**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**ý****        ****Quarterly Report pursuant to Section 13 or 15 (d) of theSecurities Exchange Act of 1934**

 

**for the QuarterlyPeriod Ended September 30, 2004,**

 

**o****        ****Transition report pursuant to Section 13 or 15 (d) of the ExchangeAct**

 

**for the TransitionPeriod from                               to                               .**

 

**No. 0-17077**

**(Commission File Number)**

 

**PENNS WOODS BANCORP, INC.**

(Exact name of Registrant as specified in its charter)

 
| **PENNSYLVANIA**                                        | ** ** | **23-2226454**      |
|---------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                         |       | (I.R.S. Employer    |
| incorporation or organization)                          |       | 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 markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for 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 markwhether the registrant is an accelerated filer (as defined in Rule 12 b-2 ofthe Exchange Act)

 

YES ý              NO o

 

On October 22, 2004there were 3,319,567 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 September 30, 2004 and December 31, 2003                                  |       |
|                                                                                                                              |       |
| Consolidated Statement  of Income (unaudited) for the Three And Nine Months ended September 30,  2004 and 2003               |       |
|                                                                                                                              |       |
| Consolidated  Statement of Comprehensive Income (unaudited) For the Three and Nine Months  ended September 30, 2004 and 2003 |       |
|                                                                                                                              |       |
| Consolidated  Statement of Changes in Shareholders’ Equity (unaudited) for the Nine Months  ended September 30, 2004    |       |
|                                                                                                                              |       |
| Consolidated  Statement of Cash Flows (unaudited) for the Nine Months ended September 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 Disclosures About Market Risk**                                                           | ** ** |
| ** **                                                                                                                        | ** ** |
| **Item 4. Controls and  Procedures**                                                                                              | ** ** |
|                                                                                                                              | ** ** |
| **Part II Other Information**                                                                                                     | ** ** |
| ** **                                                                                                                        | ** ** |
| **Item 1. Legal Proceedings**                                                                                                     | ** ** |
| **Item  2. Unregistered Sales of Equity Securities and Use of Proceeds**                                                          | ** ** |
| ** **                                                                                                                        | ** ** |
| **Item 3.  Defaults Upon Senior Securities**                                                                                      |       |

 

2

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| **Item  4. Submission of Matters to a Vote of Security Holders** |       |
|------------------------------------------------------------------|------------|
| **Item 5. Other Information**                                    |       |
| **Item 6. Exhibits**                                             | ** ** |
| ** **                                                       | ** ** |
| **Signatures**                                                   | ** ** |
| **Exhibit Index and Exhibits**                                   | ** ** |

 

3

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PENNS WOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 
| ** **                                                                                        | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                        | ** ** | **(in thousands)**           | ** ** |
| ASSETS:                                                                                           |       |                         |       |                        |       |
| Cash and due from banks                                                                           |       | $                            | 16,927     |                        | $          | 10,230 |   |
| Investment securities available for sale                                                          |       | 193,705                      |       | 210,611                     |       |
| Investment securities held to maturity (market value  of $664 and $701)                           |       | 658                          |       | 686                         |       |
| Loans held for sale                                                                               |       | 6,675                        |       | 4,803                       |       |
| Loans, net of unearned discount of $1,079 and $940                                                |       | 316,731                      |       | 275,828                     |       |
| Allowance for loan losses                                                                         |       | (3,248                       | )          | (3,069                      | )          |
| Loans, net                                                                                        |       | 313,483                      |       | 272,759                     |       |
|                                                                                              |       |                         |       |                        |       |
| Premises and equipment, net                                                                       |       | 4,692                        |       | 4,625                       |       |
| Accrued interest receivable                                                                       |       | 2,168                        |       | 2,242                       |       |
| Bank-owned life insurance                                                                         |       | 9,178                        |       | 8,908                       |       |
| Goodwill                                                                                          |       | 3,032                        |       | 3,032                       |       |
| Other assets                                                                                      |       | 8,751                        |       | 9,485                       |       |
| TOTAL ASSETS                                                                                      |       | $                            | 559,269    |                        | $          | 527,381 |   |
|                                                                                              |       |                         |       |                        |       |
| LIABILITIES:                                                                                      |       |                         |       |                        |       |
| Noninterest-bearing demand deposits                                                               |       | $                            | 70,046     |                        | $          | 64,875 |   |
| Interest-bearing demand deposits                                                                  |       | 94,057                       |       | 77,245                      |       |
| Savings deposits                                                                                  |       | 70,165                       |       | 67,298                      |       |
| Time deposits                                                                                     |       | 138,819                      |       | 124,900                     |       |
| Total deposits                                                                                    |       | 373,087                      |       | 334,318                     |       |
|                                                                                              |       |                         |       |                        |       |
| Short-term borrowings                                                                             |       | 33,669                       |       | 47,265                      |       |
| Other borrowings                                                                                  |       | 75,878                       |       | 70,878                      |       |
| Accrued interest payable                                                                          |       | 879                          |       | 836                         |       |
| Other liabilities                                                                                 |       | 3,374                        |       | 4,315                       |       |
| Total liabilities                                                                                 |       | 486,887                      |       | 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                                                                                 |       | 17,839                       |       | 13,022                      |       |
| Accumulated other comprehensive income                                                            |       | 4,027                        |       | 6,132                       |       |
| Less: Treasury stock, at cost (8,000 and 5,000  shares)                                           |       | (339                         | )          | (209                        | )          |
| Total shareholders’ equity                                                                   |       | 72,382                       |       | 69,769                      |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                   |       | $                            | 559,269    |                        | $          | 527,381 |   |

 

See accompanying notes tothe unaudited consolidated financial statements.

