |   |   |   |   |   |   |
|         Total non-interest earning assets       |   |                              | 24,010  |   |   |   |   |   |   |   |   |   |   |   | 19,712 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                            |   | $                                 | 535,072 |   |   |   |   |   |   |   |   |   |   | $ | 504,176 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                    |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                           |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Interest bearing demand and money     market |   | $                                 | 108,011 |   |   |   | 97 |   |   |   | 0.36 |   |   | $ | 100,663 |   |   |   | 183 |   |   |   | 0.73 |   |
|    Savings                                                               |   |                              | 48,355  |   |   |   | 29 |   |   |   | 0.24 |   |   |   | 45,053 |   |   |   | 42 |   |   |   | 0.37 |   |
|    Time                                                                  |   |                              | 181,163 |   |   |   | 921 |   |   |   | 2.03 |   |   |   | 167,474 |   |   |   | 1,195 |   |   |   | 2.85 |   |
|       Total interest bearing deposits                     |   |                              | 337,529 |   |   |   | 1,047 |   |   |   | 1.24 |   |   |   | 313,190 |   |   |   | 1,420 |   |   |   | 1.81 |   |
| Short-term borrowings                                                                   |   |                              | 22,605  |   |   |   | 81 |   |   |   | 1.43 |   |   |   | 23,558 |   |   |   | 73 |   |   |   | 1.24 |   |
| Other borrowings                                                                        |   |                              | 43,000  |   |   |   | 416 |   |   |   | 3.87 |   |   |   | 43,000 |   |   |   | 415 |   |   |   | 3.86 |   |
|    Total interest bearing liabilities                                    |   |                              | 403,134 |   |   |   | 1,544 |   |   |   | 1.53 |   |   |   | 379,748 |   |   |   | 1,908 |   |   |   | 2.01 |   |
| Non-interest bearing liabilities:                                                       |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Demand deposits                                                       |   |                              | 61,528  |   |   |   |   |   |   |   |   |   |   |   | 58,710 |   |   |   |   |   |   |   |   |   |
|    Other liabilities                                                     |   |                              | 4,306   |   |   |   |   |   |   |   |   |   |   |   | 4,631 |   |   |   |   |   |   |   |   |   |
|       Total non-interest bearing liabilities              |   |                              | 65,834  |   |   |   |   |   |   |   |   |   |   |   | 63,341 |   |   |   |   |   |   |   |   |   |
|    Stockholders' equity                                                  |   |                              | 66,104  |   |   |   |   |   |   |   |   |   |   |   | 61,087 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity                                              |   | $                                 | 535,072 |   |   |   |   |   |   |   |   |   |   | $ | 504,176 |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (tax equivalent basis)                                              |   |                              |    |   |   |   | 5,066 |   |   |   | 3.64 | % |   |   |   |   |   |   | 5,005 |   |   |   | 3.70 | % |
| Tax-equivalent basis adjustment                                                         |   |                              |    |   |   |   | (234 | ) |   |   |   |   |   |   |   |   |   |   | (170 | ) |   |   |   |   |
| Net interest income                                                                     |   |                              |    |   |   | $ | 4,832 |   |   |   |   |   |   |   |   |   |   | $ | 4,835 |   |   |   |   |   |
| Net interest margin (tax equivalent basis)                                              |   |                              |    |   |   |   |   |   |   |   | 3.96 | % |   |   |   |   |   |   |   |   |   |   | 4.13 | % |

| (2) | Average balances have been calculated based on daily balances. |
|-----|----------------------------------------------------------------|

| (3) | Annualized |
|-----|------------|

| (4)   | Loan balances include non-accrual loans and are net of unearned income. |
|-----------------|-------------------------------------------------------------------------|

| (5)   | Loan yields include the effect of amortization of deferred fees, net of costs. |
|-----------------|--------------------------------------------------------------------------------|

