PENNS WOODS BANCORP INC, 10-K, 1996-03-29

PENNS WOODS BANCORP INC
10-K, 1996-03-29
STATE COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year December 31, 1995

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from _______________ to _______________

Commission file number 0-17077

PENNS WOODS BANCORP, INC.
(exact name of registrant as specified in its charter)

Pennsylvania 23-2226454
(State or other jurisdiction of (IRS. Employer
of incorporation or organization Identification No.)

115 South Main Street, PO. Box 5098
Jersey Shore, Pennsylvania 17740
(Address of principal executive offices)

(717) 398-2213
Registrant's telephone number, including area

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange
which registered
None None

Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10 per share

(Title of Class)

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

State the aggregate market value of the voting stock held by
non-affiliates of the registrant $39,531,636 at February 29, 1996

Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.

Class Outstanding at February 29, 1996
Common Stock, $10 Par Value 1,271,528 Shares

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference:

Penns Woods Bancorp, Inc. Proxy Statement (Proxy
Statement dated March 22, 1996)

Location in Form 10-K: Part III, Items 10, 11 and 12
<PAGE>
INDEX

PART I
ITEM 1. BUSINESS........................................ 4
ITEM 2. PROPERTIES...................................... 19
ITEM 3. LEGAL PROCEEDINGS............................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS............................................ 21
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT............ 21

PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS........................ 22
ITEM 6. SELECTED FINANCIAL DATA......................... 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..... 51

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT......................................... 87
ITEM 11. EXECUTIVE COMPENSATION.......................... 87
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.............................. 88
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS............................... 88

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K................................ 89

<PAGE>
PART I

ITEM 1. BUSINESS

A. General Development of Business and History

On January 7, 1983, Penns Woods Bancorp, Inc. (the
"Company") was incorporated under the laws of the Commonwealth of
Pennsylvania as a bank holding company. The Jersey Shore State
Bank (the "Bank") became a wholly-owned subsidiary of the
Company, and each outstanding share of Bank common stock was
converted into one share of Company common stock. This
transaction was approved by the shareholders of the Bank on
April 11, 1983 and was officially effective on July 12, 1983.
The Company's business has consisted primarily of managing and
supervising the Bank, and its principal source of income has been
dividends paid by the Bank. The Company's two other wholly-owned
subsidiaries are Woods Real Estate Development Company and Woods
Investment Company, Inc.

The Bank is engaged in commercial and retail banking and the
taking of time and regular savings and demand deposits, the
making of commercial and consumer loans and mortgage loans, and
safe deposit services. Auxiliary services, such as cash
management, are provided to commercial customers. It operates
full banking services with seven offices in Northcentral
Pennsylvania.

Neither the Company nor the Bank anticipates that compliance
with environmental laws and regulations will have any material
effect on capital expenditures, earnings, or on its competitive
position. The Bank is not dependent on a single customer or a
few customers, the loss of whom would have a material effect on
the business of the Bank.

The Bank employed approximately 126 persons as of
December 31, 1995. The Company does not have any employees. The
principal officers of the Bank also serve as officers of the
Company.

B. Regulations and Supervision

The Company is under the jurisdiction of the Securities and
Exchange Commission (the "SEC") and of state securities
commissions for matters relating to the offering and sale of its
securities. In addition, the Company is subject to the SEC's
rules and regulations relating to periodic reporting, reporting
to its shareholders, proxy solicitation and insider trading.

The Company is also subject to the provisions of the Bank
Holding Company Act of 1956, as amended (the "BHCA") and to
supervision and examination by the Board of Governors of the
Federal Reserve System (the "FRB"). The Bank is subject to the
supervision and examination by the Federal Deposit Insurance
Corporation (the "FDIC"), as its primary federal regulator and as
the insurer of the Bank's deposits. The Bank is also regulated
and examined by the Pennsylvania Department of Banking (the
"Department").

The FRB has issued regulations under the BHCA that require a
bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. As a result, the
FRB, pursuant to such regulations, may require the Company to
stand ready to use its resources to provide adequate capital
funds to the Bank during periods of financial stress or
adversity. The BHCA requires the Company to secure the prior
approval of the FRB before it can acquire all or substantially
all of the assets of any bank, or acquire ownership or control of
any voting shares of any bank other than Bank, if after such
acquisition, it would own or control more than 5% of the voting
shares of such bank. Such a transaction would also require
approval of the Department.

A bank holding company is prohibited under the BHCA from
engaging in, or acquiring direct or indirect control of, more
than 5% of the voting shares of any company engaged in
non-banking activities unless the FRB, by order or regulation,
has found such activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
Under the BHCA, the FRB has the authority to require a bank
holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon FRB's determination that such activity or control
constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.

Bank holding companies are required to comply with the FRB's
risk-based capital guidelines. The risk-based capital rules are
designed to make regulatory capital requirements more sensitive
to differences in risk profiles among banks and bank holding
companies and to minimize disincentives for holding liquid
assets. Currently, the required minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least
half of the total capital is required to be Tier 1 capital,
consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, and minority interests
in the equity accounts of consolidated subsidiaries, less certain
intangible assets. The remainder ("Tier 2 capital") may consist
of a limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount
of the general loan loss allowance. In addition to the
risk-based capital guidelines, the FRB requires each bank holding
company to comply with the leverage ratio, under which the bank
holding company must maintain a minimum level of Tier 1 capital
to average total consolidated assets of 3% for the those bank
holding companies which have the highest regulatory examination
ratings and are not contemplating or experiencing significant
growth or expansion. All other bank holding companies are
expected to maintain a leverage ratio of at least 4% to 5%. The
Bank is subject to similar capital requirements adopted by the
FDIC.

The risk-based capital guidelines are required to take
adequate account of interest rate risk, concentration of credit
risk, and risks of nontraditional activities. In August of
1995, the Federal banking agencies, including the FRB and the
OCC, issued a rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when
assessing the capital adequacy of an institution. This new rule
implements the first step of a two-step process by explicitly
including a bank's exposure to declines in the value of its
capital due to changes in interest rates as one factor that the
banking agencies will consider in evaluating a bank's capital
adequacy. The new rule does not establish a measurement
framework for assessing a bank's interest rate risk exposure
level. Examiners will use data collected by the banking
agencies to determine the adequacy of an individual bank's
capital in light of interest rate risk. Examiners will also
consider historical financial performance, earnings exposure to
interest rate movements and the adequacy of internal interest
rate risk management, among other things. This case-by-case
approach for assessing a bank's capital adequacy for interest
rate risk is transitional. The second step of the banking
agencies' interest rate risk regulation will be to establish an
explicit minimum capital charge for interest rate risk, based on
measured levels of interest rate risk exposure. The banking
agencies will implement this second step at some future date.
The Company is unable to predict the form in which these future
regulations will ultimately be adopted or the effect the new or
anticipated regulations would have on the operations and capital
adequacy of the Bank.

The federal bank regulators adopted final rules relating to
concentration of credit risk and risks of non-traditional
activities effective on January 17, 1995. The regulators declined
to adopt a quantitative test for concentrations of credit risk
and, instead, provided that such risk would be considered in
addition to other risks in assessing a depository institution's
overall capital adequacy. Institutions with higher concentration
of credit risk will be required to maintain greater levels of
capital. Similarly, the federal regulators incorporated the
evaluation of the risks of non-traditional activities into the
overall assessment of capital adequacy. The regulators
indicated that proposed rules regarding specific types of non-
traditional activities will be promulgated from time to time.
The Bank does not currently conduct any non-traditional
activities.

C. Regulation of the Bank

From time to time, various types of federal and state
legislation have been proposed that could result in additional
regulation of, and restrictions of, the business of the Bank. It
cannot be predicted whether any such legislation will be adopted
or how such legislation would affect the business of the Bank.
As a consequence of the extensive regulation of commercial
banking activities in the United States, the Bank's business is
particularly susceptible to being affected by federal legislation
and regulations that may increase the costs of doing business.

Deposit Insurance - There are two deposit insurance funds
administered by the FDIC - the Savings Association Insurance Fund
("SAIF") and the Bank Insurance Fund ("BIF"). The Bank's
deposits are insured under the BIF; however, the deposits assumed
by the Bank in connection with the merger of Lock Haven Savings
Bank are treated and assessed as SAIF-insured deposits. The FDIC
has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of
premiums based on capital and supervisory measure. Under the
risk-related premium schedule, the FDIC assigns, on a semiannual
basis, each institution to one of three capital groups
(well-capitalized, adequately capitalized or undercapitalized)
and further assigns such institution to one of three subgroups
within a capital group. The institution's subgroup assignment is
based upon the FDIC's judgment of the institution's strength in
light of supervisory evaluations, including examination reports,
statistical analyses and other information relevant to gauging
the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0%
or greater and a Tier 1 leverage ratio of 5.0% or greater, are
assigned to the well-capitalized group. The Bank's required
ratios were well above the minimum ratios as of December 31,
1995.