 

4

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PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME(UNAUDITED)

 
| ** **                                           | ** ** | **Nine  Months Ended  September 30,**     | ** ** | **Three  Months Ended  September 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|
| ** **                                           | ** ** | **2004**                                  | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in  thousands except per share data)** | ** ** |
| INTEREST AND  DIVIDEND INCOME:                       |       |                                      |       |                                   |       |   |   |   |   |
| Interest and fees  on loans                          |       | $                                         | 15,578     |                                   | $          | 14,919 |   | $ | 5,550 |   | $ | 5,017 |   |
| Interest and  dividends on investments:              |       |                                      |       |                                   |       |   |   |   |   |
| Taxable                                              |       | 5,996                                     |       | 4,472                                  |       | 1,930 |   | 1,703 |   |
| Tax-exempt                                           |       | 1,133                                     |       | 2,134                                  |       | 422 |   | 541 |   |
| Other dividend  and interest income                  |       | 76                                        |       | 99                                     |       | 22 |   | 20 |   |
|                                                 |       |                                      |       |                                   |       |   |   |   |   |
| Total interest  and dividend income                  |       | 22,783                                    |       | 21,624                                 |       | 7,924 |   | 7,281 |   |
| INTEREST EXPENSE:                                    |       |                                      |       |                                   |       |   |   |   |   |
| Interest on  deposits                                |       | 3,544                                     |       | 4,486                                  |       | 1,227 |   | 1,364 |   |
| Interest on  short-term borrowings                   |       | 367                                       |       | 278                                    |       | 131 |   | 106 |   |
| Interest on other  borrowings                        |       | 2,584                                     |       | 2,344                                  |       | 871 |   | 857 |   |
| Total interest  expense                              |       | 6,495                                     |       | 7,108                                  |       | 2,229 |   | 2,327 |   |
| Net interest  income                                 |       | 16,288                                    |       | 14,516                                 |       | 5,695 |   | 4,954 |   |
| Provision for  loan losses                           |       | 315                                       |       | 225                                    |       | 165 |   | 90 |   |
| Net interest  income after provision for loan losses |       | 15,973                                    |       | 14,291                                 |       | 5,530 |   | 4,864 |   |
| OTHER INCOME:                                        |       |                                      |       |                                   |       |   |   |   |   |
| Service charges                                      |       | 1,497                                     |       | 1,427                                  |       | 499 |   | 490 |   |
| Securities gains,  net                               |       | 1,535                                     |       | 3,098                                  |       | 407 |   | 1,247 |   |
| Earnings on  bank-owned life insurance               |       | 270                                       |       | 304                                    |       | 90 |   | 97 |   |
| Insurance  commissions                               |       | 1,796                                     |       | 1,175                                  |       | 637 |   | 425 |   |
| Other operating income                               |       | 944                                       |       | 796                                    |       | 322 |   | 313 |   |
| Total other  operating income                        |       | 6,042                                     |       | 6,800                                  |       | 1,955 |   | 2,572 |   |
| OTHER EXPENSES:                                      |       |                                      |       |                                   |       |   |   |   |   |
| Salaries and  employee benefits                      |       | 5,813                                     |       | 5,058                                  |       | 1,948 |   | 1,738 |   |
| Occupancy  expense, net                              |       | 704                                       |       | 684                                    |       | 231 |   | 219 |   |
| Furniture and equipment  expense                     |       | 721                                       |       | 811                                    |       | 226 |   | 263 |   |
| Pennsylvania  shares tax expense                     |       | 377                                       |       | 342                                    |       | 131 |   | 114 |   |
| Other expenses                                       |       | 2,820                                     |       | 2,720                                  |       | 973 |   | 956 |   |
| Total other  operating expenses                      |       | 10,435                                    |       | 9,615                                  |       | 3,509 |   | 3,290 |   |
| INCOME BEFORE  INCOME TAX PROVISION                  |       | 11,580                                    |       | 11,476                                 |       | 3,976 |   | 4,146 |   |
| APPLICABLE INCOME  TAX PROVISION                     |       | 3,277                                     |       | 2,941                                  |       | 1,150 |   | 1,135 |   |
| NET INCOME                                           |       | $                                         | 8,303      |                                   | 8,535      |   | $ | 2,826 |   | $ | 3,011 |   |
|                                                 |       |                                      |       |                                   |       |   |   |   |   |
| EARNINGS PER  SHARE - BASIC                          |       | $                                         | 2.50       |                                   | $          | 2.56 |   | $ | 0.85 |   | $ | 0.90 |   |
| -DILUTED                                             |       | $                                         | 2.50       |                                   | $          | 2.55 |   | $ | 0.85 |   | $ | 0.89 |   |
|                                                 |       |                                      |       |                                   |       |   |   |   |   |
| DIVDENDS PER  SHARE                                  |       | $                                         | 1.05       |                                   | $          | 0.82 |   | $ | 0.35 |   | $ | 0.28 |   |
|                                                 |       |                                      |       |                                   |       |   |   |   |   |
| WEIGHTED AVERAGE                                     |       |                                      |       |                                   |       |   |   |   |   |
| SHARES  OUTSTANDING-BASIC                            |       | 3,320,249                                 |       | 3,332,717                              |       | 3,319,457 |   | 3,331,555 |   |
| -DILUTED                                             |       | 3,323,908                                 |       | 3,335,452                              |       | 3,323,608 |   | 3,335,022 |   |

 

See accompanying notes tothe unaudited consolidated financial statements.

