**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM10-Q**

 
| **ý**                                                                                                                                                                                                                                                                                                  | **Quarterly Report pursuant to Section 13 or 15  (d) of the Securities Exchange**   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                  | **Act of 1934 for the Quarterly Period Ended June  30, 2004,**                      |
|                                                                                                                                                                                                                                                                                                        |                                                                                |
| **o**                                                                                                                                                                                                                                                                                                       | **Transition report pursuant to Section 13 or 15  (d) of the Exchange Act for the** |
|                                                                                                                                                                                                                                                                                                        |                                                                                |
| **Transition Period from                          to                        .** |
|                                                                                                                                                                                                                                                                                                        |
| **No. 0-17077**                                                                                                                                                                                                                                                                                             |
| **(Commission File Number)**                                                                                                                                                                                                                                                                                |

 

**PENNSWOODS BANCORP, INC.**

(Exact name of Registrant as specified in its charter)

 

| **PENNSYLVANIA**                                                | ** ** | **23-2226454**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **300 Market Street, Williamsport, Pennsylvania**               |       | **17701**                             |
| (Address of principal executive offices)                        |       | (Zip Code)                            |
|                                                            |       |                                  |
| **(570) 322-1111**                                              |
| Registrant’s telephone number, including area code         |

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.

 

YES ý              NO o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12 b-2 of theExchange Act)

 

YES ý              NO o

 

On August 9, 2004 there were3,319,457 of the Registrant’s common stock outstanding.

 

 

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**PENNS WOODS BANCORP, INC.**

**INDEX TO QUARTERLY REPORT ON FORM 10-Q**

 
| **Part I Financial Information** | ** **                                                                                                            |
|----------------------------------|-----------------------------------------------------------------------------------------------------------------------|
| ** **                       | ** **                                                                                                            |
| **Item 1.**                      | **Financial Statements**                                                                                              | ** ** |
| ** **                       | ** **                                                                                                            |
|                             | Consolidated Balance Sheet  (unaudited) as of June 30, 2004 and December 31, 2003                                     |   |
|                             |                                                                                                                  |   |
|                             | Consolidated Statement of Income  (unaudited) for the Three And Six Months ended June 30, 2004 and 2003               |   |
|                             |                                                                                                                  |   |
|                             | Consolidated Statement of Comprehensive  Income (unaudited) For the Three and Six Months ended June 30, 2004 and 2003 |   |
|                             |                                                                                                                  |   |
|                             | Consolidated Statement of Changes in  Shareholders’ Equity (unaudited) for the Six Months ended June 30, 2004    |   |
|                             |                                                                                                                  |   |
|                             | Consolidated Statement of Cash Flows  (unaudited) for the Six Months ended June 30, 2004 and 2003                     |   |
|                             |                                                                                                                  |   |
|                             | Notes to Consolidated Financial Statements                                                                            |   |
|                             |                                                                                                                  | ** ** |
| **Item  2.**                     | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                       | ** ** |
|                             |                                                                                                                  |   |
| **Item  3.**                     | **Quantitative  and Qualitative Disclosure About Market Risk**                                                        | ** ** |
| ** **                       | ** **                                                                                                            | ** ** |
| **Item 4.**                      | **Controls and Procedures**                                                                                           | ** ** |
| ** **                       | ** **                                                                                                            | ** ** |
| **Part II**                      | **Other Information**                                                                                                 | ** ** |
| ** **                       | ** **                                                                                                            |
| **Item 1.**                      | **Legal Proceedings**                                                                                                 |   |
| **Item 2.**                      | **Changes in Securities, Use of Proceeds, and  Issuer Purchases of Equity Securites**                                 |   |
| **Item 3.**                      | **Defaults Upon Senior Securities**                                                                                   |   |
| **Item 4.**                      | **Submission of Matters to a Vote of Security  Holders**                                                              |   |
| **Item  5.**                     | **Other  Information**                                                                                                |   |
| **Item 6.**                      | **Exhibits and Reports on Form 8-K**                                                                                  |   |
|                             |                                                                                                                  |
| **Signatures**                   |                                                                                                                  |
| **Exhibits  Index and Exhibits** |                                                                                                                  |
|                                  |                                                                                                                       |  |  |

 

2

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PENNSWOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 
| ** **                                                                                        | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                        | ** ** | **(in thousands)** | ** ** |
| ASSETS:                                                                                           |       |               |       |                   |       |
| Cash and due from banks                                                                           |       | $                  | 11,261     |                   | $          | 10,230 |   |
| Investment securities available for sale                                                          |       | 200,084            |       | 210,611                |       |
| Investment securities held to maturity  (market value of $667 and $701)                           |       | 658                |       | 686                    |       |
| Loans held for sale                                                                               |       | 5,158              |       | 4,803                  |       |
| Loans, net of unearned discount of $1,062  and $940                                               |       | 300,718            |       | 275,828                |       |
| Allowance for loan losses                                                                         |       | (3,157             | )          | (3,069                 | )          |
| Loans, net                                                                                        |       | 297,561            |       | 272,759                |       |
|                                                                                              |       |               |       |                   |       |
| Premises and equipment, net                                                                       |       | 4,693              |       | 4,625                  |       |
| Accrued interest receivable                                                                       |       | 2,207              |       | 2,242                  |       |
| Bank-owned life insurance                                                                         |       | 9,088              |       | 8,908                  |       |
| Goodwill                                                                                          |       | 3,032              |       | 3,032                  |       |
| Other assets                                                                                      |       | 9,486              |       | 9,485                  |       |
| TOTAL ASSETS                                                                                      |       | $                  | 543,228    |                   | $          | 527,381 |   |
|                                                                                              |       |               |       |                   |       |
| LIABILITIES:                                                                                      |       |               |       |                   |       |
| Noninterest-bearing demand deposits                                                               |       | $                  | 66,270     |                   | $          | 64,875 |   |
| Interest-bearing demand deposits                                                                  |       | 101,591            |       | 77,245                 |       |
| Savings deposits                                                                                  |       | 71,712             |       | 67,298                 |       |
| Time deposits                                                                                     |       | 129,177            |       | 124,900                |       |
| Total deposits                                                                                    |       | 368,750            |       | 334,318                |       |
|                                                                                              |       |               |       |                   |       |
| Short-term borrowings                                                                             |       | 26,484             |       | 47,265                 |       |
| Other borrowings                                                                                  |       | 75,878             |       | 70,878                 |       |
| Accrued interest payable                                                                          |       | 859                |       | 836                    |       |
| Other liabilities                                                                                 |       | 3,020              |       | 4,315                  |       |
| Total liabilities                                                                                 |       | 474,991            |       | 457,612                |       |
| SHAREHOLDERS’ EQUITY:                                                                        |       |               |       |                   |       |
| Common stock, par value $10; 10,000,000  shares authorized; 3,327,457 and 3,326,560 shares issued |       | 33,274             |       | 33,265                 |       |
| Additional paid-in capital                                                                        |       | 17,581             |       | 17,559                 |       |
| Retained earnings                                                                                 |       | 16,175             |       | 13,022                 |       |
| Accumulated other comprehensive income                                                            |       | 1,546              |       | 6,132                  |       |
| Less:   Treasury stock, at cost (8,000 and 5,000 shares)                                     |       | (339               | )          | (209                   | )          |
| Total shareholders’ equity                                                                   |       | 68,237             |       | 69,769                 |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                   |       | $                  | 543,228    |                   | $          | 527,381 |   |