In August, 1995 the FDIC adopted an amendment to the BIF
risk-based assessment schedule that lowers the deposit insurance
assessment rate for most depository institutions with deposits
insured by BIF to $0.04 per $100 of insured deposits. On
November 14, 1995 the FDIC further reduced the BIF assessment
rates to a range of $0.00 per $100 of insured deposits (subject
to a minimum annual premium of $2,000) for those institutions
with the least risk, to $0.27 for every $100 of insured deposits
for institutions deemed to have the highest risk, beginning
January 1, 1996. At the same time, the FDIC voted to retain the
existing assessment rates of $0.23 for every $100 of deposits for
the members of the SAIF, in the lowest risk-based premium
category and $0.31 for every $100 of insured deposits for members
of SAIF in the highest risk-based premium category. The Bank is
a member of the BIF and is subject to FDIC deposit insurance
assessments at the rate of $0.00 per $100 of insured deposits.
The deposits assumed by the Bank in connection with the merger of
Lock Haven Savings Bank are treated as SAIF-insured deposits and
are subject to an assessment rate of $0.23 for every $100 of
deposits.

Prompt Corrective Action - The FDIC has specified the levels
at which an insured institution will be considered "well-
capitalized," "adequately capitalized," "undercapitalized," and
"critically undercapitalized." In the event an institution's
capital deteriorates to the "undercapitalized" category or
below, the Federal Deposit Insurance Act (the "FDIA") and FDIC
regulations prescribe an increasing amount of regulatory
intervention, including: (1) the institution of a capital
restoration plan by a bank and a guarantee of the plan by a
parent institution; and (2) the placement of a hold on increases
in assets, number of branches or lines of business. If capital
has reached the significantly or critically undercapitalized
levels, further material restrictions can be imposed, including
restrictions on interest payable on accounts, dismissal of
management and (in critically undercapitalized situations)
appointment of a receiver. For well-capitalized institutions,
the FDIA provides authority for regulatory intervention where the
institution is deemed to be engaging in unsafe or unsound
practices or receives a less than satisfactory examination
report rating for asset quality, management, earnings or
liquidity.

Operational and Managerial Controls - The federal banking
agencies adopted, effective in August, 1995, certain operational
and managerial standards for depository institutions, including
internal audit system components, loan documentation
requirements, asset growth parameters and compensation standards
for officers, directors and employees. The Bank does not
anticipate that compliance with these guidelines will have a
material effect on its operations.

D. Interstate Banking

The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking Law") amended various
federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The
interstate banking provisions allow, effective September 29,
1995, for the acquisition by a bank holding company of a bank
located in another state. Interstate bank mergers and branch
purchase and assumption transactions will be allowed effective
June 1, 1997; however, states may "opt-out" of the merger and
purchase and assumption provisions by enacting a law which
specifically prohibits such interstate transactions. States may,
in the alternative, enact legislation to allow interstate merger
and purchase and assumption transactions prior to June 1, 1997.
States may also enact legislation to allow for de novo interstate
branching by out of state banks. In July of 1995, Pennsylvania
adopted "opt in" legislation which allows such transactions today
,prior to the June 1, 1997 effective date.

E. Environmental Laws

Environmentally related hazards have become a source of high
risk and potential liability for financial institutions relating
to their loans. Environmentally contaminated properties owned by
an institution's borrowers may result in a drastic reduction in
the value of the collateral securing the institution's loans to
such borrowers, high environmental clean up costs to the
borrower affecting its ability to repay the loans, the
subordination of any lien in favor of the institution to a state
or federal lien securing clean up costs, and liability to the
institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of
the borrower. The Company is not aware of any borrower who is
currently subject to any environmental investigation or clean up
proceeding which is likely to have a material adverse effect on
the financial condition or results of operations of the Company.

F. Effect of Government Monetary Policies

The earnings of the Company are and will be affected by
domestic economic conditions and the monetary and fiscal policies
of the United States Government and its agencies. The monetary
policies of the FRB have had, and will likely continue to have,
an important impact on the operating results of commercial banks
through its power to implement national monetary policy in order,
among other things, to curb inflation or combat a recession.
The FRB has a major effect upon the levels of bank loans,
investments and deposits through its open market operations in
the United States Government securities and through its
regulation of, among other things, the discount rate on borrowing
of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature and impact of
future changes in monetary and fiscal policies.

DESCRIPTION OF BANK

a. History and Business

Jersey Shore State Bank (Bank) was incorporated under the
laws of the Commonwealth of Pennsylvania as a state bank in 1934
and became a wholly-owned subsidiary of the Company on July 12,
1983.

As of December 31, 1995, the Bank had total assets of
$242,628,574; total shareholders' equity of $29,684,804 and total
deposits of $202,257,601. Its deposits are insured by the
Federal Deposit Insurance Corporation to the extent of $100,000
provided under current law.

Jersey Shore State Bank engages in business as a commercial
bank, doing business at several locations in Lycoming and Clinton
Counties, Pennsylvania.

Services offered by the Bank include accepting time, demand
and savings deposits including Super NOW accounts, regular
savings accounts, money market certificates, investment
certificates, fixed rate certificates of deposit and club
accounts. Its services also include making secured and unsecured
commercial and consumer loans, financing commercial transactions
either directly or through regional industrial development
corporations, making construction and mortgage loans and the
renting of safe deposit facilities. Additional services include
making residential mortgage loans, revolving credit loans with
overdraft protection, small business loans, student loans, etc.
Business loans include seasonal credit collateral loans and term
loans, as well as accounts receivable and inventory financing.

The Bank's portfolio mix can be classified into four
principal categories. They are real estate, agricultural,
commercial and consumer.

Real estate loans can be further segmented into construction
and land development, farm land, one-to-four family residential,
multi-family and commercial or industrial. Qualified borrowers
are defined by policy or by industry underwriting standards.
Owner provided equity requirements range from 20% to 30% with a
first lien status required. Terms are restricted to between 10
and 20 years with the exception of construction and land
development, which is limited to one to three years. Appraisals,
verifications and visitations comply with industry standards.

Financial information that is required on all commercial
mortgages includes the most current three years' balance sheets
and income statements and projections on income to be developed
through the project. In the case of corporations and
partnerships, the principals are often asked to indebt themselves
personally as well. As regards residential mortgages, repayment
ability is determined from information contained in the
application and recent income tax returns. Emphasis is on
credit, employment, income and residency verification. Broad
hazard insurance is always required and flood insurance where
applicable. In the case of construction mortgages, builders risk
insurance is requested. Adjustable rate mortgages are not
offered for residential mortgages.

Agricultural loans for the purchase or improvement of real
estate must meet the Bank's real estate underwriting criteria.
The only permissible exception is when a Farmers Home Loan
Administration guaranty is obtained. Agricultural loans made for
the purchase of equipment are usually payable in three years, but
never more than seven, depending upon the useful life of the
purchased asset. Minimum borrower equity required is 20%.
Livestock financing criteria depends upon the nature of the
operation. A dairy herd could be financed over three years, but
a feeder operation would require cleanup in intervals of less
than one year. Agricultural loans are also made for crop
production purposes. Such loans are structured to repay within
the production cycle and not carried over into a subsequent year.
General purpose working capital loans are also a possibility with
repayment expected within one year. It is also a general policy
to collateralize non-real estate loans with not only the asset
purchased but also junior liens on all other available assets.
Insurance and credit criteria is the same as mentioned
previously. In addition, annual visits are made to our
agricultural customers to determine the general condition of
assets. Personal credit requirements are handled as consumer
loans.

Commercial loans are made for the acquisition and
improvement of real estate, purchase of equipment and for working
capital purposes on a seasonal or revolving basis. Criteria was
discussed under real estate financing for such loans, but it is
important to note that such loans may be made through the
regional industrial corporation and the Pennsylvania Industrial
Development Authority. Caution is also exercised in taking
industrial property for collateral by requiring, on a selective
basis, environmental audits.

Equipment loans are generally amortized over three to seven
years, with an owner equity contribution required of at least 20%
of the purchase price. Unusually expensive pieces may be
financed for a longer period depending upon the asset's useful
life. The increased cash flow resulting from the additional
piece, through improved income or greater depreciation expense,
serves in establishing the terms. Insurance coverage with the
Bank as loss payee is required, especially in the case where the
equipment is rolling stock.

Seasonal and revolving lines of credit are offered for
working capital purposes. Collateral for such a loan includes
the pledge of inventory and/or receivables. Drawing availability
is usually 50% of inventory and 75% of eligible receivables.
Eligible receivables are defined as invoices less than 90 days
delinquent. Exclusive reliance is very seldom placed on such
collateral, therefore other lienable assets are also taken into
the collateral pool. Where reliance is placed on inventory and
accounts receivable, the applicant must provide financial
information including agings on a monthly basis. In addition,
the guaranty of the principals is usually obtained.

It is unusual for Jersey Shore State Bank to make unsecured
commercial loans. But when such a loan is a necessity, credit
information in the file must support that decision.

Letter of Credit availability is limited to standbys where
the customer is well known to the Bank. Credit criteria is the
same as that utilized in making a direct loan and collateral is
obtained in most cases, and whenever the expiration date is for
more than one year.

Consumer loan products include second mortgages, automobile
financing, small loan requests, overdraft check lines and PHEAA
loans. Our policy includes standards used in the industry on
debt service ratios and terms are consistent with prudent
underwriting standards and the use of proceeds. Verifications
are made of employment and residency, along with credit history.
Second mortgages are confined to equity borrowing and home
improvements. Terms are generally ten years or less and rates
are fixed. Loan to collateral value criteria is 80% or less and
verifications are made to determine values.