 

5

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PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(UNAUDITED)

 
| ** **                                                                 | ** ** | **Three Months Ended September  30,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **2004**                              | ** ** | **2003** | ** ** |
| ** **                                                                 | ** ** | **(in thousands)**                    | ** ** |
| Net Income                                                                 |       |                                  |       | $ | 2,826 |   |   |   | $ | 3,011 |   |
| Other comprehensive income:                                                |       |                                  |       |   |   |   |   |   |   |
| Unrealized gains (losses) on available for sale  securities                |       | $                                     | 4,165      |   |   |   | $ | (4,230 | ) |   |   |
| Less: Reclassification adjustment for gain included  in net income         |       | 407                                   |       |   |   | 1,247 |   |   |   |
| Other comprehensive income (loss) before tax                               |       |                                  |       | 3,758 |   |   |   | (5,477 | ) |
| Income tax expense (benefit) related to other  comprehensive income (loss) |       |                                  |       | 1,278 |   |   |   | (1,862 | ) |
| Other comprehensive income (loss), net of tax                              |       |                                  |       | 2,480 |   |   |   | (3,615 | ) |
| Comprehensive income (loss)                                                |       |                                  |       | $ | 5,306 |   |   |   | $ | (604 | ) |
|                                                                            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                         | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| ** **                                                         | ** ** | **(in thousands)**                  | ** ** |
| Net Income                                                         |       |                                |       | $ | 8,303 |   |   |   | $ | 8,535 |   |
| Other comprehensive income:                                        |       |                                |       |   |   |   |   |   |   |
| Unrealized gains(losses) on available for sale securities          |       | $                                   | (1,654     | ) |   |   | $ | 968 |   |   |   |
| Less: Reclassification adjustment for gain included  in net income |       | 1,535                               |       |   |   | 3,098 |   |   |   |
| Other comprehensive loss before tax                                |       |                                |       | (3,189 | ) |   |   | (2,130 | ) |
| Income tax benefit related to other comprehensive  loss            |       |                                |       | (1,084 | ) |   |   | (724 | ) |
| Other comprehensive loss, net of tax                               |       |                                |       | (2,105 | ) |   |   | (1,406 | ) |
| Comprehensive income                                               |       |                                |       | $ | 6,198 |   |   |   | $ | 7,129 |   |
|                                                                    |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes tothe unaudited consolidated financial statements.

 

 

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’EQUITY (UNAUDITED)

(in thousands except per share data)

 
| ** **                                                                                     | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **        | ** ** | **ACCUMULATED** | ** ** | ** **             | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|--------------|------------|-------------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **COMMON** | ** ** | **ADDITIONAL** | ** ** | ** **   | ** ** | **OTHER**         | ** ** | ** **      | ** ** | **TOTAL**              | ** ** |
| ** **                                                                                     | ** ** | **STOCK**  | ** ** | **PAID-IN**    | ** ** | **RETAINED** | ** ** | **COMPREHENSIVE** | ** ** | **TREASURY**    | ** ** | **SHAREHOLDERS’** | ** ** |
| ** **                                                                                     | ** ** | **SHARES** | ** ** | **AMOUNT**     | ** ** | **CAPITAL**  | ** ** | **EARNINGS**      | ** ** | **INCOME**      | ** ** | **STOCK**              | ** ** | **EQUITY** | ** ** |
| Balance, December 31, 2003                                                                |       | 3,326,560  |       | $              | 33,265     |         | $          | 17,559            |       | $               | 13,022     |                   | $          | 6,132      |       | $ | (209 | ) | 69,769 |   |
|                                                                                           |       |       |       |           |       |         |       |              |       |            |       |                   |       |       |       |
| Net income for the nine months ended  September 30, 2004                                  |       |       |       |           |       |         |       | 8,303             |       |            |       |                   |       | 8,303      |       |
| Dividends declared, $1.05                                                                      |       |       |       |           |       |         |       | (3,486            | )          |            |       |                   |       | (3,486     | )          |
| Treasury Stock acquired (3,000 shares)                                                         |       |       |       |           |       |         |       |              |       |            |       | (130                   | )          | (130       | )          |
| Net change in unrealized gain on investments  available for sale, net of tax benefit of $1,084 |       |       |       |           |       |         |       |              |       | (2,105          | )          |                   |       | (2,105     | )          |
| Stock options exercised                                                                        |       | 897        |       | 9              |       | 22           |       |              |       |            |       |                   |       | 31         |       |
| Balance, September 30, 2004                                                               |       | 3,327,457  |       | $              | 33,274     |         | $          | 17,581            |       | $               | 17,839     |                   | $          | 4,027      |       | $ | (339 | ) | 72,382 |   |

 

See accompanying notes tothe unaudited consolidated financial statements.