 

See accompanying notes to theunaudited consolidated financial statements.

 

3

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PENNSWOODS BANCORP, INC.

CONSOLIDATED STATEMENT OFINCOME (UNAUDITED)

 
| ** **                                           | ** ** | **Six Months Ended  June 30,**           | ** ** | **Three Months Ended  June 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **2004**                                 | ** ** | **2003**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in thousands except per share data)** | ** ** |
| INTEREST AND DIVIDEND INCOME:                        |       |                                     |       |                             |       |   |   |   |   |
| Interest and fees on loans                           |       | $                                        | 10,028     |                             | $          | 9,902 |   | $ | 5,137 |   | $ | 4,907 |   |
| Interest and dividends on investments:               |       |                                     |       |                             |       |   |   |   |   |
| Taxable                                              |       | 4,066                                    |       | 2,769                            |       | 2,037 |   | 1,570 |   |
| Tax-exempt                                           |       | 711                                      |       | 1,593                            |       | 320 |   | 730 |   |
| Other dividend and interest income                   |       | 54                                       |       | 79                               |       | 38 |   | 44 |   |
| Total interest and dividend income                   |       | 14,859                                   |       | 14,343                           |       | 7,532 |   | 7,251 |   |
| INTEREST EXPENSE:                                    |       |                                     |       |                             |       |   |   |   |   |
| Interest on deposits                                 |       | 2,317                                    |       | 3,122                            |       | 1,182 |   | 1,489 |   |
| Interest on short-term borrowings                    |       | 236                                      |       | 172                              |       | 99 |   | 100 |   |
| Interest on other borrowings                         |       | 1,713                                    |       | 1,487                            |       | 861 |   | 806 |   |
| Total interest expense                               |       | 4,266                                    |       | 4,781                            |       | 2,142 |   | 2,395 |   |
| Net interest income                                  |       | 10,593                                   |       | 9,562                            |       | 5,390 |   | 4,856 |   |
| Provision for loan losses                            |       | 150                                      |       | 135                              |       | 75 |   | 45 |   |
| Net interest income after provision for  loan losses |       | 10,443                                   |       | 9,427                            |       | 5,315 |   | 4,811 |   |
| OTHER INCOME:                                        |       |                                     |       |                             |       |   |   |   |   |
| Service charges                                      |       | 998                                      |       | 937                              |       | 522 |   | 472 |   |
| Securities gains, net                                |       | 1,128                                    |       | 1,851                            |       | 583 |   | 1,750 |   |
| Earnings on bank-owned life insurance                |       | 180                                      |       | 207                              |       | 90 |   | 103 |   |
| Insurance commissions                                |       | 1,159                                    |       | 750                              |       | 545 |   | 392 |   |
| Other operating income                               |       | 622                                      |       | 483                              |       | 310 |   | 228 |   |
| Total other operating income                         |       | 4,087                                    |       | 4,228                            |       | 2,050 |   | 2,945 |   |
| OTHER EXPENSES:                                      |       |                                     |       |                             |       |   |   |   |   |
| Salaries and employee benefits                       |       | 3,865                                    |       | 3,320                            |       | 1,886 |   | 1,685 |   |
| Occupancy expense, net                               |       | 473                                      |       | 465                              |       | 230 |   | 232 |   |
| Furniture and equipment expense                      |       | 495                                      |       | 548                              |       | 230 |   | 263 |   |
| Pennsylvania shares tax expense                      |       | 246                                      |       | 228                              |       | 130 |   | 113 |   |
| Other expenses                                       |       | 1,847                                    |       | 1,764                            |       | 977 |   | 893 |   |
| Total other operating expenses                       |       | 6,926                                    |       | 6,325                            |       | 3,453 |   | 3,186 |   |
| INCOME BEFORE INCOME TAX PROVISION                   |       | 7,604                                    |       | 7,330                            |       | 3,912 |   | 4,570 |   |
| APPLICABLE INCOME TAX PROVISION                      |       | 2,127                                    |       | 1,806                            |       | 1,108 |   | 1,233 |   |
| NET INCOME                                           |       | $                                        | 5,477      |                             | $          | 5,524 |   | $ | 2,804 |   | $ | 3,337 |   |
|                                                 |       |                                     |       |                             |       |   |   |   |   |
| EARNINGS PER SHARE - BASIC                           |       | $                                        | 1.65       |                             | $          | 1.66 |   | $ | 0.85 |   | $ | 1.00 |   |
| -DILUTED                                             |       | $                                        | 1.65       |                             | $          | 1.66 |   | $ | 0.85 |   | $ | 1.00 |   |
|                                                 |       |                                     |       |                             |       |   |   |   |   |
| DIVDENDS PER SHARE                                   |       | $                                        | 0.70       |                             | $          | 0.54 |   | $ | 0.35 |   | $ | 0.27 |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC            |       | 3,320,649                                |       | 3,333,309                        |       | 3,319,445 |   | 3,333,228 |   |
| -DILUTED                                             |       | 3,324,063                                |       | 3,335,707                        |       | 3,322,730 |   | 3,336,023 |   |

 

See accompanying notes to theunaudited consolidated financial statements.

 

4

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PENNSWOODS BANCORP, INC.