Automobile financing is generally restricted to four years
and done on a direct basis. The Bank, as a practice, does not
floor plan and therefore does not discount dealer paper. Small
loan requests are to accommodate personal needs such as the
purchase of small appliances or for the payment of taxes.
Overdraft check lines are limited to $1,000 or less. PHEAA loans
are guaranteed by the State of Pennsylvania and are made to
accommodate educational needs.

The Bank's investment portfolio is analyzed and priced on a
monthly basis. Investments are made in U.S. Treasuries,
U.S. Agency issues, bank qualified municipal bonds, corporate
bonds and corporate stocks which consist of Pennsylvania bank
stocks. Bonds with BAA or better ratings are used, unless a
local issue is purchased that has a lesser or no rating.

Factors taken into consideration when investments are made
include liquidity,the company's tax position and the policies of
the Asset/Liability Committee.

The Bank has experienced deposit growth in the range of
3.10% to 6.54% over the last five years. This growth has
primarily come in the form of core deposits. Although the Bank
has regular opportunities to bid on pools of funds of $100,000 or
more in the hands of municipalities, hospitals and others, it
does not rely on these monies to fund loans on intermediate or
longer term investments. Minor seasonal growth in deposits is
experienced at or near the year end.

It is the policy of Jersey Shore State Bank to generally
maintain a rate sensitive asset (RSA) to rate sensitive liability
(RSL) ratio at between .80 and 1.5. When the Asset Liability
Committee believes that interest rates will increase, it can
take action that increases the RSA/RSL ratio toward the 1.5
level. On the other hand, the Committee can take action to
decrease the RSA/RSL ratio toward the .80 level when it believes
interest rates will decline.

The Bank operates 7 full service offices in Lycoming and
Clinton Counties, Pennsylvania. The economic base of the region
is developed around service, light manufacturing industries and
agriculture. The banking environment in Lycoming and Clinton
Counties, Pennsylvania is highly competitive. The Bank competes
for loans and deposits with commercial banks, savings and loan
associations and other financial institutions.

The Bank has a relatively stable deposit base and no
material amount of deposits is obtained from a single depositor
or group of depositors (including federal, state and local
governments). The Bank has not experienced any significant
seasonal fluctuations in the amount of its deposits.

b. Supervision and Regulation

The Company is a one-bank holding company required to be
registered with the Federal Reserve Board under the Federal Bank
Holding Company Act and to comply with its reporting
requirements. This statute provides that the Company may engage
in or acquire direct or indirect ownership or control of more
than 5% of the voting shares of any company engaged in non-
banking activities, only if the Federal Reserve Board, by order
or regulation, has found such activities to be so closely related
to banking or managing and controlling banks as to be a proper
incident thereto. This statute requires approval of the
acquisition of 5% or more of the voting shares of, or interest in
all or substantially all of the assets of, any bank by a bank
holding company and does not permit the approval to be given if
the bank is located outside of Pennsylvania unless such
acquisition is specifically authorized by the laws of the state
in which such bank is located.

The earnings of the Bank are affected by the policies of
regulatory authorities including the Federal Deposit Insurance
Corporation and the Board of Governors of the Federal Reserve
System. An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the
instruments used to implement these objectives are open market
operations in U.S. Government Securities, changes in reserve
requirements against member bank deposits, and limitations on
interest rates that member banks may pay on time and savings
deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans,
investments on deposits, and their use may also affect interest
rates charged on loans or paid for deposits.

The policies and regulations of the Federal Reserve Board
have had and will probably continue to have a significant effect
on the Bank's deposits, loans and investment growth, as well as
the rate of interest earned and paid, and are expected to affect
the Bank's operation in the future. The effect of such policies
nd regulations upon the future business and earnings of the Bank
cannot accurately be predicted.

ITEM 2. PROPERTIES

The Company owns and leases its properties.

Listed herewith are the locations of properties owned or
leased, in which the banking offices are located; all properties
are in good condition and adequate for the Bank's purposes:

Office Address
- ------ -------
Main 115 South Main Street Owned
P.O. Box 5098
Jersey Shore, Pennsylvania 17740

Jersey Shore 112 Bridge Street Owned
Jersey Shore, Pennsylvania 17740

DuBoistown 2675 Euclid Avenue Under Lease
DuBoistown, Pennsylvania 17701 -- see below

Williamsport 300 Market Street Owned
P.O. Box 967
Williamsport, Pennsylvania 17703-0967

Montgomery R.D. 1, Box 493 Under Lease
Montgomery, Pennsylvania 17752 -- see below

Lock Haven 4 West Main Street Owned
Lock Haven, Pennsylvania 17745

Mill Hall Millbrook Plaza, Hogan Boulevard Under Lease
Mill Hall, Pennsylvania 17751 -- see below

The DuBoistown branch office is leased for a twenty-year
period that ended in 1995. After the initial twenty-year period,
the Bank shall have the option to extend the lease for each of
four successive five-year terms. In 1995 the bank extended the
lease for the first of four five-year optional terms. At the end
of the last five-year extension, the Bank shall be afforded the
opportunity to negotiate a new lease agreement. The Bank is
granted, during the term of the lease or any renewal or extension
thereof, an option to purchase the leased property at any time at
a purchase price to be determined in the following manner: Two
competent real estate appraisers to be selected by agreement of
the Bank and the lessor, and if no such agreement can be reached,
then one selected by the lessor and one selected by the Bank
shall individually appraise the property, and the purchase price
shall be seventy-five (75%) percent of the average of the two
appraisals. The annual rent for the DuBoistown branch office was
$15,650 for the year ended December 31, 1995.

The Montgomery branch office is leased for a fifteen-year
period ending in the year 2002. The Bank shall have the option
to extend the lease for a five-year period after the initial
fifteen-year term has expired. The Bank shall also have an
opportunity to negotiate a new lease agreement after the five-
year extension has expired. The Bank is granted, at the end of
the initial term of the lease or at any time during the extended
period, an option to purchase the property at a price to be
determined in the following manner: Two competent real estate
appraisers selected by agreement of the Bank and the lessor, and
if no such agreement can be reached then one selected by the Bank
and one selected by the lessor, shall individually appraise the
property and the purchase price shall be the average of the two.
The annual rent for the Montgomery branch office was $30,000 for
the year ended December 31, 1995.

The Mill Hall branch office is leased for a five-year period
ending in 1997. The Bank shall have the option to renew the
lease for up to two additional terms of five years each after the
initial five-year term of the lease agreement has expired. The
annual rent for the Mill Hall branch office was $20,000 for the
year ended December 31, 1995.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, various lawsuits and
claims arise against the Company and its subsidiary. There are
no such legal proceedings or claims currently pending or
threatened.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders
during the fourth quarter of 1995.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT:

NAME AGE FIVE-YEAR ANALYSIS OF DUTIES
- ---- --- ----------------------------
Theodore H. Reich 57 President and Chief Executive Officer
of the Company; the Bank; Woods Real
Estate Development Co., Inc.; and Woods
Investment Company, Inc.

Ronald A. Walko 49 Vice President of the Company; Senior
Vice President and Senior Loan Officer
of the Bank from 1986 to current; Vice
President of Woods Investment Company,
Inc.; Federal bank examiner prior to
1986 for an eighteen-year period.

Hubert A. Valencik 54 Vice President of the Company; Senior
Vice President and Operations Officer
of the Bank; Vice President of Woods
Real Estate Development Co., Inc. and
Woods Investment Company, Inc.; Vice
President with another bank prior to
1985 for a fourteen-year period.

Chris B. Ward 49 Treasurer of the Company; Vice
President of the Bank; Treasurer of
Woods Real Estate Development Co., Inc.
and Woods Investment Company, Inc.

Sonya E. Hartranft 36 Secretary of the Company; Controller of
the Bank; Secretary of Woods Real
Estate Development Co., Inc. and Woods
Investment Company, Inc.

The following individual
is an officer of the
Bank only:

G. David Gundy 47 Vice President of the Bank; Vice
President and Regional Manager with
another bank prior to 1992 for a
thirteen-year period.
<PAGE>
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

The Registrant's Common Stock is traded locally. The
following table sets forth (1) the quarterly high and low prices
for a share of the Registrant's Common Stock during the periods
indicated as reported by the management of the Registrant, and
(2) quarterly dividends on a share of the Common Stock with
respect to each quarter since January 1, 1992. The following
quotations represent prices between buyers and sellers and do not
include retail markup, markdown or commission. They may not
necessarily represent actual transactions.

Dividends
High Low Declared
---- --- ---------
1993:
First quarter $19 2/3 $17 2/3 $0.14
Second quarter $21 1/3 $18 $0.14
Third quarter $23 $22 $0.14
Fourth quarter $28 $26 2/3 $0.47

1994:
First quarter $28 2/3 $26 2/3 $0.17
Second quarter $30 2/3 $30 2/3 $0.17
Third quarter $32 $30/2/3 $0.17
Fourth quarter $32 1/3 $32 $0.28

1995:
First quarter $33 1/3 $32 $0.20
Second quarter $33 1/2 $31 2/3 $0.20
Third quarter $33 1/2 $32 $0.22
Fourth quarter $36 $35 1/2 $0.38

The stock prices and the dividend have been adjusted to reflect
the 50% stock dividend issued July 31, 1995, and for the
acquisition of Lock Haven Savings Bank.