 

6

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PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED)

 
| ** **                                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| ** **                                                                         | ** ** | **(in thousands)**                        | ** ** |
| OPERATING ACTIVITIES:                                                              |       |                                      |       |   |   |
| Net Income                                                                         |       | $                                         | 8,303      |   | $ | 8,535 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities: |       |                                      |       |   |   |
| Depreciation                                                                       |       | 407                                       |       | 602 |   |
| Provision for loan losses                                                          |       | 315                                       |       | 225 |   |
| Accretion and amortization of investment security  discounts and premiums          |       | (28                                       | )          | (187 | ) |
| Securities gains, net                                                              |       | (1,535                                    | )          | (3,098 | ) |
| Originations of loans held for sale                                                |       | (27,785                                   | )          | (16,008 | ) |
| Proceeds of loans held for sale                                                    |       | 25,913                                    |       | 13,931 |   |
| Earnings on bank-owned life insurance                                              |       | (270                                      | )          | (304 | ) |
| Other, net                                                                         |       | 718                                       |       | 1,021 |   |
| Net cash provided by operating activities                                          |       | 6,038                                     |       | 4,717 |   |
| INVESTING ACTIVITIES:                                                              |       |                                      |       |   |   |
| Investment securities available for sale:                                          |       |                                      |       |   |   |
| Proceeds from sales                                                                |       | 131,196                                   |       | 34,623 |   |
| Proceeds from calls and maturities                                                 |       | 22,104                                    |       | 41,392 |   |
| Purchases                                                                          |       | (138,020                                  | )          | (110,937 | ) |
| Investment securities held to maturity:                                            |       |                                      |       |   |   |
| Proceeds from calls and maturities                                                 |       | 42                                        |       | 264 |   |
| Purchases                                                                          |       | (14                                       | )          | (24 | ) |
| Net increase in loans                                                              |       | (41,145                                   | )          | (7,860 | ) |
| Acquisition of bank premises and equipment                                         |       | (474                                      | )          | (451 | ) |
| Proceeds from the sale of foreclosed assets                                        |       | 177                                       |       | 72 |   |
| Proceeds from redemption of regulatory stock                                       |       | 2,100                                     |       | 196 |   |
| Purchases of regulatory stock                                                      |       | (1,895                                    | )          | (2,523 | ) |
| Net cash used in investing activities                                              |       | (25,929                                   | )          | (45,248 | ) |
| FINANCING ACTIVITIES:                                                              |       |                                      |       |   |   |
| Net increase in interest-bearing deposits                                          |       | 33,598                                    |       | 3,867 |   |
| Net increase (decrease) in noninterest-bearing deposits                            |       | 5,171                                     |       | (10,121 | ) |
| Proceeds of long-term borrowings                                                   |       | 5,000                                     |       | 19,100 |   |
| Net increase (decrease) in short-term borrowings                                   |       | (13,596                                   | )          | 29,392 |   |
| Dividends paid                                                                     |       | (3,486                                    | )          | (2,726 | ) |
| Stock options exercised                                                            |       | 31                                        |       | 52 |   |
| Purchase of Treasury Stock                                                         |       | (130                                      | )          | (197 | ) |
| Net cash provided by financing activities                                          |       | 26,588                                    |       | 39,367 |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               |       | 6,697                                     |       | (1,164 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING                                               |       | 10,230                                    |       | 11,731 |   |
| CASH AND CASH EQUIVALENTS, ENDING                                                  |       | $                                         | 16,927     |   | $ | 10,567 |   |

 

7

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The Company paid approximately $6,452,000 and$7,313,000 interest on deposits and borrowings during the first three quartersof 2004 and 2003, respectively.

 

The Company made income tax payments of approximately$3,250,000 and $2,154,000 during the first nine months of 2004 and 2003,respectively.

 

See accompanying notes to the unaudited consolidatedfinancial statements.

 

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

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL 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 Investment Company,Inc., Woods Real Estate Development Company, Inc., and Jersey Shore State Bank(the “Bank”) and its wholly-owned subsidiary The M Group, Inc. D/B/A TheComprehensive Financial Group (“The M Group”). All significant inter-company balances and transactions have beeneliminated 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 December 31,2003.

 

**Recent Accounting Pronouncements**

 

InMarch 2004, the Financial Accounting Standards Board (“FASB”) reached consensuson the guidance provided by Emerging Issues Task Force Issue 03-1 (“EITF03-1”), *The Meaning of Other-Than-Temporary Impairment andits Application to Certain Investments*. The guidance is applicableto debt and equity securities that are within the scope of FASB Statement ofFinancial Accounting Standard (“SFAS”) No. 115, *Accountingfor Certain Investments In Debt and Equity Securities* and certainother investments. EITF 03-1 specifies that an impairment would be consideredother-than-temporary unless (a) the investor has the ability and intent to holdan investment for a reasonable period of time sufficient for the recovery ofthe fair value up to (or beyond) the cost of the investment and (b) evidenceindicating the cost of the investment is recoverable within a reasonable periodof time outweighs evidence to the contrary. EITF 03-1 cost method investmentand disclosure provisions were effective for reporting periods ending afterJune 15, 2004. The measurement and recognition provisions relating to debt andequity securities have been delayed until the FASB issues additional guidance.The Company adopted cost method investment and disclosure provisions of EITF03-1 on June 30, 2004. The adoption did not have a material impact on theconsolidated financial statements, results of operations or liquidity of theCompany.