CONSOLIDATED STATEMENT OFCOMPREHENSIVE INCOME(UNAUDITED)

 
| ** **                                                                 | ** ** | **Three Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------|------------|
| **2004**                                                                   | ** ** | **2003**                        |
| **(in thousands)**                                                         |
| Net Income                                                                 |       |                            |       | $ | 2,804 |   |   |   | $ | 3,337 |   |
| Other comprehensive income:                                                |       |                            |       |   |   |   |   |   |   |
| Unrealized gains (losses) on available for  sale securities                |       | $                               | (6,558     | ) |   |   | $ | 4,382 |   |   |   |
| Less: Reclassification adjustment for gain  included in net income         |       | 583                             |       |   |   | 1,750 |   |   |   |
| Other comprehensive income (loss) before  tax                              |       |                            |       | (7,141 | ) |   |   | 2,632 |   |
| Income tax expense (benefit) related to  other comprehensive income (loss) |       |                            |       | (2,428 | ) |   |   | 895 |   |
| Other comprehensive income (loss), net of  tax                             |       |                            |       | (4,713 | ) |   |   | 1,737 |   |
| Comprehensive income (loss)                                                |       |                            |       | $ | (1,909 | ) |   |   | $ | 5,074 |   |
|                                                                            |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------|------------|
| **2004**                                                                   | ** ** | **2003**                      |
| **(in thousands)**                                                         |
| Net Income                                                                 |       |                          |       | $ | 5,477 |   |   |   | $ | 5,524 |   |
| Other comprehensive income:                                                |       |                          |       |   |   |   |   |   |   |
| Unrealized gains losses) on available for  sale securities                 |       | $                             | (5,820     | ) |   |   | $ | 5,198 |   |   |   |
| Less: Reclassification adjustment for gain  included in net income         |       | 1,128                         |       |   |   | 1,851 |   |   |   |
| Other comprehensive income (loss) before  tax                              |       |                          |       | (6,948 | ) |   |   | 3,347 |   |
| Income tax expense (benefit) related to  other comprehensive income (loss) |       |                          |       | (2,362 | ) |   |   | 1,138 |   |
| Other comprehensive income (loss), net of  tax                             |       |                          |       | (4,586 | ) |   |   | 2,209 |   |
| Comprehensive income                                                       |       |                          |       | $ | 891 |   |   |   | $ | 7,733 |   |
|                                                                            |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to theunaudited consolidated financial statements.

 

5

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PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OFCHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands except per share data)

 
|                                                             |   | **COMMON  STOCK** |   | **ADDITIONAL  PAID-IN  CAPITAL** |   | **RETAINED  EARNINGS** |   | **ACCUMULATED  OTHER  COMPREHENSIVE  INCOME** |   | **TREASURY  STOCK** |   | **TOTAL  SHAREHOLDERS  EQUITY** |   |
|------------------------------------------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|-----------------------------------------------|--------|---------------------|--------|---------------------------------|--------|
|                                                             |   | **SHARES**        |   | **AMOUNT**                       |   |                   |   |                                          |   |                |
| Balance, December 31, 2003                                       |   | 3,326,560         |   | $                                | 33,265 |                   | $      | 17,559                                        |   | $                   | 13,022 |                            | $      | 6,132 |   | $ | (209 | ) | $ | 69,769 |   |
|                                                             |   |              |   |                             |   |                   |   |                                          |   |                |   |                            |   |   |   |
| Net income for the six months ended June 30, 2004                |   |              |   |                             |   |                   |   | 5,477                                         |   |                |   |                            |   | 5,477 |   |
| Dividends declared, $0.70                                        |   |              |   |                             |   |                   |   | (2,324                                        | )      |                |   |                            |   | (2,324 | ) |
| Treasury Stock acquired (3,000 shares)                           |   |              |   |                             |   |                   |   |                                          |   |                |   | (130                            | )      | (130 | ) |
| Net change in unrealized gain on investments available for sale, |   |              |   |                             |   |                   |   |                                          |   |                |   |                            |   |   |   |
| net of tax benefit of $2,362                                     |   |              |   |                             |   |                   |   |                                          |   | (4,586              | )      |                            |   | (4,586 | ) |
| Stock options exercised                                          |   | 897               |   | 9                                |   | 22                     |   |                                          |   |                |   |                            |   | 31 |   |
| Balance, June 30, 2004                                           |   | 3,327,457         |   | $                                | 33,274 |                   | $      | 17,581                                        |   | $                   | 16,175 |                            | $      | 1,546 |   | $ | (339 | ) | $ | 68,237 |   |

 

See accompanying notes to theunaudited consolidated financial statements.

 

6

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PENNSWOODS BANCORP, INC.

CONSOLIDATED STATEMENT OFCASH FLOWS(UNAUDITED)