The Bank has paid cash dividends since December 31, 1941.
The Registrant has paid dividends since the effective date of its
formation as a bank holding company. It is the present intention
of the Registrant's Board of Directors to continue the dividend
payment policy; however, further dividends must necessarily
depend upon earnings, financial condition, appropriate legal
restrictions and other factors relevant at the time the Board of
Directors of the Registrant considers dividend policy. Cash
available for dividend distributions to shareholders of the
Registrant must initially come from dividends paid by the Bank
to the Registrant. Therefore, the restrictions on the Bank's
dividend payments are directly applicable to the Registrant.

Under the Pennsylvania Business Corporation Law of 1988 a
corporation may not pay a dividend, if after giving effect
thereto, the corporation would be unable to pay its debts as they
become due in the usual course of business and after giving
effect thereto the total assets of the Corporation would be less
than the sum of its total liabilities plus the amount that would
be needed, if the corporation were to be dissolved at the time of
the distribution, to satisfy the preferential rights upon
dissolution of the shareholders whose preferential rights are
superior to those receiving the dividend.

As of February 29, 1996, the Registrant had approximately
774 shareholders of record.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain financial data as of
and for each of the years in the five-year period ended
December 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
As of and for the years Ended December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data:
Interest income ............................ $ 18,695 $ 16,882 $ 15,967 $ 16,362 $ 16,969
Interest expense ........................... 7,793 6,902 6,546 7,703 9,544
---------- ---------- ---------- ---------- ----------
Net interest income ........................ 10,902 9,980 9,421 8,659 7,425
Provision for loan losses .................. 300 577 791 628 363
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses .......................... 10,602 9,403 8,630 8,031 7,062
---------- ---------- ---------- ---------- ----------
Other income ............................... 2,215 2,137 2,942 1,659 716
Other expense .............................. 7,534 6,997 6,097 5,833 5,303
---------- ---------- ---------- ---------- ----------
Income before income taxes ................. 5,283 4,543 5,475 3,857 2,475
Applicable income taxes .................... 1,421 1,174 1,497 991 489
---------- ---------- ---------- ---------- ----------
Net income ................................. $ 3,862 $ 3,369 $ 3,978 $ 2,866 $ 1,986
========== ========== ========== ========== ==========

Consolidated Balance Sheet at
End of Period:
Total assets ............................... $ 242,629 $ 235,638 $ 223,672 $ 204,486 $ 190,044
Loans ...................................... 153,640 151,492 134,571 134,872 122,982
Allowance for loan losses .................. (2,353) (2,127) (1,956) (1,925) (1,409)
Deposits ................................... 202,258 190,839 180,587 175,161 164,408
Long-term debt -- other .................... 0 7,000 5,825 2,234 2,377
Stockholders' equity ....................... 29,685 23,839 21,894 19,024 16,781

Per Share Data:
Net income ................................. $ 3.05 $ 2.66 $ 3.14 $ 2.27 $ 1.57
Cash dividends declared .................... 1.00 0.79 0.89 0.56 0.47
Book value ................................. 23.35 18.84 17.40 15.14 13.35
Number of shares outstanding, at
end of period ............................ 1,271,339 1,265,597 1,258,569 1,256,919 1,256,919
Average number of shares outstanding ....... 1,267,538 1,266,878 1,266,878 1,265,228 1,265,228
Selected financial ratios:
Return on average stockholders' equity ... 14.07% 13.89% 19.12% 15.90% 12.37%
Return on average total assets ............. 1.64% 1.45% 1.89% 1.45% 1.07%
Net interest income to average interest
earning assets ........................... 5.04% 4.71% 4.80% 4.69% 4.32%
Dividend payout ratio ...................... 32.79% 29.70% 28.34% 24.67% 29.94%
Average stockholders' equity to
average total assets ..................... 11.64% 10.42% 9.88% 9.09% 8.65%
Loans to deposits, at end of period ........ 74.80% 78.27% 73.44% 75.90% 73.90%

<FN>
* Numbers adjusted to reflect a stock split effective in the form of a 50% stock dividend.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

MERGER ACTIVITY

On April 7, 1995, Lock Haven Savings Bank was merged with
and into Penns Woods Bancorp, Inc. ("the "Company") and
102,111 shares of the Company's common stock were issued in
exchange for all the outstanding stock of Lock Haven Savings
Bank. This transaction has been accounted for as a pooling of
interests for financial reporting purposes. Refer to Note A of
the notes to the consolidated financial statements for
information regarding the merger.

NET INTEREST INCOME

Net interest income is determined by calculating the
difference between the yields earned on interest earning assets
and the rates paid on interest bearing liabilities.

1995

Fully taxable equivalent net interest income increased by
$1,405,000 to $12,073,000 or an increase of 13.17%. See "Average
Balances and Interest Rates" and "Summary of Changes in Interest
Earned and Interest Paid," herein.

Increases in the volume of interest earning assets
contributed $894,000 to the overall increase in net interest
income. Increases due to rates on interest earning assets
contributed $1,405,000. Interest expense increased $109,000 due
to volume, and $785,000 due to rate.

Average earning assets experienced a net increase of
$6,860,000 or 3.3% over the 1994 level. The components of this
net increase included an increase in average total loans of
$11,179,000, a decrease in total average securities of
$6,662,000, and an increase in federal funds sold of $2,343,000.
Loan volume increases had the effect of adding $1,072,000 to net
interest income, and rate increases added $668,000 to net
interest income. Increased loan demand in the area of real
estate mortgages and growth in consumer loans accounts for the
increase in loan volume during 1995, and an increase in the prime
lending rate early in 1995 accounts for the majority of the
increase in loan income experienced due to rate. Total
securities and federal funds sold experienced an increase in
overall net income, which is the net effect of a decrease in
volume of $178,000 and a $737,000 increase in rate. The decrease
in total securities volume was directly related to increased loan
demand. The improved quality of the investment portfolio
resulted in the higher rate of return. Total average interest
bearing liabilities increased $1,742,000, which had the effect of
increasing interest expense $109,000 and rate changes had the
effect of increasing interest expense by $785,000. The two major
areas effecting the volume and rate in interest bearing
liabilities were in savings deposits and time deposits.

1994

Taxable equivalent net interest income increased $597,000
during 1994 or an increase of 5.9%. See "Average Balances and
Interest Rates" and "Summary of Changes in Interest Earned and
Interest Paid," herein. This increase was primarily due to the
net effect of changes in the volume of earning assets and the
volume of interest bearing liabilities, which contributed
$605,000. Average interest earning assets increased $16,759,000
during 1994 and generated interest income of $1,298,000 due to
volume. The rate of return generated on interest earning assets
was 8.35%, down from the 1993 rate of return of 8.57%, which
resulted in a net decline in interest income due to rate of
$324,000. The decline in the overall rate of return on interest
earning assets was primarily due to a shift in the securities
portfolio from fixed rate securities to floating rate securities.
This move caused an initial give-up of income, however it also
had the effect of minimizing the loss that would have occurred on
the fixed-rate securities as rates continued to rise. The shift
in the securities portfolio is expected to have the effect of
improving the Company's future income. Average interest bearing
liabilities increased $15,306,000 during 1994 and generated
interest expense of $693,000 due to volume. The rate of interest
paid on average interest bearing liabilities declined from 3.91%
in 1993 to 3.79% in 1994 which decreased interest expense by
$316,000 due to changes in rates. The Company's prime rate
increased at various times throughout 1994 up to 8.5% at December
31, 1994 compared to 6.0% a year earlier.
<PAGE>
AVERAGE BALANCES AND INTEREST RATES

(INCOME AND RATES ON A FULLY TAXABLE EQUIVALENT BASIS)
(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- ----------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets:
Securities:
U.S. Treasury and federal agency ... $ 31,385 $ 1,978 6.30% $ 39,083 $ 1,920 4.91% $ 32,994 $ 1,992 6.04%
State and political subdivisions ... 17,767 1,699 9.56% 16,091 1,535 9.54% 15,410 1,501 9.74%
Other .............................. 11,656 1,032 8.85% 12,296 826 6.72% 10,975 726 6.62%
-------- -------- -------- -------- -------- --------
Total Securities ................. 60,808 4,709 7.74% 67,470 4,281 6.35% 59,379 4,219 7.11%
-------- -------- -------- -------- -------- --------