 

**NOTE 2. Per Share Data**

 

The following table sets forth the composition of theweighted average common shares (denominator) used in the basic and dilutive pershare computation.  There are noconvertible securities which would affect the numerator in calculating basicand dilutive

 

8

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earnings per share, therefore, net income as presentedon the consolidated statement of income will be used as the numerator.

 
| ** **                                                                                                | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2004**                                   | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Weighted average common shares outstanding                                                                |       | 3,327,457                                  |       | 3,451,961                                 |       | 3,327,406 |   | 3,451,572 |   |
|                                                                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Average treasury stock shares                                                                             |       | (8,000                                     | )          | (120,406                                  | )          | (7,157 | ) | (118,855 | ) |
|                                                                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Weighted average common shares and common stock  equivalents used to calculate basic earnings per share   |       | 3,319,457                                  |       | 3,331,555                                 |       | 3,320,249 |   | 3,332,717 |   |
|                                                                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Additional common stock equivalents (stock options)  used to calculate diluted earnings per share         |       | 4,151                                      |       | 3,467                                     |       | 3,659 |   | 2,735 |   |
|                                                                                                      |       |                                       |       |                                      |       |   |   |   |   |
| Weighted average common shares and common stock  equivalents used to calculate diluted earnings per share |       | 3,323,608                                  |       | 3,335,022                                 |       | 3,323,908 |   | 3,335,452 |   |

 

Options to purchase 8,713 shares of common stock at theprice of $48.35 were outstanding during the three and nine months ended September 30,2004 and 10,890 shares of common stock at the price of $48.35 were outstandingfor the three and nine months ended September 30, 2003, but were notincluded in the computation of diluted earnings per share because to do sowould have been anti-dilutive.

 

**Note 3.****  Net Periodic BenefitCost-Defined Benefit Plans**

 

Fora detailed disclosure on the Company’s pension and employee benefits plans,please refer to Note K of the Company’s Consolidated Financial Statements includedin the 2003 Annual Report on Form 10-K.

 

Thefollowing sets forth the components of net periodic benefit cost of thedomestic non-contributory defined benefit plans for the nine months ended September 30,2004 and September 30, 2003 respectively.

 

9

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| ** **                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Service cost                          |       | $        | 349        |     | $          | 332 |   |
| Interest cost                         |       | 299      |       | 288      |       |
| Expected return on plan assets        |       | (245     | )          | (192     | )          |
| Amortization of transition obligation |       | (2       | )          | (2       | )          |
| Amortization of prior service cost    |       | 19       |       | 20       |       |
| Amortization of net (gain) loss       |       | 31       |       | 62       |       |
| Net periodic cost                     |       | $        | 451        |     | $          | 508 |   |

 

**Employer Contributions**

 

TheCompany previously disclosed in its consolidated financial statements includedin the 2003 Annual Report on Form 10-K that it expected to contribute $560,000to its defined benefit plan in 2004.  As of September 30, 2004, acontribution of $296,000 has been made. The Company presently anticipates contributing an additional $84,000 tofund its pension plan in 2004 for a total of $380,000.

 

**Note 4.  Off Balance Sheet Risk**

 

The Company is a party to financial instruments withoff-balance sheet risk in the normal course of business to meet the financingneeds of its customers.  These financialinstruments include commitments to extend credit and standby letters ofcredit.  These instruments involve, tovarying degrees, elements of credit, interest rate or liquidity risk in excessof the amount recognized in the consolidated balance sheet.  The contract amounts of these instruments expressthe extent of involvement the Company has in particular classes of financialinstruments.

 

The Company’s exposure to credit loss fromnonperformance by the other party to the financial instruments for commitmentsto extend credit and standby letters of credit is represented by thecontractual amount of these instruments. The Company uses the same credit policies in making commitments andconditional obligations as it does for on-balance sheet instruments.

 

The Company may require collateral or other security tosupport financial instruments with off-balance sheet credit risk.

 

Financial instruments whose contract amounts representcredit risk are as follows:

 

| ** **                   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2004**               | ** ** | **2003**              | ** ** |
| Commitments to extend credit |       | $                      | 54,313     |                  | $          | 47,454 |   |
|                         |       |                   |       |                  |       |
| Standby letters of credit    |       | $                      | 760        |                  | $          | 258 |   |

 

10

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# **Note 5.  Reclassificationof Comparative Amounts**

 

Certain comparativeamounts for the prior periods have been reclassified to conform to currentperiod presentations. Such reclassifications had no effect on net income orshareholders’ equity.

 

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

 

This Report containscertain “forward-looking statements” including statements concerning plans,objectives, future events or performance and assumptions and other statementswhich are other than statements of historical fact.  The Company wishes to caution readers thatthe following important factors, among others, may have affected and could inthe future affect the Company’s actual results and could cause the Company’sactual results for subsequent periods to differ materially from those expressedin any forward-looking statement made by or on behalf of the Company herein:  (i) the effect of changes in laws andregulations, including federal and state banking laws and regulations, whichthe Company must comply, and the associated costs of compliance with such lawsand regulations either currently or in the future as applicable; (ii) theeffect of changes in accounting policies and practices, as may be adopted bythe regulatory agencies as well as by the Financial Accounting Standards Board,or of changes in the Company’s organization, compensation and benefit plans;(iii) the effect on the Company’s competitive position within its market areaof the increasing consolidation within the banking and financial servicesindustries, including the increased competition from larger regional andout-of-state banking organizations as well as non-bank providers of variousfinancial services; (iv) the effect of changes in interest rates; and (v) theeffect of changes in the business cycle and downturns in the local, regional ornational economies.