 
| ** **                                                                | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                | ** ** | **2004**                       | ** ** | **2003** | ** ** |
| ** **                                                                | ** ** | **(in thousands)**             | ** ** |
| OPERATING ACTIVITIES:                                                     |       |                           |       |   |   |
| Net Income                                                                |       | $                              | 5,477      |   | $ | 5,524 |   |
| Adjustments to reconcile net income to net  cash                          |       |                           |       |   |   |
| provided by operating activities:                                         |       |                           |       |   |   |
| Depreciation                                                              |       | 291                            |       | 399 |   |
| Provision for loan losses                                                 |       | 150                            |       | 135 |   |
| Accretion and amortization of investment  security discounts and premiums |       | 15                             |       | (204 | ) |
| Securities gains, net                                                     |       | (1,128                         | )          | (1,851 | ) |
| Originations of loans held for sale                                       |       | (15,624                        | )          | (6,982 | ) |
| Proceeds of loans held for sale                                           |       | 15,269                         |       | 7,011 |   |
| Earnings on bank-owned life insurance                                     |       | (180                           | )          | (207 | ) |
| Change in deferred income tax                                             |       | 2,678                          |       | 1,138 |   |
| Other, net                                                                |       | (2,018                         | )          | (628 | ) |
| Net cash provided by operating activities                                 |       | 4,930                          |       | 4,335 |   |
| INVESTING ACTIVITIES:                                                     |       |                           |       |   |   |
| Investment securities available for sale:                                 |       |                           |       |   |   |
| Proceeds from sales                                                       |       | 83,273                         |       | 24,629 |   |
| Proceeds from calls and maturities                                        |       | 15,826                         |       | 21,878 |   |
| Purchases                                                                 |       | (94,407                        | )          | (83,400 | ) |
| Investment securities held to maturity:                                   |       |                           |       |   |   |
| Proceeds from calls and maturities                                        |       | 42                             |       | 239 |   |
| Purchases                                                                 |       | (14                            | )          | (24 | ) |
| Net decrease (increase) in loans                                          |       | (25,042                        | )          | 2,809 |   |
| Acquisition of bank premises and equipment                                |       | (359                           | )          | (195 | ) |
| Proceeds from the sale of foreclosed assets                               |       | 144                            |       | — |   |
| Proceeds from redemption of regulatory  stock                             |       | 2,100                          |       | 196 |   |
| Purchases of regulatory stock                                             |       | (1,690                         | )          | (1,788 | ) |
| Net cash used in investing activities                                     |       | (20,127                        | )          | (35,656 | ) |
| FINANCING ACTIVITIES:                                                     |       |                           |       |   |   |
| Net increase in interest-bearing deposits                                 |       | 33,037                         |       | 9,310 |   |
| Net increase (decrease) in noninterest-bearing  deposits                  |       | 1,395                          |       | (8,594 | ) |
| Proceeds of long-term borrowings                                          |       | 5,000                          |       | 19,100 |   |
| Net decrease in short-term borrowings                                     |       | (20,781                        | )          | 15,743 |   |
| Dividends paid                                                            |       | (2,324                         | )          | (1,818 | ) |
| Stock options exercised                                                   |       | 31                             |       | 44 |   |
| Purchase of Treasury Stock                                                |       | (130                           | )          | (86 | ) |
| Net cash provided by financing activities                                 |       | 16,228                         |       | 33,699 |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                 |       | 1,031                          |       | 2,378 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING                                      |       | 10,230                         |       | 11,731 |   |
| CASH AND CASH EQUIVALENTS, ENDING                                         |       | $                              | 11,261     |   | $ | 14,109 |   |

 

7

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The Company paid approximately $4,243,000 and$4,916,000 interest on deposits and borrowings during the first half of 2004and 2003, respectively.

 

The Company made income tax payments ofapproximately $2,050,000 and $1,100,000 during the first six months of 2004 and2003, respectively.

 

See accompanying notes to theunaudited consolidated financial statements.

 

# **PENNS WOODS BANCORP, INC. AND SUBSIDIARIES**

# ** **

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

# **NOTE 1.  Basisof Presentation**

# ** **

# **Theconsolidated financial statements include the accounts of Penns Woods Bancorp,Inc. (the “Company”) and its wholly-owned subsidiaries Woods InvestmentCompany, Inc., Woods Real Estate Development Company, Inc., and Jersey ShoreState Bank (the “Bank”) and its wholly-owned subsidiary The M Group, Inc. D/B/AThe Comprehensive Financial Group (“The M Group”).  All significant inter-company balances andtransactions have been eliminated in the consolidation.**

# ** **

The interim financialstatements are unaudited but, in the opinion of management, reflect alladjustments necessary for the fair presentation of results for suchperiods.  All of those adjustments are ofa normal, recurring nature.  The resultsof operations for any interim period are not necessarily indicative of resultsfor the full year.  These financialstatements should be read in conjunction with financial statements and notesthereto contained in the Company’s annual report for the year ended December31, 2003.

 

**RecentAccounting Pronouncements**

 

In December 2003, the FASBissued a revision to Interpretation 46, *Consolidation of VariableInterest Entities*, which established standards for identifying avariable interest entity (“VIE”) and for determining under what circumstances aVIE should be consolidated with its primary beneficiary.  The Interpretation requires consolidation ofentities in which an enterprise absorbs a majority of the entity’s expectedlosses, receives a majority of the entity’s residual returns, or both, as aresult of ownership, contractual or other financial interests in theentity.  Prior to the interpretation,entities were generally consolidated by an enterprise when it had a controllingfinancial interest through ownership of a majority voting interest in theentity.  The adoption of thisInterpretation has not and is not expected to have a material effect on theCompany’s financial position or results of operations.

 

**NOTE 2. Per Share Data**

 

Thefollowing table sets forth the composition of the weighted average commonshares (denominator) used in the basic and dilutive per share computation.  There are no convertible securities whichwould affect the numerator in calculating basic and dilutive

 

8

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earningsper share, therefore, net income as presented on the consolidated statement ofincome will be used as the numerator.

 

 
| ** **                                                                                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                | ** ** | **2004**                         | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares outstanding                                                                |       | 3,327,445                        |       | 3,451,701                      |       | 3,327,380 |   | 3,451,378 |   |
|                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Average treasury stock shares                                                                             |       | (8,000                           | )          | (118,473                       | )          | (6,731 | ) | (118,069 | ) |
|                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares and common  stock equivalents used to calculate basic earnings per share   |       | 3,319,445                        |       | 3,333,228                      |       | 3,320,649 |   | 3,333,309 |   |
|                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Additional common stock equivalents (stock  options) used to calculate diluted earnings per share         |       | 3,285                            |       | 2,795                          |       | 3,414 |   | 2,398 |   |
|                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares and common  stock equivalents used to calculate diluted earnings per share |       | 3,322,730                        |       | 3,336,023                      |       | 3,324,063 |   | 3,335,707 |   |

 

 

Optionsto purchase 8,713 shares of common stock at the price of $48.35 wereoutstanding during the three and six months ended June 30, 2004 and 10,890shares of common stock at the price of $48.35 were outstanding for the threeand six months ended June 30, 2003, but were not included in the computation ofdiluted earnings per share because to do so would have been anti-dilutive.

 

**Note 3.****  NetPeriodic Benefit Cost-Defined Benefit Plans**

 

For a detailed disclosure on theCompany’s pension and employee benefits plans, please refer to Note K of theCompany’s Consolidated Financial Statements included in the 2003 Annual Reporton Form 10-K.

 

The following sets forth thecomponents of net periodic benefit cost of the domestic non-contributorydefined benefit plans for the six months ended June 30, 2004 and June 30, 2003respectively.

