EMPLOYMENT AGREEMENT

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         THIS AGREEMENT  entered into this 3rd day of March 2006 (the "Effective

                                           ---        ----------

Date"), by and between William W. Davis, Jr. (the  "Employee"),  Wayne Bank (the

"Bank"), and Norwood Financial Corp. (the "Company").



         WHEREAS,  the  Executive  continues  to serve the bank in an  executive

capacity under the terms and conditions set forth in this agreement; and



         WHEREAS,  the Employee has heretofore  been employed by the Bank as its

Chief Executive  Officer and is experienced in all phases of the business of the

Bank; and



         WHEREAS, the Boards of Directors of the Bank and of the Company believe

it is in their  mutual  best  interests  to enter into this  Agreement  with the

Employee  in order to assure  continuity  of  management  and to  reinforce  and

encourage the continued attention and dedication of the Employee to his assigned

duties; and



         WHEREAS, the parties desire by this writing to set forth the continuing

employment relationship of the Employee, the Bank and the Company.



         NOW, THEREFORE, it is AGREED as follows:



Description of Duties:  The Executive shall initially serve as the President and

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Chief Executive Officer of the Bank, reporting only to the Board of Directors of

the Bank; shall have supervision and control over, and  responsibility  for, the

general  management  and operation of the Bank; and shall have such other powers

and duties as may from time to time be  prescribed  by the Board of Directors of

the Bank, provided that such duties are consistent with the Executive's position

as the President and Chief Executive Officer in charge of the general management

of the Bank.



         1.     Defined Terms

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         When used anywhere in this  Agreement,  the following  terms shall have

the meaning set forth herein.



                     (a) "Change in Control" shall mean any one of the following

events: (i) the acquisition of ownership, holding or power to vote more than 25%

of the Bank's or the Company's voting stock, (ii) the acquisition of the ability

to control the election of a majority of the Bank's or the Company's  directors,

(iii) the acquisition of a controlling influence over the management or policies

of the Bank or the  Company  by any  person  or by  persons  acting as a "group"

(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or

(iv) during any period of two consecutive  years,  individuals  (the "Continuing

Directors")  who at the  beginning  of  such  period  constitute  the  Board  of

Directors of the Bank or the Company (the "Existing Board") cease for any reason

to constitute at least  two-thirds  thereof,  provided that any individual whose

election  or  nomination  for  election  as a member of the  Existing  Board was





{PAGE}



approved by a vote of at least  two-thirds of the  Continuing  Directors then in

office shall be considered a Continuing Director. Notwithstanding the foregoing,

in the case of (i), (ii) and (iii)  hereof,  ownership or control of the Bank by

the Company  itself shall not  constitute  a Change in Control.  For purposes of

this paragraph only, the term "person" refers to an individual or a corporation,

partnership,   trust,   association,   joint  venture,  pool,  syndicate,   sole

proprietorship,  unincorporated  organization  or any other  form of entity  not

specifically listed herein.



                     (b) "Code" shall mean the Internal Revenue Code of 1986, as

amended from time to time, and as  interpreted  through  applicable  rulings and

regulations in effect from time to time.



                     (c) "Code ss.280G  Maximum"  shall mean the product of 2.99

and the Executive's "base amount" as defined in Code ss.280G(b)(3).



                     (d) "Good Reason"  shall mean any of the following  events,

which has not been  consented to in advance by the Employee in writing:  (I) the

requirement  that the  Employee  move his  personal  residence,  or perform  his

principal  executive  functions,  more than sixty  (60)  miles from his  primary

office as of the date of the Change in Control; (ii) a material reduction in the

Employee's  base  compensation as in effect on the date of the Change in Control

or as the same may be increased from time to time; (iii) the failure by the Bank

or the  Company to  continue  to provide  the  Employee  with  compensation  and

benefits  provided for on the date of the Change in Control,  as the same may be

increased  from time to time,  or with benefits  substantially  similar to those

provided to him under any of the  employee  benefit  plans in which the Employee

now or hereafter becomes a participant,  or the taking of any action by the Bank

or the Company which would directly or indirectly reduce any of such benefits or

deprive the Employee of any material  fringe benefit  enjoyed by him at the time

of the Change in Control or within the protected period;  (iv) the assignment to

the  Employee of duties and  responsibilities  materially  different  from those

normally  associated  with his  position;  (v) a failure to elect or reelect the

Employee to the Board of Directors  of the Bank or the Company,  if the Employee

is serving on such Board on the date of the Change in  Control;  (vi) a material

diminution  or  reduction  in  the  Employee's   responsibilities  or  authority

(including  reporting  responsibilities)  in connection with his employment with

the Bank or the Company;  or (vii) a material  reduction in the  secretarial  or

other administrative support of the Employee. In addition,  "Good Reasons" shall

mean an impairment of the Employee's health to an extent that it makes continued

performance of his duties hereunder hazardous to his physical or mental health.



                     (e) "Protected Period" shall mean the period that begins on

the date six  months  before a Change  in  Control  and ends on the later of the

first annual anniversary of the Change in Control or the expiration date of this

Agreement.



                                      -2-



{PAGE}



         2. Employment.  The Employee is employed as the Chief Executive Officer

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of the Bank and of the Company. In each capacity, the Employee shall render such

administrative  and  management  services  for the Bank and the  Company  as are

currently  rendered and as are  customarily  performed by persons  situated in a

similar executive capacity. The Employee shall also promote, by entertainment or

otherwise,  as and to the extent  permitted by law, the business of the Bank and

the  Company.  The  Employee's  other  duties  shall  be such as the  Boards  of

Directors of the Bank and the Company may from time to time  reasonably  direct,

including normal duties as an officer of the Bank.



         3. Base  Compensation.  The Bank agrees to pay the Employee  during the

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term of this Agreement a salary at the rate of $226,000.00 per annum, payable in

cash not less frequently than monthly.  The Board of Directors of the Bank shall

review,  not less often than annually,  the rate of the Employee's  salary,  and

shall  increase the  employee's  base salary by no less than $6,000.00 per year.

The Company  hereby  agrees  that,  in lieu of paying the Employee a base salary

during the term of this Agreement, it shall be jointly and severally liable with

the Bank for the payment of all amounts due under this Agreement.  Nevertheless,

the Board of Directors of the Company may in its  discretion  at any time during

the term of this  Agreement  agree to pay the  Employee  a base  salary  for the

remaining  term of this  Agreement.  If the Board of  Directors  of the  Company

agrees to pay such salary,  the Board shall  thereafter  review,  not less often

than annually, the rate of the Employee's salary, and in its sole discretion may

decide to increase his salary.



         Notwithstanding  the  foregoing,  following  a Change in  Control,  the

Boards of  Directors  of the Bank and the  Company  shall  continue  to annually

review the rate of the Employee's salary, and shall increase said rate of salary

by a percentage which is not less than the average annual percentage increase in

salary that the Employee  received  over the three  calendar  years  immediately

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