 

**ITEM2.   Management’s Discussion and Analysisof Financial Condition and Results of Operation**

 

# **EARNINGS SUMMARY**

 

# **Comparison of the Nine Months Ended September 30,2004 and 2003**

 

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**InterestIncome**

 

The$1,159,000 increase of interest income is the result of the expansion of totalinterest-earning assets partially offset by declining interest rates oninterest-earning assets.  Totalsecurities experienced a rate decline of 17 basis points effected by management’srepositioning from longer term States & Political securities to shorterterm U.S. Government securities.  Whileweighted average interest rates in the loan portfolio decreased 70 basispoints, the expansion into the Centre County market facilitated loan growth ofover $40,903,000.  The opportunity toborrow funds at historically low interest rates, a growth of municipal deposits,and the sale of securities funded the loan growth.

 

# **Interest Expense**

# ** **

Forthe nine months ended September 30, 2004, total interest expense decreasedby $613,000 or 8% compared to the first nine months of 2003.  Low interest rates have positively impactedinterest expense.  Management’sadjustment of rates paid while continuing to monitor the local competition forall deposit accounts contributed the most substantial decrease in interestexpense.  The weighted average rate oninterest paid on deposits declined 51 basis points for the nine months ended September 30,2004 from the same period in 2003 resulting in the decrease of interest paid onsavings deposits of $404,000 and $538,000 on time deposits.

 

Favorablelong-term borrowing rates offer opportunities to reduce interest expenses overthe coming years.  At the end of the firstquarter of 2003, the Company borrowed an additional $20 million in long termadvances through the FHLB to minimize future borrowing costs and to enhanceasset and liability positioning.  Theseadditional borrowings were utilized by management to take advantage of currentinvestment opportunities while minimizing interest rate risk.  The $240,000 increase in expense on long-termborrowings is the result of these additional advances with average advances of$10,260,000 offset by the 23 basis point decline in the resulting weightedaverage interest rate for the first three quarters of 2004 compared to the sameperiod of 2003. Interest paid on short-term borrowings increased $89,000 as aresult of an increase in the average balances of $11,812,000 offset partiallyby the decline in the weighted average interest rate of 32 basis points.  Overnight borrowings increased as a result ofleveraging the purchase of securities and loan growth.

 

# **Provision for Loan Losses**

# ** **

The provision for loanlosses is based upon management’s quarterly review of the loan portfolio.  The purpose of the review is to assess loanquality, identify impaired loans, analyze delinquencies, ascertain loan growth,evaluate potential charge-offs and recoveries, and assess general economicconditions in the markets served.  Anexternal independent loan review is also performed annually for the Bank.  Management remains committed to an aggressiveprogram of problem loan identification and resolution.

 

The allowance iscalculated by applying loss factors to outstanding loans by type, excludingloans for which a specific allowance has been determined.  Loss factors are

 

12

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based on management’sconsideration of the nature of the portfolio segments, changes in mix andvolume of the loan portfolio, and historical loan loss experience.  In addition, management considers industrystandards and trends with respect to nonperforming loans and its knowledge andexperience with specific lending segments.

 

Although managementbelieves that it uses the best information available to make such determinationsand that the allowance for loan losses is adequate at September 30, 2004,future adjustments could be necessary if circumstances or economic conditionsdiffer substantially 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.

 

While management hasattributed the allowance for loan losses to various portfolio segments, theallowance is available for the entire portfolio.

 

The allowance for loanlosses increased from $3,069,000 at December 31, 2003 to $3,248,000 at September 30,2004.  At September 30, 2004, allowancefor loan losses was 1.0% of total loans compared to 1.1% of total loans at December 31,2003.  This percentage is consistent withthe Bank’s historical experience and peer banks.  Management’s conclusion is that the allowancefor loan losses is adequate toprovide for probable losses inherent in its loan portfolio as of the balancesheet date.

 

The provision for loanlosses totaled $315,000 for the nine months ended September 30, 2004.  The provision for the same period in 2003 was$225,000.  Management concluded that theincrease of the provision is adequate, considering the loan growth experiencedin the first three quarters in 2004.

 

An overall increase of $269,000was experienced in non-performing loans from December 31, 2003 to $1,525,000on September 30, 2004.  This increaseconsisted of a real estate secured loans increase of $247,000 and an installmentloans increase of $22,000.

 

Based upon this analysis,as well 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**

 

Total other operatingincome for the nine months ended September 30, 2004 decreased $758,000.  Net securities gains represent a decrease of$1,563,000. During the second quarter of 2003, management took advantage of theopportunity available to sell

 

13

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investment securitieswithout significantly impacting the overall effective yield of the investmentportfolio.  Excluding net securitiesgains, other income increased $805,000 primarily due to the $621,000 growth ofinsurance commissions earned by the Bank’s subsidiary, The M Group, Inc.  The M Group has added personnel and expandedits market area in the last year.  Servicecharges increased $70,000 as the weighted average balance of demand depositsincreased.  Bank-owned life insurance andother operating income combined increased $114,000 due to normal operations.

 

# **Other Operating Expense**

# ** **

Anoverall increase in other expenses totaled $820,000 for the first nine monthsof 2004 compared to the same period in 2003 and is the result of normaloperational cost increases.  The $755,000increase of salaries and benefits consisted of the increase of $363,000 of commissionspaid as a result of the growth in sales of financial products offered by The MGroup, Inc. and normal salary increases of $392,000.

 

# **Provision for Income Taxes**

# ** **

The provision for incometaxes for the nine months ended September 30, 2004 resulted in an effectiveincome tax rate of 28.30% compared to 25.63% for the corresponding period in 2003.  This increasing effective tax rate is theresult of management’s previous periods repositioning of the investmentportfolio from tax-exempt securities to taxable securities.  The tax effects of the repositioning wereexamined by management as part of the Company’s strategic plan.