----

|                                                               |   | Increase/(Decrease)                                                                                     |      |
|--------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|-----------|
|                                                               |   | Three months ended June 30, 2010 Compared to Three months ended June 30, 2009 Variance due to |      |
|                                                               |   | Volume                                                                                                  |      |   | Rate |   |   | Net |   |
|                                                               |   | (dollars in thousands)                                                                                  |      |
| Interest earning assets:                                           |   |                                                                                                    |      |   |   |   |   |   |   |
| Federal funds sold......................................           |   | $                                                                                                       | 2         |   |   | $ | (1 | ) |   | $ | 1 |   |
| Interest bearing deposits with banks.............. |   |                                                                                                    | 14        |   |   |   | 1 |   |   |   | 15 |   |
| Securities held to maturity............................            |   |                                                                                                    | (11       | ) |   |   | (2 | ) |   |   | (13 | ) |
| Securities available for sale:                                     |   |                                                                                                    |      |   |   |   |   |   |   |   |   |   |
| Taxable...................................................         |   |                                                                                                    | (39       | ) |   |   | (211 | ) |   |   | (250 | ) |
| Tax-exempt securities..................................            |   |                                                                                                    |  120 |   |   |   | 23 |   |   |   | 143 |   |
| Total securities..........................................         |   |                                                                                                    | 81        |   |   |   | (188 | ) |   |   | (107 | ) |
| Loans receivable........................................           |   |                                                                                                    | (13       | ) |   |   | (186 | ) |   |   | (199 | ) |
| Total interest earning assets...........................           |   |                                                                                                    |  73  |   |   |   | (376 | ) |   |   | (303 | ) |
|                                                               |   |                                                                                                    |      |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                      |   |                                                                                                    |      |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand and money market....                   |   |                                                                                                    | 83        |   |   |   | (169 | ) |   |   | (86 | ) |
| Savings................................................            |   |                                                                                                    | 18        |   |   |   | (31 | ) |   |   | (13 | ) |
| Time...................................................            |   |                                                                                                    |  548 |   |   |   | (822 | ) |   |   | (274 | ) |
| Total interest bearing deposits.......................             |   |                                                                                                    | 649       |   |   |   | (1,022 | ) |   |   | (373 | ) |
| Short-term borrowings................................              |   |                                                                                                    | (17       | ) |   |   | 25 |   |   |   | 8 |   |
| Other borrowings......................................             |   |                                                                                                    |  -   |   |   |   | 1 |   |   |   | 1 |   |
| Total interest bearing liabilities.....................            |   |                                                                                                    |  632 |   |   |   | (996 | ) |   |   | (364 | ) |
| Net interest income (tax-equivalent basis).........                |   | $                                                                                                       | (559      | ) |   | $ | 620 |   |   | $ | 61 |   |
|                                                               |   |                                                                                                    |      |   |   |   |   |   |   |   |   |   |

----

| (dollars in thousands)                                 |   | Three months endedJune 30, 2010 to June 30, 2009 |   |
|--------------------------------------------------------|--------|--------------------------------------------------|--------|
| Net income three months ended June 30, 2009            |   | $                                                | 1,749  |   |
| Change due to:                                         |   |                                             |   |   |
| Net interest income                                    |   |                                             | (3     | ) |
| Provision for loan losses                              |   |                                             | 70     |   |
| Gain on sales of loans, securities & deposits      |   |                                             | (99    | ) |
| Other income                                           |   |                                             | (53    | ) |
| Salaries and employee benefits                         |   |                                             | 23     |   |
| Occupancy, furniture and equipment                     |   |                                             | (29    | ) |
| FDIC insurance assessment                              |   |                                             | 240    |   |
| Professional fees                                      |   |                                             | (34    | ) |
| All other expenses                                     |   |                                             | (56    | ) |
| Income tax expense                                     |   |                                             | 10     |   |
|                                                   |   |                                             |   |   |
| Net income three months ended  June 30, 2010 |   | $                                                | 1,818  |   |
|                                                   |   |                                             |   |   |