 

9

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| ** **                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Service cost                          |       | $        | 233        |     | $          | 222 |   |
| Interest cost                         |       | 199      |       | 192      |       |
| Expected return on plan assets        |       | (164     | )          | (128     | )          |
| Amortization of transition obligation |       | (1       | )          | (2       | )          |
| Amortization of prior service cost    |       | 13       |       | 13       |       |
| Amortization of net (gain) loss       |       | 21       |       | 42       |       |
| Net periodic cost                     |       | $        | 301        |     | $          | 334 |   |

 

 

**EmployerContributions**

 

The Company previously disclosed inits consolidated financial statements included in the 2003 Annual Report onForm 10-K that it expected to contribute $560,000 to its defined benefit planin 2004.  As of June 30, 2004, a contribution of $296,000 has beenmade.  The Company presently anticipatescontributing an additional $296,000 to fund its pension plan in 2004 for atotal of $592,000.

 

**Note4.  Off Balance Sheet Risk**

 

TheCompany is a party to financial instruments with off-balance sheet risk in thenormal course of business to meet the financing needs of its customers.  These financial instruments includecommitments to extend credit and standby letters of credit.  These instruments involve, to varyingdegrees, elements of credit, interest rate or liquidity risk in excess of theamount recognized in the consolidated balance sheet.  The contract amounts of these instrumentsexpress the extent of involvement the Company has in particular classes offinancial instruments.

 

TheCompany’s exposure to credit loss from nonperformance by the other party to thefinancial instruments for commitments to extend credit and standby letters ofcredit is represented by the contractual amount of these instruments.  The Company uses the same credit policies inmaking commitments and conditional obligations as it does for on-balance sheetinstruments.

 

TheCompany may require collateral or other security to support financialinstruments with off-balance sheet credit risk.

 

Financialinstruments whose contract amounts represent credit risk are as follows:

 

| ** **                   | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------|------------|--------------------|------------|------------------------|------------|
| Commitments to extend credit |       | $                  | 49,524     |                   | $          | 47,454 |   |
|                         |       |               |       |                   |       |
| Standby letters of credit    |       | $                  | 786        |                   | $          | 258 |   |

 

10

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# **Note 5. Reclassification of Comparative Amounts**

# ** **

Certain comparative amounts for the prior periods havebeen reclassified to conform to current period presentations. Suchreclassifications had no effect on net income or shareholders’ equity.

 

**CAUTIONARYSTATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**

 

This Report contains certain “forward-lookingstatements” including statements concerning plans, objectives, future events orperformance and assumptions and other statements which are other thanstatements of historical fact.  TheCompany wishes to caution readers that the following important factors, amongothers, may have affected and could in the future affect the Company’s actualresults and could cause the Company’s actual results for subsequent periods todiffer materially from those expressed in any forward-looking statement made byor on behalf of the Company herein:  (i)the effect of changes in laws and regulations, including federal and statebanking laws and regulations, which the Company must comply, and the associatedcosts of compliance with such laws and regulations either currently or in thefuture as applicable; (ii) the effect of changes in accounting policies andpractices, as may be adopted by the regulatory agencies as well as by theFinancial Accounting Standards Board, or of changes in the Company’sorganization, compensation and benefit plans; (iii) the effect on the Company’scompetitive position within its market area of the increasing consolidationwithin the banking and financial services industries, including the increasedcompetition from larger regional and out-of-state banking organizations as wellas non-bank providers of various financial services; (iv) the effect of changesin interest rates; and (v) the effect of changes in the business cycle anddownturns in the local, regional or national economies.

 

 

**ITEM2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operation**

# ** **

 

# **EARNINGS SUMMARY**

# ** **

# **Comparison of the Six Months Ended June 30, 2004 and2003**

# ** **

**InterestIncome**

 

11

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The $516,000 increase ofinterest income is the result of the expansion of total interest-earning assetsand the reduction of the interest rates paid on deposits partially offset bydeclining interest rates on interest-earning assets.  Total securities experienced a rate declineof 52 basis points effected by management’s repositioning from longer term States& Political securities to shorter term U.S. Government securities.  While weighted average interest rates in theloan portfolio decreased 77 basis points, the expansion into the Centre Countymarket facilitated loan growth of over $24,890,000.  The opportunity to borrow funds athistorically low interest rates as well as a growth of municipal depositsfunded the loan and security growth.  Management reduced interest expense $515,000 primarily by loweringweighted average interest rates paid on deposits 50 basis points.

 

# **Interest Expense**

# ** **

For the six months ended June30, 2004, total interest expense decreased by $515,000 or 11% compared to thefirst six months of 2003.  Low interestrates have positively impacted interest expense.  Management’s adjustment of rates paid whilecontinuing to monitor the local competition for all deposit accountscontributed the most substantial decrease in interest expense.  The weighted average rate on interest paid ondeposits declined 50 basis points for the six months ended June 30, 2004 fromthe same period in 2003 resulting in the decrease of interest paid on savingsdeposits of $366,000 and $439,000 on time deposits.

 

Favorable long-term borrowingrates offer opportunities to reduce interest expenses over the comingyears.  At the end of the first quarterof 2003, the Company borrowed an additional $20 million in long term advancesthrough the FHLB to minimize future borrowing costs and to enhance asset andliability positioning.  These additionalborrowings were utilized by management to take advantage of current investmentopportunities while minimizing interest rate risk.  The $226,000 increase in expense on long-termborrowings is the result of these additional advances with average advances of$12,933,000 offset by the 22 basis point decline in the resulting weightedaverage interest rate for the first half of 2004 compared to the same period of2003. Interest paid on short-term borrowings increased $64,000 as a result ofan increase in the average balances of $17,466,000 offset partially by thedecline in the weighted average interest rate of 85 basis points.  Overnight borrowings increased as a result ofleveraging the purchase of securities and loan growth.

 

# **Provision for Loan Losses**

# ** **

The provision forloan losses is based upon management’s quarterly review of the loanportfolio.  The purpose of the review isto assess loan quality, identify impaired loans, analyze delinquencies,ascertain loan growth, evaluate potential charge-offs and recoveries, andassess general economic conditions in the markets served.  An external independent loan review is alsoperformed annually for the Bank. Management remains committed to an aggressive program of problem loanidentification and resolution.

 

12

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The allowance is calculated byapplying loss factors to outstanding loans by type, excluding loans for which aspecific allowance has been determined. Loss factors are based on management’s consideration of the nature ofthe portfolio segments, changes in mix and volume of the loan portfolio, andhistorical loan loss experience.  Inaddition, management considers industry standards and trends with respect tononperforming loans and its knowledge and experience with specific lendingsegments.