 

**Comparison of the Three Months Ended September 30, 2004 and 2003**

 

**Interest Income**

 

Duringthe third quarter of 2004, interest and dividend income earned was $7,924,000,an increase of $643,000 over the same quarter in 2003.

 

Interestincome on loans increased $533,000 due to the weighted average balance increasing$49,885,000 from the third quarter of 2003 to the third quarter of 2004 partiallyoffset by the weighted average interest rate decrease of 53 basis points.

 

Anincrease of $110,000 occurred in interest and dividends on investments.  Taxable interest and dividends increased $229,000while non-taxable interest decreased $119,000 due to the purchases ofshort-term, taxable securities and the sales of long-term, tax-free securities.

 

**Interest Expense**

 

Interestexpense during the third quarter of 2004 decreased $98,000, or 4.2%, frominterest expense incurred during the third quarter of 2003.  Interest expense on savings depositsdecreased $37,000 as a result of a 22 basis point decline of the effective

 

14

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weightedaverage interest rate for the period partially offset by the increase of theweighted average balance of $20,321,000. The weighted average interest rate for time deposits decreased 31 basispoints for a savings of $100,000.  The interestexpense paid on short-term borrowings increased $25,000 caused by the increaseof the weighted average interest rate of 3 basis points along with the increaseof the weighted average balance of short-term borrowings increase of $607,000.  Interest paid on long-term borrowingsincreased $14,000 due to the increase in the weighted average balance of$5,000,000.

 

**Other Operating Income**

 

Totalother operating income for the quarter ended September 30, 2004 comparedto the same period in 2003 decreased $617,000. The decrease is due to the decrease of securities gains of $840,000partially offset by an increase in the insurance and brokerage commissionsearned by the Bank’s subsidiary, The M Group, Inc. of $212,000 during the thirdquarter of this year.  Service chargesrose $9,000 as the weighted average balance of demand deposits continued torise.

 

**Other Operating Expenses**

 

Totalother operating expenses increased $219,000. Salaries and employee benefits increased $210,000 attributed to both theincrease of commissions earned by The M Group, Inc. and standard cost of livingsalary increases for bank employees. Occupancy expense increased $12,000 and furniture and equipment decreased$37,000 due to an increase in depreciation expense during the third quarter of2004 compared to the third quarter of 2003. Pennsylvania shares tax expense increased $17,000 and miscellaneousexpenses increased $17,000 due to general inflationary increases.

 

**Provision for Income Taxes**

 

Incometaxes increased $15,000 for the quarter ended September 30, 2004 comparedto the third quarter of 2003.  Theeffective tax rates for the quarter ended September 30, 2004 and 2003 were28.92% and 27.38%, respectively.  Thisincreasing effective tax rate is consistent with management’s repositioning ofthe investment portfolio from tax-exempt securities to taxable securities.  The tax effects of the repositioning wereexamined by management as part of the Company’s strategic plan.

 

# **ASSET/LIABILITY MANAGEMENT**

# ** **

# **Assets**

# ** **

At September 30,2004, total assets were $559.3 million compared to $527.4 million at December 31,2003.  Cash and due from banks increased$6.7 million during the first three quarters of 2004.  Investment securities totaled $194.3 millionat September 30, 2004 for a net decrease of $16.9 million from thecorresponding balance

 

15

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December 31,2003.  The decline of investments isprimarily due to the principal payments on the mortgage-backed securities of $21.2million.  Mortgage-backed agencysecurities were purchased and sold for a net decrease of $7.3 million andtax-free municipals were purchased and sold for a net increase of $14.9million.  In prior periods, managementhad shortened the average life of the securities portfolio in anticipation ofrising interest rates.  During 2004,management has lengthened the maturities of investments as yieldsincrease.  The unrealized gain oninvestments decreased $3.3 million from December 31, 2003 to September 30,2004.   During this period, net loansincreased by $40.7 million as a result of expansion into Centre County andincreased volume in both Lycoming and Clinton counties.

 

# **Deposits**

# ** **

AtSeptember 30, 2004, total deposits amounted to $373.1 million representingan increase of $38.8 million from total deposits at December 31,2003.  Non-interest bearing demanddeposits increased $5.2 million and savings deposits increased $2.9 million dueto normal operations. Time deposits increased $13.9 million and interest-bearingdemand deposits increased $16.8 million due to an increase of municipaldeposits.

 

# **Capital**

# ** **

The adequacy of theCompany’s capital is reviewed on an ongoing basis with reference to the size,composition and quality of the Company’s resources and regulatoryguidelines.  Management seeks to maintaina level of capital sufficient to support existing assets and anticipated assetgrowth, maintain favorable access to capital markets and preserve high qualitycredit ratings.

 

Bank holding companiesare required to comply with the Federal Reserve Board’s risk-based capitalguidelines.  The risk-based capital rulesare designed to make regulatory capital requirements more sensitive todifferences in risk profiles among banks and bank holding companies and tominimize 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 September 30,2004, the Company was “well capitalized” with a total capital ratio of 22.11%,a Tier I capital ratio of 20.27% and a Tier I leverage ratio of 12.06%.