----

----

| (Tax-Equivalent Basis, dollars in thousands)                                            |   |   Six Months Ended June 30, |    |
|-----------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                    |   | 2010                             |    |   | 2009 |   |
|                                                                                    |   | AverageBalance(2)                |    |   | Interest(1) |   |   | Average  Rate(3) |   |   | AverageBalance(2) |   |   | Interest(1) |   |   | Average  Rate(3) |   |
| Assets                                                                                  |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Federal funds sold                                                    |   | $                                | 3,000   |   |   | $ | 5 |   |   |   | 0.33 | % |   | $ | 2,048 |   |   | $ | 3 |   |   |   | 0.29 | % |
|    Interest bearing deposits with banks                                  |   |                             | 16,805  |   |   |   | 24 |   |   |   | 0.28 |   |   |   | 3,067 |   |   |   | 4 |   |   |   | 0.26 |   |
|    Securities held-to-maturity (1)                                  |   |                             | 392     |   |   |   | 17 |   |   |   | 8.61 |   |   |   | 707 |   |   |   | 31 |   |   |   | 8.77 |   |
|    Securities available for sale:                                        |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Taxable                                                   |   |                             | 96,425  |   |   |   | 1,685 |   |   |   | 3.49 |   |   |   | 100,847 |   |   |   | 2,174 |   |   |   | 4.31 |   |
|      Tax-exempt(1)                                             |   |                             | 34,384  |   |   |   | 1,009 |   |   |   | 5.87 |   |   |   | 27,039 |   |   |   | 770 |   |   |   | 5.70 |   |
|         Total securities available for sale (1) |   |                             | 130,809 |   |   |   | 2,694 |   |   |   | 4.12 |   |   |   | 127,886 |   |   |   | 2,944 |   |   |   | 4.60 |   |
|      Loans receivable (4) (5)                                  |   |                             | 356,088 |   |   |   | 10,718 |   |   |   | 6.02 |   |   |   | 352,807 |   |   |   | 10,782 |   |   |   | 6.11 |   |
|         Total interest earning assets           |   |                             | 507,094 |   |   |   | 13,458 |   |   |   | 5.31 |   |   |   | 486,515 |   |   |   | 13,764 |   |   |   | 5.66 |   |
| Non-interest earning assets:                                                            |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and due from banks                                               |   |                             | 7,027   |   |   |   |   |   |   |   |   |   |   |   | 6,804 |   |   |   |   |   |   |   |   |   |
|    Allowance for loan losses                                             |   |                             | (5,426  | ) |   |   |   |   |   |   |   |   |   |   | (4,400 | ) |   |   |   |   |   |   |   |   |
|    Other assets                                                          |   |                             | 22,176  |   |   |   |   |   |   |   |   |   |   |   | 17,458 |   |   |   |   |   |   |   |   |   |
|    Total non-interest earning assets                                     |   |                             | 23,777  |   |   |   |   |   |   |   |   |   |   |   | 19,862 |   |   |   |   |   |   |   |   |   |
| Total Assets                                                                            |   | $                                | 530,871 |   |   |   |   |   |   |   |   |   |   | $ | 506,377 |   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                    |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                           |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Interest bearing demand and money     market      |   | $                                | 102,643 |   |   |   | 297 |   |   |   | 0.58 |   |   | $ | 99,281 |   |   |   | 383 |   |   |   | 0.77 |   |
|    Savings                                                               |   |                             | 47,218  |   |   |   | 57 |   |   |   | 0.24 |   |   |   | 44,880 |   |   |   | 83 |   |   |   | 0.37 |   |
|    Time                                                                  |   |                             | 184,047 |   |   |   | 1,947 |   |   |   | 2.12 |   |   |   | 167,467 |   |   |   | 2,455 |   |   |   | 2.93 |   |
|       Total interest bearing deposits                     |   |                             | 333,908 |   |   |   | 2,301 |   |   |   | 1.38 |   |   |   | 311,628 |   |   |   | 2,921 |   |   |   | 1.87 |   |
| Short-term borrowings                                                                   |   |                             | 23,717  |   |   |   | 61 |   |   |   | .51 |   |   |   | 29,396 |   |   |   | 169 |   |   |   | 1.15 |   |
| Other borrowings                                                                        |   |                             | 43,000  |   |   |   | 827 |   |   |   | 3.85 |   |   |   | 43,000 |   |   |   | 827 |   |   |   | 3.85 |   |
|    Total interest bearing liabilities                                    |   |                             | 400,625 |   |   |   | 3,189 |   |   |   | 1.59 |   |   |   | 384,024 |   |   |   | 3,917 |   |   |   | 2.04 |   |
| Non-interest bearing liabilities:                                                       |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Demand deposits                                                       |   |                             | 60,057  |   |   |   |   |   |   |   |   |   |   |   | 57,507 |   |   |   |   |   |   |   |   |   |
|    Other liabilities                                                     |   |                             | 4,289   |   |   |   |   |   |   |   |   |   |   |   | 4,459 |   |   |   |   |   |   |   |   |   |
|       Total non-interest bearing liabilities              |   |                             | 64,346  |   |   |   |   |   |   |   |   |   |   |   | 61,966 |   |   |   |   |   |   |   |   |   |
|    Stockholders' equity                                                  |   |                             | 65,900  |   |   |   |   |   |   |   |   |   |   |   | 60,387 |   |   |   |   |   |   |   |   |   |
| Total Liabilities and Stockholders' Equity                                              |   | $                                | 530,871 |   |   |   |   |   |   |   |   |   |   | $ | 506,377 |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (tax equivalent basis)                                              |   |                             |    |   |   |   | 10,269 |   |   |   | 3.72 | % |   |   |   |   |   |   | 9,847 |   |   |   | 3.62 | % |
| Tax-equivalent basis adjustment                                                         |   |                             |    |   |   |   | (440 | ) |   |   |   |   |   |   |   |   |   |   | (331 | ) |   |   |   |   |
| Net interest income                                                                     |   |                             |    |   |   | $ | 9,829 |   |   |   |   |   |   |   |   |   |   | $ | 9,516 |   |   |   |   |   |
| Net interest margin (tax equivalent basis)                                              |   |                             |    |   |   |   |   |   |   |   | 4.05 | % |   |   |   |   |   |   |   |   |   |   | 4.05 | % |