 

Although management believesthat it uses the best information available to make such determinations andthat the allowance for loan losses is adequate at June 30, 2004, futureadjustments could be necessary if circumstances or economic conditions differsubstantially from the assumptions used in making the initialdeterminations.  A downturn in the localeconomy, employment and delays in receiving financial information fromborrowers could result in increased levels of nonperforming assets andcharge-offs, increased loan loss provisions and reductions in income.  Additionally, as an integral part of theexamination process, bank regulatory agencies periodically review the Bank’sloan loss allowance.  The bankingagencies could require the recognition of additions to the loan loss allowancebased on their judgment of information available to them at the time of theirexamination.

 

The allowance for loan lossesincreased from $3,069,000 at December 31, 2003 to $3,157,000 at June 30,2004.  At June 30, 2004, allowance forloan losses was 1.0% of total loans compared to 1.1% of total loans at December31, 2003.  This percentage is consistentwith the Bank’s historical experience and peer banks.  Management’s conclusion is that the allowancefor loan losses is adequate to provide for probable losses inherent in its loanportfolio as of the balance sheet date.

 

The provision for loan lossestotaled $150,000 for the six months ended June 30, 2004.  The provision for the same period in 2003 was$135,000.

 

An overall decrease of $60,000was experienced in non-performing loans from December 31, 2003 to $1,196,000 onJune 30, 2004.  This decline consisted ofa commercial and industrial loans decrease of $12,000, a real estate securedloans decrease of $51,000 and an installment loans increase of $3,000.

 

Based upon this analysis, aswell as the others noted above, senior management has concluded that theallowance for loan losses remains at a level adequate to provide for probablelosses inherent in its loan portfolio.

 

## **OtherOperating Income**

##  

Other operating income for thesix months ended June 30, 2004 decreased $141,000.  Net security gains represent a decrease of$723,000. During the second quarter of 2003, management took advantage of theopportunity available to sell investment securities without significantlyimpacting the overall effective yield of the investment portfolio.  Excluding net security gains, other incomeincreased $582,000 primarily due to the $409,000 growth of insurancecommissions earned by the Bank’s subsidiary, The M

 

13

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Group.  The M Group has added personnel and expandedits market area in the last year. Service charges grew $61,000 as the weighted average balance of demanddeposits increased and the remaining items of income increased $112,000 due tonormal operations.

 

# **Other Operating Expense**

# ** **

An overall increase in otherexpenses totaled $601,000 for the first half of 2004 compared to the sameperiod in 2003 and is the result of normal operational cost increases.  The $545,000 increase of salaries andbenefits consisted of the increase of $251,000 of commissions paid as a resultof the growth in sales of financial products offered by The M Group, Inc. andnormal salary increases of $294,000.

 

# **Provision for Income Taxes**

# ** **

The provision for income taxesfor the six months ended June 30, 2004 resulted in an effective income tax rateof 27.97% compared to 24.64% for the corresponding period in 2003.  This increasing effective tax rate is theresult of management’s repositioning of the investment portfolio fromtax-exempt securities to taxable securities. The tax effects of the repositioning were examined by management as partof the Company’s strategic plan.

 

**Comparisonof the Three Months Ended June 30, 2004 and 2003**

 

**InterestIncome**

 

During the second quarter of2004, interest income earned was $7,532,000, an increase of $281,000 over thesame quarter in 2003.

 

Interest income on loansincreased $230,000 due to the weighted average balances advancing $38,549,000from the expansion into the Centre County market partially offset by theweighted average interest rate decrease of 70 basis points.

 

An increase of $51,000 occurredin interest and dividends on investments. Taxable interest and dividends increased $461,000 while non-taxableinterest decreased $410,000 due to the purchases of short-term, taxablesecurities and the sales of long-term, tax-free securities.

 

**InterestExpense**

 

Interest expense during thesecond quarter of 2004 decreased $253,000, or 11% less than interest expenseincurred during the second quarter of 2003. Interest expense on savings deposits decreased $116,000 as a result of a39 basis point decline of the effective weighted average interest rate for theperiods partially offset by the increase of the weighted average balance of$14,171,000.  The weighted averageinterest rate for time deposits decreased 51 basis points for a savings of$190,000.  Although the weighted

 

14

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average balance of short-termborrowings increased $9,436,000, the 91 basis point decline in the weightedaverage interest rate negated the effect on the expense.  Interest paid on long-term borrowingsincreased $55,000 due to the increase in the weighted average balance of$5,000,000.

 

**OtherOperating Income**

 

Total other operating incomefor the quarter ended June 30, 2004 compared to the same period in 2003decreased $895,000.  The decrease is dueto the decrease of security gains of $1,170,000 partially offset by an increaseof the insurance and brokerage commissions earned by the Bank’s subsidiary, TheM Group, Inc. during the second quarter of this year.  Service charges rose $50,000 as the weightedaverage balance of demand deposits continued to rise.  The remaining items comprising operatingincome increased $69,000 for the second quarter of 2004 compared to the sameperiod of 2003 due to normal operations.

 

**OtherOperating Expenses**

 

Total other operating expensesincreased $267,000.  Salaries and employeebenefits increased $201,000 attributed to both the increase of commissionsearned by The M Group, Inc. and the standard cost of living salaryincreases.  Occupancy expense decreased$2,000 and furniture and equipment decreased $33,000 due to the change ofdepreciation expense during the second quarter of 2004 compared to the secondquarter of 2003.  Pennsylvania shares taxexpense increased $17,000 and miscellaneous expenses increased $84,000 due togeneral inflationary increases.

 

**Provisionfor Income Taxes**

 

Income taxes decreased $125,000for the quarter ended June 30, 2004 compared to the second quarter of2003.  The effective tax rates for thequarter ended June 30, 2004 and 2003 are 28.32% and 26.98%, respectively.  This increasing effective tax rate isconsistent with management’s repositioning of the investment portfolio fromtax-exempt securities to taxable securities. The tax effects of the repositioning were examined by management as partof the Company’s strategic plan.