LOANS:
Tax-exempt loans ..................... 1,818 190 10.45% 1,901 205 10.78% 2,206 236 10.70%
All other loans, net of discount
where applicable .................... 151,895 14,823 9.76% 140,633 13,068 9.29% 131,640 12,130 9.21%
-------- -------- -------- -------- -------- --------
Total loans ...................... 153,713 15,013 9.77% 142,534 13,273 9.31% 133,846 12,366 9.24%
-------- -------- -------- -------- -------- --------
Federal funds sold ................... 2,613 144 5.51% 270 13 4.81% 290 8 2.76%
-------- -------- -------- -------- -------- --------
Total earning assets ............. 217,134 $ 19,866 9.15% 210,274 $ 17,567 8.35% 193,515 $ 16,593 8.57%
======== ======== ========
Other assets ......................... 15,478 20,063 15,028
-------- -------- --------
TOTAL ASSETS .................... $232,612 $230,337 $208,543
======== ======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Deposits:
Savings ............................ $ 84,513 $ 2,372 2.81% $ 92,750 $ 2,384 2.57% $ 86,306 $ 2,530 2.93%
Other time ......................... 87,230 4,934 5.66% 73,849 3,740 5.06% 72,410 3,719 5.14%
-------- -------- -------- -------- -------- --------
Total deposits ................... 171,743 7,306 4.25% 166,599 6,124 3.68% 158,716 6,249 3.94%
Securities sold under repurchase
agreements & federal funds
purchased ........................... 5,772 291 5.04% 8,694 333 3.83% 6,333 183 2.89%
Borrowed money ....................... 2,917 196 6.72% 6,881 442 6.42% 1,819 90 4.95%
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 180,432 $ 7,793 4.32% 182,174 $ 6,899 3.79% 166,868 $ 6,522 3.91%
======== ======== ========

Demand deposits ...................... 24,164 21,885 18,465
Other liabilities .................... 2,228 2,675 2,339
Shareholders' equity ................. 25,788 23,603 20,871
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............ $232,612 $230,337 $208,543
======== ======== ========

Interest income/earning assets ....... $217,134 $ 19,866 9.15% $210,274 $ 17,567 8.35% $193,515 $ 16,593 8.57%
Interest expense/earning assets ...... $217,134 7,793 3.59% 210,274 6,899 3.28% $193,515 6,522 3.37%
-------- ----- -------- --------
Effective interest differential ...... $ 12,073 5.56% $ 10,668 5.07% $ 10,071 5.20%
======== ===== ======== ===== ======== =====
</TABLE>

1. Fees on loans are included with interest on loans.

2. Average daily balance sheets are not maintained by the Bank.
Information on this table has been calculated using average
monthly balances to obtain average balances.

3. Average daily balances cannot be obtained without undue
burden or expense by the Bank.

4. Nonaccrual loans have been included with loans for the
purpose of analyzing net interest earnings.

5. Loan fees are included in interest income as follows: 1995,
$401,281, 1994, $681,974, 1993, $678,858.

6. Income and rates on a fully taxable equivalent basis include
an adjustment for the difference between annual income from
tax-exempt obligations and the taxable equivalent of such
income at the standard 34% tax rate (derived by dividing
tax-exempt interest by .66).
<PAGE>
SUMMARY OF CHANGES IN INTEREST EARNED AND INTEREST PAID
(IN THOUSANDS)
INTEREST EARNED ON
- ----------------------------------------------------------------

<TABLE>
<CAPTION>
TAX- SECURITIES
TAXABLE EXEMPT SOLD UNDER TOTAL
INVEST- INVEST- TOTAL REPURCHASE INTEREST
MENT MENT FEDERAL INTEREST OTHER AGREEMENTS BEARING NET
SECURI- SECURI- FUNDS EARNING SAVINGS TIME AND FUNDS BORROWED LIA- INTEREST
TIES TIES LOANS SOLD ASSETS DEPOSITS DEPOSITS PURCHASED MONEY BILITIES EARNINGS
------- ------- ----- ------ -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 compared to 1994
Increased (decrease)
Due to:
Volume ($467) $160 $1,072 $129 $ 894 ($221) $ 726 ($130) ($266) $109 $ 785
Rate 731 4 668 2 1,405 209 468 88 20 785 620
----- ---- ------ ---- ------ ----- ------ ----- ----- ---- ------
Net increase (decrease) $264 $164 $1,740 $131 $2,299 ($ 12) $1,194 ($ 42) ($246) $894 $1,405
===== ==== ====== ==== ====== ===== ====== ===== ===== ==== ======

1994 compared to 1993
Increase (decrease)
Due to:
Volume $427 $ 64 $ 808 ($ 1) $1,298 $225 $ 70 $ 80 $318 $693 $ 605
Rate (399) (30) 99 6 (324) (371) (49) 70 34 (316) (8)
----- ---- ------ ---- ------ ----- ------ ----- ----- ---- ------
Net increase (decrease) $ 28 $ 34 $ 907 $5 $ 974 ($146) $ 21 $150 $352 $377 $ 597
===== ==== ====== ==== ====== ===== ====== ===== ===== ==== ======
</TABLE>

The change in net interest income (expense) due to mix has been
allocated to the change due to volume and change due to rate in
proportion to the relationship of the absolute dollar amounts of
the change in each.

PROVISION FOR LOAN LOSSES

1995

In 1995 loan loss provision totaled $300,020, a reduction of
48% from the prior year. An internal quarterly analysis of the
loan portfolio supplemented by an annual external review is used
in determining and adjusting provisions throughout the year.
Loan management has and continues to aggressively manage problem
accounts with the intent of reducing provisions going forward.

1994

$577,020 was provided for loan losses in 1994, a decline of
27% from the prior year. The amount provided was determined by a
detailed internal quarterly review of the loan portfolio
supplemented by an annual detailed external review. The decline,
in some part, can also be attributed to management's decision in
1993 to aggressively provide for potential losses on several
large bankruptcies. 1994's provision exceeded net charge offs by
$171,020 compared to an excess provision of $261,000 in 1993.
This decline again represents the aggressive manner in which
problems are addressed and a general improvement in overall loan
portfolio quality. Portfolio monitoring continues on an ongoing
basis as part of the Company's loan review process.

YEAR ENDED DECEMBER 31,
1995 1994
---- ----
Balance at beginning of period. . . . . $2,127 $1,956
Charge-offs:
Domestic:
Real estate . . . . . . . . . . . 0 0
Commercial and industrial . . . . 44 432
Consumer and all other loans. . . 210 62
Total charge-offs . . . . . . . 254 494
Recoveries:
Real estate . . . . . . . . . . . . 0 0
Commercial and industrial . . . . . 9 67
Consumer and all other loans. . . . 171 21
Total recoveries . . . . . . . 180 88
Net charge-offs . . . . . . . . . . 74 406
Additions charged to operations . . 300 577
Balance at end of period. . . . . . $2,353 $2,127
Ratio of net charge-offs during
the period to average loans
outstanding during the period . . 0.05% 0.28%

OTHER INCOME

1995

Other income totaled $2,215,031 compared to $2,137,234 in
1994. The increase, $77,797, is the net effect of an increase in
service charges collected of $72,134, a decrease in security
gains of $87,197, and a net increase in other operating income of
$92,860. The continued growth in the deposit base is
attributable to the 10.4% increase in service charges over 1994.
The $92,860, or 52.3% increase in other operating income over
1994, is primarily due to net gains resulting from the sale of
foreclosed assets during 1995. Security transactions resulted in
net security gains realized of $1,180,073. The decrease in the
amount of security gains realized in 1995 compared to 1994 is due
to the decrease in the balance of certain equity securities that
are required to be divested. Transactions occurred in both
equity and debt securities, with the majority of overall gains
realized on equity securities transactions. Such transactions
were initiated by management when they believed the securities
attained their greatest performance. In addition, management
initiated various security transactions during 1995 in an effort
to maintain a quality investment portfolio and manage interest
rate risk. Debt securities are also utilized to manage the
investment portfolio for quality and interest rate risk. As of
December 31, 1995, the Company had no investment securities
classified as trading securities. Debt investment securities had
a market value of $55,887,000, which was 1,770,000 above the
amortized cost at December 31, 1995. Marketable equity
securities had an aggregate cost of $10,298,000 or $2,003,000
below the market value at December 31, 1995.

1994

Other income (excluding security gains) decreased to
$869,964 in 1994, or a decrease of 3.02% over 1993's other
operating income. The decrease indicated was the result of a
decline in other operating income. The Company realized
$1,267,270 in security gains during 1994. Security transactions
were in both debt and equity securities. Among the reasons why
security gains were realized during 1994, was to a change in
regulation which requires divestment of certain equity securities
owned by the Company. The amount of security gains realized in
1994 was lower than the amount realized in 1993 due to the higher
volume of equity securities divested during 1993. In addition,
management realized gains on partial sales of equity securities
that have been in the portfolio long-term that had reached what
management had determined to be their maximum potential on the
near term.Management also continues to utilize debt securities to
manage the investment portfolio for quality and interest rate
risk. As of December 31, 1994 the Company had no investment
securities listed as trading securities. Debt investment
securities had a market value of $57,659,000 which was 1,142,000
below the amortized cost value at December 31, 1994.

Marketable equity securities had an aggregate cost of
$8,947,000, or $148,000 below the market value at December 31,
1994.

OTHER EXPENSES

1995

Other expenses increased $536,498, or 7.7% over 1994
expenses. Salaries and benefits, the largest component of the
Bank's other expense, totaled $4,012,349 compared to $3,545,887
in 1994. The $466,462 increase is largely attributable to an
expense incurred to satisfy employment agreements of two Lock
Haven Savings Bank executives in connection with the merger of
Lock Haven Savings Bank with and into the Company. Also, normal
salary increases and an increase in the expense related to the
Company's defined retirement plan contributed to the overall
increase in salaries and employee benefits. Occupancy and
furniture and equipment expense increased by $57,794, or 5.8%.
Due to the acquisition of Lock Haven Savings Bank and normal
increases in the costs of operations, other operating expenses
increased $12,242, or .5% over 1994. The Bank experienced
increases in costs of check imprinting, professional fees,
postage and stationery and supplies and experienced a significant
savings on FDIC insurance due to the reduction of BIF assessment
rates in 1995. It should be noted that the expenses related to
the merger are non-recurring.