| (2) | Average balances have been calculated based on daily balances. |
|-----|----------------------------------------------------------------|

| (3) | Annualized |
|-----|------------|

----

|                                       |   | Increase/(Decrease) Six Months Ended June 30, 2010 Compared toSix Months Ended June 30, 2009Variance due to |      |
|--------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|-----------|
|                                       |   | Volume                                                                                                 |      |   | Rate  |   |   | Net  |   |
|                                       |   | (dollars in thousands)                                                                                      |      |
| Interest earning assets:                   |   |                                                                                                        |      |   |   |   |   |   |   |
| Federal funds sold                         |   | $                                                                                                           | 2         |   |   | $ | 0 |   |   | $ | 2 |   |
| Interest bearing deposits with banks       |   |                                                                                                        | 19        |   |   |   | 1 |   |   |   | 20 |   |
| Securities held to maturity                |   |                                                                                                        | (14       | ) |   |   | 0 |   |   |   | (14 | ) |
| Securities available for sale:             |   |                                                                                                        |      |   |   |   |   |   |   |   |   |   |
| Taxable                                    |   |                                                                                                        | (92       | ) |   |   | (397 | ) |   |   | (489 | ) |
| Tax-exempt securities                      |   |                                                                                                        | 215       |   |   |   | 24 |   |   |   | 239 |   |
| Total securities                           |   |                                                                                                        | 123       |   |   |   | (373 | ) |   |   | (250 | ) |
| Loans receivable                           |   |                                                                                                        |  224 |   |   |   | (288 | ) |   |   | (64 | ) |
| Total interest earning assets              |   |                                                                                                        | 354       |   |   |   | (660 | ) |   |   | (306 | ) |
|                                       |   |                                                                                                        |      |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:              |   |                                                                                                        |      |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand and money market   |   |                                                                                                        | 35        |   |   |   | (122 | ) |   |   | (87 | ) |
| Savings                                    |   |                                                                                                        | 12        |   |   |   | (38 | ) |   |   | (26 | ) |
| Time                                       |   |                                                                                                        | 584       |   |   |   | (1,091 | ) |   |   | (507 | ) |
| Total interest bearing deposits            |   |                                                                                                        | 631       |   |   |   | (1,251 | ) |   |   | (620 | ) |
| Short-term borrowings                      |   |                                                                                                        | (28       | ) |   |   | (80 | ) |   |   | (108 | ) |
| Other borrowings                           |   |                                                                                                        |  0   |   |   |   |  0 |   |   |   | 0 |   |
| Total interest bearing liabilities         |   |                                                                                                        |  603 |   |   |   | (1,331 | ) |   |   | (728 | ) |
| Net interest income (tax-equivalent basis) |   | $                                                                                                           | (249      | ) |   | $ | 671 |   |   | $ | 422 |   |
|                                       |   |                                                                                                        |      |   |   |   |   |   |   |   |   |   |