 

# **ASSET/LIABILITY MANAGEMENT**

# ** **

# **Assets**

# ** **

At June 30, 2004, total assets were $543.2 millioncompared to $527.4 million at December 31, 2003.  Cash and due from banks increased $1 millionduring the first half of 2004.  Investmentsecurities available for sale totaled $200.1 million at June 30, 2004 for a netdecrease of $10.5 million from the corresponding balance December 31,2003.  The decline of investments isprimarily due to the principal payments of the mortgage-backed securities of $15.8million.  Mortgage-backed agency securitieswere purchased

 

15

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and sold for a net increase of $18.2 million andtax-free municipals were purchased and sold for a net decrease of $6.0million.  The unrealized gain oninvestments decreased $6.9 million from December 31, 2003 to June 30,2004.   Management shortened the averagelife of the portfolio, increased annual yield, and realized a profit on salesin order to strengthen the portfolio. During this period, net loans increased by $24.9 million as a result ofexpansion into Centre County

 

# **Deposits**

# ** **

At June 30, 2004, totaldeposits amounted to $368.8 million representing an increase of $34.4 millionfrom total deposits at December 31, 2003. Non-interest bearing demand deposits increased $1.4 million, savingsdeposits increased $4.4 million, and time deposits increased $4.3 million.  Interest bearing demand deposits increased$24.3 million due to an increase of municipal deposits. The deposit growth isattributed to normal operations as well as the increased expansion in CentreCounty.

 

# **Capital**

# ** **

## Theadequacy of the Company’s capital is reviewed on an ongoing basis withreference to the size, composition and quality of the Company’s resources andregulatory guidelines.  Management seeksto maintain a level of capital sufficient to support existing assets andanticipated asset growth, maintain favorable access to capital markets andpreserve high quality credit ratings.

 

## Bankholding companies are required to comply with the Federal Reserve Board’srisk-based capital guidelines.  Therisk-based capital rules are designed to make regulatory capital requirementsmore sensitive to differences in risk profiles among banks and bank holdingcompanies and to minimize disincentives for holding liquid assets.  Specifically, each is required to maintaincertain minimum dollar amounts and ratios of Total risk-based, Tier Irisk-based and Tier I leverage capital requirements. In addition to the capitalrequirements, the Federal Deposit Insurance Corporation Improvements Act(FDICIA) established five capital categories ranging from “well capitalized” to“critically undercapitalized.” To be classified as “well capitalized”, Totalrisk-based, Tier I risked-based and Tier I leverage capital ratios must be atleast 10%, 6%, and 5% respectively.

 

## At June30, 2004, the Company was “well capitalized” with a total capital ratio of22.10%, a Tier I capital ratio of 20.30% and a Tier I leverage ratio of 11.86%.

 

 

# **Liquidity and Interest Rate Sensitivity**

# ** **

## Theasset/liability committee addresses the liquidity needs of the Bank to see thatsufficient funds are available to meet credit demands and deposit withdrawalsas well as to the placement of available funds in the investmentportfolio.  In assessing

##  

16

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## liquidityrequirements, equal consideration is given to the current position as well asthe future outlook.

 

The following liquiditymeasures are monitored and kept within the limits cited.

 

1.  Net Loans to Total Assets,  70% maximum

 

2.  Net Loans to Total Deposits, 92.5% maximum

 

3.  Net Loans to Core Deposits, 100% maximum

 

4.  Investments to Total Assets, 40% maximum

 

5.  Investments to Total Deposits, 50% maximum

 

6.  Total Liquid Assets to Total Assets, 25%minimum

 

7.  Total Liquid Assets to Total Liabilities, 25%minimum

 

8.  Net Core Funding Dependence,35% maximum

 

Fundamental objectives of theCompany’s asset/liability management process are to maintain adequate liquiditywhile minimizing interest rate risk.  Themaintenance of adequate liquidity provides the Company with the ability to meetits financial obligations to depositors, loan customers and shareholders.  Additionally, it provides funds for normaloperating expenditures and business opportunities as they arise.  The objective of interest rate sensitivitymanagement is to increase net interest income by managing interest sensitiveassets and liabilities in such a way that they can be repriced in response tochanges in market interest rates.

 

The Bank, like other financialinstitutions, must have sufficient funds available to meet its liquidity needsfor deposit withdrawals, loan commitments and expenses.   In order to control cash flow, the Bankestimates future flows of cash from deposits and loan payments.  The primary sources of funds are deposits,principal and interest payments on loans and mortgage-backed securities, aswell as Federal Home Loan Bank borrowings. Funds generated are used principally to fund loans and purchaseinvestment securities.  Managementbelieves the Company has adequate resources to meet its normal fundingrequirements.

 

Management monitors theCompany’s liquidity on both a long and short-term basis thereby, providingmanagement necessary information to react to current balance sheet trends.  Cash flow needs are assessed and sources offunds are determined.  Funding strategiesconsider both customer needs and economical cost.  Both short and long term funding needs areaddressed by maturities and sales of available for sale investment securities,loan repayments and maturities, and liquidating money market investments suchas federal funds sold.  The use of theseresources, in conjunction with access to credit provides core ingredients tosatisfy depositor, borrower and creditor needs.

 

17

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Management monitors anddetermines the desirable level of liquidity. Consideration is given to loan demand, investment opportunities, depositpricing and growth potential as well as the current cost of borrowingfunds.  The Company has a currentborrowing capacity at the Federal Home Loan Bank of $243.7 million.  In addition to this credit arrangement theCompany has additional lines of credit with correspondent banks of $10,500,000.The Company’s management believes that it has sufficient liquidity to satisfyestimated short-term and long-term funding needs.  Federal Home Loan Bank advances totaled $88.4million as of June 30, 2004.

 

Interest rate sensitivity,which is closely related to liquidity management, is a function of therepricing characteristics of the Company’s portfolio of assets andliabilities.  Asset/liability managementstrives to match maturities and rates between loan and investment securityassets with the deposit liabilities and borrowings that fund them.  Successful asset/liability management resultsin a balance sheet structure which can cope effectively with market ratefluctuations. The matching process is affected by segmenting both assets andliabilities into future time periods (usually 12 months, or less) based uponwhen repricing can be effected. Repriceable assets are subtracted from repriceable liabilities, for aspecific time period to determine the “gap”, or difference. Once known, the gapis managed based on predictions about future market interest rates.  Intentional mismatching, or gapping, canenhance net interest income if market rates move as predicted.  However, if market rates behave in a mannercontrary to predictions, net interest income will suffer.  Gaps, therefore, contain an element of riskand must be prudently managed.  Inaddition to gap management, the Company has an asset/liability managementpolicy which incorporates a market value at risk calculation which is used todetermine the effects of interest rate movements on shareholders’ equity and asimulation analysis to monitor the effects of interest rate changes on theCompany’s balance sheets.