1994

The Company's other operating expenses increased $900,460 to
$6,997,635 during 1994. Salaries and employee benefits increased
$296,077 or 9.11% during 1994. This increase was due to salary
increases as well as an increase in expenses related to our
defined benefit retirement plan. Occupancy and furniture and
equipment expense increased by $135,496 or 15.6%. The majority
of this increase can be attributed to the lease of a new computer
system and the purchase of software for use on the system.
Management believes that the cost of the new computer system will
be offset by improved operating efficiency, thereby reducing
operating costs. In addition, snow removal expenses increased
during 1994 and were a contributing factor in the overall
increase of occupancy and furniture and equipment expense.
Increases in other operating expenses totaled $468,887 and were
due to increases in capital shares tax expense, FDIC expense,
advertising expense, management fees, professional fees, and
acquisition costs. Acquisition costs are related to the recent
agreement signed by the Company to acquire Lock Haven Savings
Bank.

INCOME TAXES

1995

The Company's effective income tax rate for 1995 was 26.9%
as compared to 25.8% in 1994. The increase in 1995's effective
tax rate is the result of an increase in pretax income that is
reflected by a $1.6 million increase in interest and fees on
loans. In addition, the Company had higher taxable operating
income and higher interest income on federal funds sold that
contributed to the increase in the effective tax rate.

1994

The provision for income taxes for the year ended
December 31, 1994 resulted in an effective income tax rate of
25.8%, compared to 27.3% in 1993. The decrease in the effective
income tax rate indicated during the 1994 period was primarily
due to an increase in tax exempt income and the dividends
received deduction.

FINANCIAL CONDITION

INVESTMENTS
1995

The investment security portfolio increased $1,313,986
during 1995 due principally to an overall increase in security
market values. Of the total investment portfolio, government
securities comprised 51%, states and political subdivisions
comprised 28%, other bonds notes and debentures comprised 3%, and
equity securities comprised 18%. At year end 1995,
held-to-maturity securities had a carrying value of $2,817,174.
Available-for-sale securities had a carrying value of
$65,322,241 and an amortized cost of $61,597,612. Shareholders'
Equity was effected by an overall increase of $2,458,255, net of
deferred taxes, due to the unrealized net gain on
available-for-sale securities. Management has no plan at this
time to establish a trading securities classification. Also,
management continues to hold in the portfolio tax-free bonds,
which enhance the overall quality of the portfolio and increase
its after-tax yield.

1994

There was a total decrease of $4,451,016 in the investment
security portfolio during 1994. This decrease was due chiefly
to security maturities and the overall effect of the
implementation of Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." At year end 1994, the investment portfolio was
comprised of 54% government securities, 26% state and political
subdivisions, 6% other bonds, notes and debentures, and 14%
equity securities. The Company implemented SFAS No. 115 on
January 1, 1994. As of year end, held-to-maturity securities
had a carrying value of $6,757,987. The largest portion of the
portfolio is classified as available-for-sale and had an
amortized cost of $60,990,919 with an estimated market value of
$60,067,442. The unrealized net loss on available-for-sale
securities resulted in a decrease in shareholders' equity of
$625,993, net of related federal income taxes. At this time,
management has no plan to establish a trading securities
classification. Management intends to continue to hold in its
portfolio a number of adjustable rate securities, endeavoring to
keep the gap between the cost and the market values slight. Also,
it is management's ambition to continue the use of tax exempt
income to increase the portfolio's after tax-yield, while
maintaining the quality of the overall investment portfolio.

The carrying amounts of investment securities at the dates
indicated are summarized as follows ( in thousands):

DECEMBER 31,
1995 1994
____ ____
US. Treasury securities. . . . . . . . .
Held-to-Maturity $0 $3,001
Available-for-Sale 4,038 4,894
US. government agencies. . . . . . . . .
Held-to-Maturity 791 1,050
Available-for-Sale 29,551 26,969
State and political subdivisions . . . .
Held-to-Maturity 1,816 2,454
Available-for-Sale 17,456 15,165
Other bonds, notes and debentures. . . .
Held-to-Maturity 210 253
Available-for-Sale 1,976 3,944
------- -------
Total bonds, notes and debentures 55,838 57,730
Corporate stock -Available-for-Sale 12,301 9,095
------- -------
Total. . . . . . . . . . . . . $68,139 $66,825
======= =======

The following table shows the maturities and repricing
of investment securities at December 31, 1995, the weighted
average yields (for tax-exempt obligations on a fully taxable
basis assuming a 34% tax rate) of such securities (in thousands):
WITHIN AFTER ONE AFTER FIVE AFTER
ONE BUT WITHIN BUT WITHIN TEN
YEAR FIVE YEARS TEN YEARS YEARS
------ ---------- ---------- -----
US. Treasury securities:
HTM Amount. . . . . . $0 $0 $0 $0
Yield . . . . . . . . 0.00% 0.00% 0.00% 0.00%
AFS Amount. . . . . . 996 2,933 0 0
Yield . . . . . . . . 7.69% 6.89% 0.00% 0.00%
US. government agencies:
HTM Amount. . . . . . 5 0 0 786
Yield . . . . . . . . 9.60% 0.00% 0.00% 8.83%
AFS Amount. . . . . . 0 0 4,009 25,135
Yield . . . . . . . . 0.00% 0.00% 6.92% 7.13%
State and political
subdivisions:
HTM Amount. . . . . . 100 0 1,001 715
Yield . . . . . . . . 6.00% 0.00% 4.90% 6.01%
AFS Amount. . . . . . 0 125 200 15,948
Yield . . . . . . . . 0.00% 9.14% 6.50% 6.26%
Other bonds, notes and
debentures:
HTM Amount. . . . . . 10 15 185 0
Yield . . . . . . . . 7.38% 6.96% 7.75% 0.00%
AFS Amount. . . . . . 101 0 500 1,353
Yield . . . . . . . . 6.25% 0.00% 8.00% 7.68%
------ ------ ------ -------
Total Amount. . . . . $1,212 $3,073 $5,895 $43,937
====== ====== ====== =======
Total Yield 7.44% 6.99% 6.68% 6.84%

All yields represent weighted average yields expressed on a tax
equivalent basis. They are calculated on the basis of the cost,
adjusted for amortization of premium and accretion of discount
and effective yields weighted for the scheduled maturity of each
security. The taxable equivalent adjustment represents the
difference between annual income from tax-exempt obligations and
the taxable equivalent of such income at the standard 34% tax
rate (derived by dividing tax-exempt interest by .66).

LOAN PORTFOLIO

1995

Gross loans at the close of fiscal year 1995 totaled
$154,001,000, an increase of $2,127,000 or 1.40% over the prior
fiscal year end. While real estate mortgages grew by $4,165,000
or 7.96% and consumer loans grew by $1,186,000 or 5.15%,
commercial loans outstanding fell by $3,224,000 or 4.21%. This
low overall growth and contraction in commercial and industrial
loans is due to a slowing in the economy and the liquidation of
several problem loans. Improved but still restrained loan growth
is anticipated going forward.

1994

At the close of fiscal year 1994, gross loans totaled
$151,874,000, an increase of $17,303,000 or 12.86% over the prior
fiscal year end. Commercial and industrial loans grew by
$10,514,000 or 15.77% followed by real estate loans of $4,743,000
or 19.00% and consumer loans of $2,046,000 or 10.95%. Management
attributes this growth to increased loan demand and its' market
niche. It also believes that this growth will continue, but at a
slower pace than that experienced in 1994.

The amount of loans outstanding at the indicated dates are
shown in the following table according to type of loan (in
thousands):

December 31,
1995 1994
---- ----
Domestic:
Real estate mortgage $56,509 $52,344
Commercial and industrial 73,297 76,521
Consumer and all other loans 24,195 23,009
-------- --------
Gross loans $154,001 $151,874
======== ========

The amounts of domestic loans at December 31, 1995 are presented
below by category and maturity (in thousands):

CATEGORY(1)(2)
COMMERCIAL
REAL AND
ESTATE OTHER CONSUMER TOTAL
------ --------- -------- -----
Loans with floating
interest rates:
1 year or less . . . . . $ 42 $ 6,554 $ 400 $ 6,996
1 through 5 years. . . . 128 7,380 136 7,644
5 through 10 years . . . 588 8,962 0 9,550
After 10 years . . . . . 11,311 18,544 8 29,863
------- ------- ------- --------
Sub Total . . . . . . 12,069 41,440 544 54,053
------- ------- ------- --------
Loans with predetermined
interest rates:
1 year or less . . . . . 1,074 4,961 1,795 7,830
1 through 5 years. . . . 2,689 8,262 13,487 24,438
5 through 10 years . . . 8,122 6,848 6,350 21,320
After 10 years . . . . . 32,555 11,786 2,019 46,360
------- ------- ------- --------
Sub Total . . . . . . 44,440 31,857 23,651 99,948
Total. . . . . . $56,509 $73,297 $24,195 $154,001
======= ======= ======= ========

(1) The loan maturity information is based upon original
loan terms and is not adjusted for "rollovers". In the ordinary
course of business, loans maturing within one year may be
renewed, in whole or in part, as to principal amount at interest
rates prevailing at the date of renewal.