----

|                                                 |   | Six Months EndedJune 30, 2010 to June 30, 2009 |     |
|------------------------------------------------------|--------|------------------------------------------------|----------|
| (dollars in thousands)                               |   |                                           |     |
| Net income six months ended June 30, 2009            |   | $                                              | 3,486    |   |
|                                                 |   |                                           |     |   |
| Change due to:                                       |   |                                           |     |   |
| Net interest income                                  |   |                                           | 313      |   |
| Provision for loan losses                            |   |                                           | (35      | ) |
| Gain on sales of loans, securities & deposits    |   |                                           | (313     | ) |
| Other income                                         |   |                                           | (118     | ) |
| Salaries and employee benefits                       |   |                                           | 22       |   |
| Occupancy, furniture and equipment expense, net      |   |                                           | 62       |   |
| FDIC insurance assessment                            |   |                                           | 248      |   |
| All other expenses                                   |   |                                           | (73      | ) |
| Income tax expense                                   |   |                                           |  23 |   |
|                                                 |   |                                           |     |   |
| Net income six months ended  June 30, 2010 |   | $                                              | 3,615    |   |
|                                                 |   |                                           |     |   |

----

----

|                                             |   | 3 Months |    |   | 3-12 Months |   |    | 1 to 3 Years |   |   | Over3 Years |   |   | Total  |    |
|--------------------------------------------------|--------|----------|---------|--------|-------------|--------|---------|--------------|--------|--------|-------------|--------|--------|--------|---------|
| Federal funds sold and interest bearing deposits |   | $        | 28,113  |   |        | $      | --      |         |   | $      | 250         |   |   | $      | --      |   |   | $ | 28,363 |   |
| Securities                                       |   |     | 16,382  |   |        |   | 33,922  |         |   |   | 41,445      |   |   |   | 49,189  |   |   |   | 140,938 |   |
| Loans Receivable                                 |   |     | 79,187  |   |        |   | 61,406  |         |   |   | 94,000      |   |   |   | 119,340 |   |   |   | 353,933 |   |
|   Total RSA                            |   |     | 123,682 |   |        |   | 95,328  |         |   |   | 135,695     |   |   |   | 168,529 |   |   |   | 523,234 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| Non-maturity interest-bearing deposits           |   |     | 25,938  |   |        |   | 29,089  |         |   |   | 76,591      |   |   |   | 32,479  |   |   |   | 164,097 |   |
| Time Deposits                                    |   |     | 43,093  |   |        |   | 73,718  |         |   |   | 47,849      |   |   |   | 15,598  |   |   |   | 180,258 |   |
| Other                                            |   |     | 10,660  |   |        |   | 11,193  |         |   |   | 35,525      |   |   |   | 10,000  |   |   |   | 67,378 |   |
|   Total RSL                            |   |     | 79,691  |   |        |   | 114,000 |         |   |   | 159,965     |   |   |   | 58,077  |   |   |   | 411,733 |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| Interest Sensitivity Gap                         |   | $        | 43,991  |   |        | $      | (18,672 | )            |   | $      | (24,270     | )      |   | $      | 110,452 |   |   | $ | 111,501 |   |
| Cumulative Gap                                   |   |     | 43,991  |   |        |   | 25,319  |         |   |   | 1,049       |   |   |   | 111,501 |   |   |   |   |   |
| RSA/RSL-cumulative                               |   |     | 155.2   | %      |        |   | 113.1   | %            |   |   | 100.3       | %      |   |   | 127.1   | % |   |   |   |   |
|                                             |   |     |    |   |        |   |    |         |   |   |        |   |   |   |    |   |   |   |   |   |
| 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:August 6, 2010      |   |                                      |
|                                  |   |                                      |    By: |     /s/ Lewis J. Critelli |
|                                  |   |                                      |   |     Lewis J. Critelli |
|                                  |   |                                      |   |     President and Chief Executive Officer |
|                                  |   |                                      |   |     (Principal Executive Officer) |
|                                  |   |                                      |   |   |
|                                  |   |                                      |   |   |
|                                  |   |                                      |   |   |
|    Date:August 6, 2010 |   |    By:                          |     /s/ William S. Lance |
|                                  |   |                                      |   |    William S. Lance |
|                                  |   |                                      |   |     Senior Vice President, and |
|                                  |   |                                      |   |     Chief Financial Officer |
|                                  |   |                                      |   |     (Principal Financial Officer) |