 

There has been no substantialchanges in the Company’s GAP analyses or simulation analyses compared to theinformation provided in the Company’s Form 10-K for the period ended December31, 2003.

 

Generally, management believesthe Company is well positioned to respond expeditiously when the marketinterest rate outlook changes.

 

# ** **

# **Inflation**

# ** **

The asset and liability structureof a financial institution is primarily monetary in nature, therefore, interestrates rather than inflation have a more significant impact on the Company’sperformance.  Interest rates are notalways affected in the same direction or magnitude as prices of other goods andservices, but are reflective of fiscal policy initiatives or economic factorswhich are not measured by a price index.

 

18

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In reference to the attachedfinancial statements, all adjustments are of a normal recurring nature pursuantto Rule 10-01 (b) (8) of Regulation S-X`.

 

**Item 3.  Quantitative and QualitativeDisclosure About Market Risk**

 

Market risk for the Company iscomprised primarily from interest rate risk exposure and liquidity risk.  Interest rate risk and liquidity riskmanagement is performed at the Bank level as well as the Company level.  The Company’s interest rate sensitivity ismonitored by management through selected interest rate risk measures producedinternally.  There has been nosubstantial changes in the Company’s GAP analyses or simulation analysescompared to the information provided in the Company’s SEC 10-K for the periodended December 31, 2003.  Additionalinformation and details are provided in the Interest Sensitivity section ofItem 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

 

Generally, management believesthe Company is well positioned to respond expeditiously when the marketinterest rate outlook changes.

 

**Item 4.  Controls and Procedures**

 

Ananalysis was performed under the supervision and with the participation of theCompany’s management, including the Chief Executive Officer and the ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures. Based on that evaluation, theCompany’s Chief Executive Officer and Chief Financial Officer concluded thatthe Company’s disclosure controls and procedures were effective as of June 30,2004. There has been no change in the Company’s internal control over financialreporting that occurred during the quarter ended June 30, 2004, that hasmaterially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

 

### **Part II.  OTHER INFORMATION**

### ** **

**Item 1.  Legal Proceedings.**

 

                none.

 

**Item 2.  Changes in Securities and Use ofProceeds.**

 

The Company announced arepurchase program on August 10, 2000 which was approved by the Board ofDirectors on August 8, 2000 for the repurchase of 171,600 shares which willexpire on August 8, 2004.  There were norepurchases of the Company's common stock during the quarter ended June 30, 2005.

 

19

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**Item 3.  Defaults Upon Senior Securities.**

None

 

**Item 4.  Submission of Matters to a Vote ofSecurity Holders.**

 

The Penns Woods Bancorp, Inc.’sannual meeting of the shareholders was held on April 28, 2004.  The results of the items voted on are listedbelow:

 
| **Issue** | ** ** | **Description**                              | ** ** | **For**   | ** ** | **Withhold** | ** ** |
|-----------|------------|----------------------------------------------|------------|-----------|------------|--------------|------------|
| 1.        |       | Election of  Directors for a Three Year Term |       |      |       |         |       |
|      |       |                                         |       |      |       |         |       |
|      |       | Michael J.  Casale, Jr.                      |       | 2,738,295 |       | 18,729       |       |
|      |       | R. Edward  Nestlerode, Jr.                   |       | 2,742,402 |       | 14,622       |       |
|      |       | William H.  Rockey                           |       | 2,696,053 |       | 60,971       |       |
|      |       | Ronald A.  Walko                             |       | 2,698,910 |       | 58,114       |       |

 

 
| **Issue** | ** ** | **Description**                                                                            | ** ** | **For**   | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|-----------|------------|--------------------------------------------------------------------------------------------|------------|-----------|------------|-------------|------------|-------------|------------|
| 2.        |       | Ratification of S.R. Snodgrass A.C., Certified Public Accountants as  independent auditors |       |      |       |        |       |        |       |
|      |       |                                                                                       |       | 2,732,074 |       | 10,936      |       | 14,014      |       |

 

### **Item 5.  Other Information**

None

 

**Item 6.  Exhibitsand reports on Form 8-K.**

 

(A) Exhibits

 

(3)   (i)           Articles of Incorporation of the Registrant,as presently in effect (incorporated by reference to Exhibit 3.1 of theRegistrant’s Registration Statement on Form S-4, No. 333-65821).

(3)   (ii)          Bylaws of the Registrant as presently ineffect (incorporated by reference to Exhibit 3.2 of the Registrant’sRegistration Statement on Form S-4, No. 333-65821).

(31) (i)           Rule 13a-14(a)Certification of Chief Executive Officer

(31) (ii)          Rule 13a-14(a)Certification of Chief Financial Officer

(32) (i)           Certification of ChiefExecutive Officer Section 1350

(32) (ii)          Certification of ChiefFinancial Officer Section 1350

(B) Reports on Form 8-K

April 8, 2004-First Quarter Earnings Press Release

 

 

## **SIGNATURES**

##  

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

20

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PENNS WOODS BANCORP, INC.

(Registrant)

 

 
| Date:  | August 9,  2004 |                                                     |
|--------|-----------------|----------------------------------------------------------|
|   |            | /s/ Ronald  A. Walko                                     |   |
|   |            | Ronald A.  Walko, President and Chief  Executive Officer |
|   |            |                                                     |
|   |            |                                                     |
|   |            |                                                     |
| Date:  | August 9,  2004 | /s/ Sonya E.  Scott                                      |   |
|   |            | Sonya E.  Scott, Secretary                               |
|        |                 |                                                          |  |  |

 

**EXHIBIT INDEX**

 

Exhibit 31(i)                           Rule 13a-14(a)Certification of Chief Executive Officer

 

Exhibit 31(ii)                          Rule 13a-14(a) Certification of Chief FinancialOfficer

 

Exhibit 32(i)                           Section 1350 Certification of Chief Executive Officer

 

Exhibit 32(ii)                          Section 1350 Certification of Chief Financial Officer

 

21

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