(2) Scheduled repayments are reported in maturity
categories in which the payment is due.

The Bank does not make loans that provide for negative
amortization nor do any loans contain conversion features. Also,
adjustable rate mortgages are not offered on residential
properties. The Bank does not have any foreign loans outstanding
at December 31, 1995.

ALLOWANCE FOR LOAN LOSSES

1995

The allowance for loan losses at December 31, 1995 was
$2,353,000 an increase of $226,000 over the prior year. At this
level the allowance stands at 1.5% of gross loans. In assessing
the adequacy of the allowance, management carefully analyzes
credit risk, present and anticipated economic conditions, growth
in the loan portfolio and other relevant factors related to loan
quality. At the close of 1995 nonaccrual loans were $1,266,000
lower than at the close of the prior year. Well over 90% of the
loans on nonaccrual at year end were protected by adequately
margined real estate collateral. The percentage of these loans
which had recent interest payments has increased to 66%.

Because of collateral levied, it is not anticipated that
these loans will have a significant impact on the Company's
income or capital.

1994

At December 31, 1994, the allowance for loan losses stood at
$2,127,000 or 1.4% of gross loans. This was an increase of
$171,000 over the prior year. The loan loss allowance is
determined through a careful analysis of credit risk, anticipated
economic conditions, portfolio growth and other relevant factors
related to loan quality. In 1994 nonaccrual loans increased
$2,000 to $2,275,000. Management remains cautious in assessing
risk and thus maintains what they believe is an allowance capable
of absorbing potential loan losses. Over 70% of loans on
nonaccrual are secured by adequately margined real estate
collateral. The percentage of these loans which had recent
interest payments has declined to 32% as several large accounts
are in bankruptcy liquidation. Because of collateral liened, it
is not anticipated that these loans will have a significant
impact on the Company's income or capital.

The following table presents information concerning
nonperforming loans. The accrual of interest will be discontinued
when the principal or interest of a loan is in default for 90
days or more, or as soon as payment is questionable, unless the
loan is well secured and in the process of collection. Consumer
loans and residential real estate loans secured by 1 to 4 family
dwellings shall ordinarily not be subject to those guidelines.
The reversal of previously accrued but uncollected interest
applicable to any loan placed in a nonaccrual status and the
treatment of subsequent payments of either principal or interest
will be handled in accordance with generally accepted accounting
principles. Generally accepted accounting principles do not
require a write-off of previously accrued interest if principal
and interest are ultimately protected by sound collateral values.
A nonperforming loan may be restored to an accruing status when:

1. Principal and interest is no longer due and unpaid.
2. It becomes well secured and in the process of collection.
3. Prospects for future contractual payments are no longer in
doubt.

TOTAL NONPERFORMING LOANS
(IN THOUSANDS)
90 DAYS
NONACCRUAL PAST DUE RENEGOTIATED
---------- -------- ------------
1995 $1,009 $791 $0
1994 $2,275 $677 $0
1993 $2,273 $382 $295
1992 $1,097 $1,466 $241
1991 $506 $450 $100

If interest had been recorded at the original rate on
nonaccrual loans, such income would have approximated $101,000,
$244,000 and $226,000 for the years ended December 31, 1995, 1994
and 1993, respectively. Interest income on such loans, which is
recorded when received, amounted to approximately $63,000,
$143,000 and $127,000 for the years ended December 31, 1995, 1994
and 1993, respectively. Presently there are no significant
amounts of loans where serious doubts exist as to the ability of
the borrower to comply with the current loan payment terms which
are not included in the nonperforming categories as indicated
above. Management's judgment in determining the amount of the
additions to the allowance charged to operating expense considers
the following factors:

1. Economic conditions and the impact on the loan portfolio.
2. Analysis of past loan charge-offs experience by category and
comparison to outstanding loans.
3. Problem loans on overall portfolio quality.
4. Reports of examination of the loan portfolio by the
Pennsylvania State Banking Department and the Federal
Deposit Insurance Corporation.

Allocation in the Allowance for Loan Losses
(in thousands):
PERCENT OF
LOANS IN
EACH
CATEGORY TO
AMOUNT TOTAL LOANS
------ -----------
DECEMBER 31, 1995:
Balance at end of period applicable to:
Domestic:
Real Estate $24 1.0%
Commercial and industrial 2,235 95.0%
Consumer and all other loans 94 4.0%
------ -----
Total $2,353 100.0%
====== =====
DECEMBER 31, 1994:
Balance at end of period applicable to:
Domestic:
Real Estate $21 1.0%
Commercial and industrial 2,000 94.0%
Consumer and all other loans 106 5.0%
------ -----
Total $2,127 100.0%
====== =====
DECEMBER 31, 1993:
Balance at end of period applicable to:
Domestic:
Real Estate $19 1.0%
Commercial and industrial 1,839 94.0%
Consumer and all other loans 98 5.0%
------ -----
Total $1,956 100.0%
====== =====

DECEMBER 31, 1992:
Balance at end of period applicable to:
Domestic:
Real Estate $17 1.0%
Commercial and industrial 1,559 92.0%
Consumer and all other loans 119 7.0%
------ -----
Total $1,695 100.0%
====== =====
DECEMBER 31, 1991:
Balance at end of period applicable to:
Domestic:
Real Estate $28 2.0%
Commercial and industrial 1,254 89.0%
Consumer and all other loans 127 9.0%
------ -----
Total $1,409 100.0%
====== =====

DEPOSITS

1995

Average deposits totaled $195,907,000 for 1995, an increase
of $7,423,000 or 3.9% over the same period in 1994. The majority
of this increase occurred in time deposits which increased
$13,381,000 followed by savings deposits which increased
$3,317,000. Demand deposits decreased $9,275,000. The movements
indicated were the result of lowered interest rates during 1995
and reflect the shifting from demand deposits to savings and time
deposits. This indicates our depositors' efforts to secure
current interest rates, in anticipation of future rate movements
downward. At December 31, 1995 time deposits in excess of
$100,000 totaled $14,829,000. Management does not rely on these
large time deposits as a major source of funding.

1994

During 1994, average deposits increased $11,303,000 to
$188,484,000. This 6.4% increase over 1993's average balance
occurred primarily in demand deposits which increased $5,304,000
and in savings deposits which increased $4,560,000. Average
other time deposits increased $1,439,000. The overall increase
in average deposits can be attributed to the competitive interest
rates offered by the Bank on transaction accounts. Other
fluctuations noted are the result of our depositors' efforts to
maintain liquidity in anticipation of increases in interest
rates. Time deposits in excess of $100,000 totaled $10,577,000 at
December 31, 1994. Management does not rely on these large time
deposits as a major source of funding.

The following is a breakdown by maturities of time
certificates of deposit of $100,000 or more as of December 31,
1995 (in thousands):

MATURITY AMOUNT
- -------- ------
Three months or less. . . . . . $ 2,592
Over 3 through 6 months . . . . 2,387
Over 6 through 12 months. . . . 3,510
Over 12 months. . . . . . . . . 6,340
-------
Total . . . . . . . $14,829
=======

The average amount and the average rate paid on deposits are
summarized below (in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
AVERAGE AVERAGE AVERAGE
---------------- ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS IN DOMESTIC
BANK OFFICES:
Demand deposits:
Noninterest bearing ..... $ 24,164 0.00% $ 21,885 0.00% $ 18,465 0.00%
Interest bearing ........ 37,649 2.62% 49,203 2.08% 47,319 2.83%
Savings deposits .......... 46,864 2.96% 43,547 3.13% 38,987 3.08%
Time deposits ............. 87,230 5.66% 73,849 5.06% 72,410 5.14%
-------- -------- --------
Total average deposits .. $195,907 $188,484 $177,181
======== ======== ========
</TABLE>

SHAREHOLDERS' EQUITY

1995

Shareholders' equity is evaluated in relation to total
assets and risk associated with those assets. The greater the
capital resources, the more likely a company is to meet its cash
obligations and absorb unforeseen losses. At December 31, 1995,
shareholders' equity totaled $29,684,804, an increase of
$5,845,635. This 24.5% growth was the result of 1995 earnings
of $3,862,012 , stock options that were exercised during 1995 of
$138,626, less the total dividends declared of $1,239,251.
Shareholders' equity was also effected by the net change in the
unrealized appreciation on securities "available-for-sale".
Recovering from a net unrealized loss in 1994, $3,084,248 was
restored to shareholders' equity as of December 31, 1995. The
dividend payout ratio, which represents the percentage of annual
earnings returned to the stockholders in the form of cash
dividends, was about 33% in 1995. The Company's normal payout
allows for quarterly cash returns to the stockholders and
provides for earnings retention at a level that is sufficient to
finance future growth.