 

16

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**Liquidityand Interest Rate Sensitivity**

 

The asset/liabilitycommittee addresses the liquidity needs of the Bank to see that sufficientfunds are available to meet credit demands and deposit withdrawals as well asto the placement of available funds in the investment portfolio.  In assessing liquidity requirements, equalconsideration is given to the current position as well as the 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 CoreFunding Dependence, 35% maximum

 

Fundamentalobjectives of the Company’s asset/liability management process are to maintainadequate liquidity while minimizing interest rate risk.  The maintenance of adequate liquidityprovides the Company with the ability to meet its financial obligations todepositors, loan customers and shareholders. Additionally, it provides funds for normal operating expenditures andbusiness opportunities as they arise. The objective of interest rate sensitivity management is to increase netinterest income by managing interest sensitive assets and liabilities in such away that they can be repriced in response to changes in market interest rates.

 

TheBank, like other financial institutions, must have sufficient funds availableto meet its liquidity needs for deposit withdrawals, loan commitments andexpenses.   In order to control cashflow, the Bank estimates future flows of cash from deposits and loanpayments.  The primary sources of fundsare deposits, principal and interest payments on loans and mortgage-backedsecurities, as well as Federal Home Loan Bank borrowings.  Funds generated are used principally to fundloans and purchase investment securities. Management believes the Company has adequate resources to meet itsnormal funding requirements.

 

Managementmonitors the Company’s liquidity on both a long and short-term basis thereby,providing management necessary information to react to current balance sheettrends.  Cash flow needs are assessed andsources of funds are determined.  Fundingstrategies consider both customer needs and economical cost.  Both short and long term funding needs areaddressed by maturities and sales of available for sale investment

 

17

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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.

 

Managementmonitors and determines the desirable level of liquidity.  Consideration is given to loan demand,investment opportunities, deposit pricing and growth potential as well as thecurrent cost of borrowing funds.  TheCompany has a current borrowing capacity at the Federal Home Loan Bank of $261.9million.  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 $95.6million as of September 30, 2004.

 

Interestrate sensitivity, which is closely related to liquidity management, is afunction of the repricing characteristics of the Company’s portfolio of assetsand liabilities.  Asset/liabilitymanagement strives to match maturities and rates between loan and investmentsecurity assets with the deposit liabilities and borrowings that fundthem.  Successful asset/liabilitymanagement results in a balance sheet structure which can cope effectively withmarket rate fluctuations. The matching process is affected by segmenting bothassets and liabilities into future time periods (usually 12 months, or less)based upon when 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.

 

Therehas been no substantial changes in the Company’s GAP analyses or simulation analysescompared to the information provided in the Company’s Form 10-K for the periodended December 31, 2003.

 

Generally,management believes the Company is well positioned to respond expeditiouslywhen the market interest rate outlook changes.

 

# **Inflation**

 

The asset and liabilitystructure of a financial institution is primarily monetary in nature.  Therefore, interest rates rather thaninflation have a more significant impact on the Company’s performance.  Interest rates are not always affected in thesame direction or

 

18

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magnitude as prices ofother goods and services, but are reflective of fiscal policy initiatives oreconomic factors which are not measured by a price index.

 

In reference to theattached financial statements, all adjustments are of a normal recurring naturepursuant to Rule 10-01 (b) (8) of Regulation S-X`.

 

**Item3.  Quantitative and QualitativeDisclosure About Market Risk**

 

Marketrisk for the Company is comprised primarily from interest rate risk exposureand liquidity risk.  Interest rate riskand liquidity risk management is performed at the Bank level as well as theCompany level.  The Company’s interestrate sensitivity is monitored by management through selected interest rate riskmeasures produced internally.  There havebeen no substantial changes in the Company’s GAP analyses or simulationanalyses compared to the information provided in the Company’s SEC 10-K for theperiod ended December 31, 2003. Additional information and details are provided in the InterestSensitivity section of Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

 

Generally,management believes the Company is well positioned to respond expeditiouslywhen the market interest rate outlook changes.

 

**Item4.  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 September 30,2004. There has been no change in the Company’s internal control over financialreporting that occurred during the quarter ended September 30, 2004, thathas materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

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

### ** **

**Item 1. Legal Proceedings**

 

None.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

 

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

 

19

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will expire on August 8,2005.  There were no repurchases of theCompany’s common stock during the quarter ended September 30, 2004.

 

**Item 3.  Defaults Upon Senior Securities**

 

None

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

None

 

### **Item5.  Other Information**

 

None

 

**Item 6. 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’s RegistrationStatement on Form S-4, No. 333-65821).

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

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

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

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

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                                                |   | PENNS WOODS BANCORP, INC.                               |
|-----------------------------------------------------|--------|---------------------------------------------------------|
|                                                |   | (Registrant)                                            |
|                                                |   |                                                    |
|                                                |   |                                                    |
| Date:    November 9,  2004 |   | /s/ Ronald A.  Walko                                    |   |
|                                                |   | Ronald A. Walko, President and Chief  Executive Officer |
|                                                |   |                                                    |
|                                                |   |                                                    |
|                                                |   |                                                    |
| Date:    November 9,  2004 |   | /s/ Sonya E.  Scott                                     |   |
|                                                |   |   Sonya  E. Scott, Secretary                  |
|                                                     |        |                                                         |  |  |

 

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**EXHIBIT INDEX**

 
| Exhibit 31(i)  | Rule 13a-14(a) Certification of Chief Executive Officer    |
|----------------|------------------------------------------------------------|
| Exhibit 31(ii) | Rule 13a-14(a) Certification of Chief Financial Officer    |
| Exhibit 32(i)  | Section 1350 Certification of Chief Executive Officer |
| Exhibit 32(ii) | Section 1350 Certification of Chief Financial Officer |

 

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