1994

Bank regulators have recently issued risk based capital
guidelines. Under these guidelines, banks are required to
maintain minimum ratios of core capital and total qualifying
capital as a percentage of risk weighted assets and certain
off-balance sheet items. At December 31, 1994, the Company's
required ratios were well above the minimum ratios as follows:

1995
Minimum
Company Standards
------- ---------
Tier 1 capital ratio 17.56% 4.00%
Total capital ratio 18.81% 8.00%

For a more comprehensive discussion of these requirements,
see "Item 1. Business -- Regulations and Supervision," herein.
Management believes that the Company will continue to meet
current capital ratios.

RETURN ON EQUITY AND ASSETS:

The ratio of net income to average total assets and average
shareholders' equity and certain ratios are presented as follows:

1995 1994 1993
---- ---- ----
Percentage of net income to:

Average total assets . . . . . . . 1.64% 1.45% 1.89%
Average shareholders' equity . . . 14.07% 13.89% 19.12%
Percentage of dividends
declared per common share. . . . 32.79% 29.70% 28.34%
Percentage of average
shareholders' equity to average
total assets 11.64% 10.42% 9.88%

LIQUIDITY AND INTEREST RATE SENSITIVITY

Fundamental objectives of the asset/liability management
process of the Company are to maintain adequate liquidity while
minimizing interest rate risk. The maintenance of adequate
liquidity provides the Company with the ability to meet its
financial obligations to depositors, loan customers and
stockholders. Additionally, it provides funds for normal
operating expenditures and business opportunities as they arise.
The objective of interest rate sensitivity management is to
increase net interest income by managing interest sensitive
assets and liabilities in such a way that they can be repriced in
response to changes in market interest rates. Liquidity is
generated from transactions relating to both the Company's assets
and liabilities. Liquidity from assets is achieved primarily
through temporary investments in Federal funds sold and time
deposits with financial institutions. Cash receipts arising from
normal customer loan payments provide another important source of
asset related liquidity. On the liability side, deposit growth
provides liquidity. The liquidity provided by these sources is
more than adequate to meet the Company's needs. Interest rate
sensitivity, which is closely related to liquidity management, is
a function of the repricing characteristics of the Company's
portfolio of assets and liabilities. Asset/liability management
strives to match maturities and rates between loan and investment
security assets with the deposit liabilities that fund them.
Successful asset/liability management results in a balance sheet
structure which can cope effectively with market rate
fluctuations. The matching process is affected by segmenting
both assets 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 a specific time period to determine the "gap", or difference.
Once known, the gap is managed based on predictions about future
market interest rates. Intentional mismatching, or gapping, can
enhance net interest income if market rates move as predicted.
However, if market rates behave in a manner contrary to
predictions, net interest income will suffer. Gaps, therefore,
contain an element of risk and must be prudently managed.
Management is committed to making increasing use of automated
asset/liability gapping models to more effectively carry out the
asset/liability management responsibility. Generally, management
believes the Company is reasonably well positioned to respond
expeditiously when the market interest rate outlook changes.

INTEREST RATE SENSITIVITY

The following table sets forth the Bank's interest rate
sensitivity as of December 31, 1995:
<TABLE>
<CAPTION>
WITHIN AFTER ONE AFTER FIVE AFTER
ONE BUT WITHIN BUT WITHIN TEN
YEAR FIVE YEARS TEN YEARS YEARS
------ ---------- ---------- -----
<S> <C> <C> <C> <C>
Earning assets (1) (2) . . . $71,392 $28,451 $29,986 $90,167
Interest-bearing
liabilities (3) 112,213 68,084 1,039 87
------- ------- ------- -------
Gap:
By period . . . . . . . . . (40,821) (39,633) 28,947 90,080
------- ------- ------- -------
By cumulative . . . . . . . ($40,821) ($80,454) ($51,507) $38,573
------- ------- ------- -------
Earning assets:
Federal funds sold. . . . . $570 $0 $0 $0
Investments (1) . . . . . . 14,862 3,153 6,012 44,112
Loans (2) . . . . . . . . . 55,960 25,298 23,974 46,055
Interest-bearing
liabilities: (3)
Interest-bearing deposits . $112,213 $68,084 $1,039 $87
Long-term borrowings. . . 0 0 0 0
</TABLE>

(1) Investment balances include annual repayment
assumptions of 6% on mortgage backed securities and certain other
securities. The securities include repayment assumptions based
on their terms.

(2) Loan balances include annual repayment assumptions
based on the projected cash flow from the loan portfolio. The
cash flow projections are based on the terms of the credit
facilities. No assumptions are made regarding prepayment of
loans. Loans included loans held for resale and are presented
net of deferred loan fees and allowance for loan losses.

(3) The Corporation considers one-half of its regular
saving deposits to be stable core deposits, and accordingly has
classified such deposits in the "After One but Within Five Years"
category. All other interest-bearing demand deposits are
classified in the "Within One Year" category and time deposits
are categorized according to scheduled maturity.

INFLATION

The asset and liability structure of a financial institution
is primarily monetary in nature, therefore, interest rates rather
than inflation have a more significant impact on the
Corporation's performance. Interest rates are not always
affected in the same direction or magnitude as prices of other
goods and services, but are reflective of fiscal policy
initiatives or economic factors which are not measured by a
price index.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
Penns Woods Bancorp, Inc. and Subsidiaries
Jersey Shore, Pennsylvania:

We have audited the accompanying consolidated balance
sheets of Penns Woods Bancorp, Inc. and subsidiaries (the
"Company") as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits. The consolidated financial statements as of December
31, 1994 and for the years ended December 31, 1994 and 1993 have
been restated to reflect the pooling of interests with Lock Haven
Savings Bank as described in Note A to the consolidated financial
statements. We did not audit the 1994 and 1993 financial
statements of Lock Haven Savings Bank, which statements reflect
total assets of $38,043,519 as of December 31, 1994, and net
interest income of $1,556,249 and $1,599,469, respectively, for
the years ended December 31, 1994 and 1993. Those statements
were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts
included of Lock Haven Savings Bank as of December 31, 1994, and
for the years ended December 31, 1994 and 1993, is based solely
on the report of the other auditors.

We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position
of Penns Woods Bancorp, Inc. and subsidiaries as of December 31,
1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted
accounting principles.

As discussed in Note A to the consolidated financial
statements, in 1994, the Company changed its method of accounting
for investments by adopting Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities.

Parente, Randolph, Orlando, Carey & Associates
Williamsport, Pennsylvania
January 19, 1996
<PAGE>
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994

1995 1994
ASSETS: ---- ----
Cash and due from banks $ 14,283,649 $ 12,025,441
Federal funds sold 570,000 -
Securities available-for-sale 65,322,241 60,067,442
Securities held-to-maturity (fair
value of $2,866,000 in 1995 and
$6,687,000 in 1994) 2,817,174 6,757,987
Loans, net 151,287,161 149,365,397
Bank premises and equipment, net 3,808,885 4,068,923
Accrued interest receivable 1,717,616 1,501,658
Foreclosed assets held for sale 943,108 414,572
Other assets 1,878,740 1,436,388
------------ ------------
TOTAL $242,628,574 $235,637,808
============ ============
LIABILITIES:
Interest-bearing deposits $175,078,848 $168,025,878
Noninterest-bearing deposits 27,178,753 22,812,710
------------ ------------
Total deposits 202,257,601 190,838,588

Securities sold under repurchase
agreements 6,344,111 5,016,567
Other borrowed funds - 7,170,000
Accrued interest payable 918,841 610,911
Other liabilities 3,423,217 1,162,573
Long-term borrowings - 7,000,000
------------ ------------
Total liabilities 212,943,770 211,798,639
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, par value $10,
10,000,000 shares authorized;
1,271,339 shares issued and
outstanding at December 31, 1995
and 1,000,000 shares authorized;
843,731 issued and outstanding
at December 31, 1994 12,713,390 8,437,310
Additional paid-in capital 4,453,353 4,368,147
Retained earnings 10,059,806 11,659,705
Net unrealized appreciation
(depreciation) on securities
available-for-sale 2,458,255 (625,993)
------------ ------------
Total shareholders' equity 29,684,804 23,839,169
------------ ------------
TOTAL $242,628,574 $235,637,808
============ ============
See Notes to Consolidated Financial Statments<PAGE>
<TABLE>
<CAPTION>
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>

INTEREST INCOME:
Interest and fees on loans . . . . . . . $14,705,552 $13,109,216 $12,249,276
Interest and dividends on investments:
Taxable interest . . . . . . . . . . . 2,325,853 2,367,974 2,380,842
Tax-exempt interest. . . . . . . . . . 1,109,883 1,006,955 986,950
Dividends. . . . . . . . . . . . . . . 409,452 385,327 341,708
Interest on federal funds sold . . . . . 144,311 12,858 8,408
----------- ----------- -----------
Total interest income. . . . . . . . 18,695,051 16,882,330 15,967,184
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits . . . . . . . . . . 7,306,358 6,124,233 6,249,400
Interest on securities sold under
repurchase agreements. . . . . . . . . 221,927 124,224 137,743
Interest on other borrowings . . . . . . 264,401 653,788 158,665
----------- ----------- -----------
Total interest expense . . . . . . . 7,792,686 6,902,245 6,545,808
----------- ----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . 10,902,365 9,980,085 9,421,376
PROVISION FOR LOAN LOSSES. . . . . . . . . 300,020 577,020 791,020
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES. . . . . . . . . . . . . . . 10,602,345 9,403,065 8,630,356
----------- ----------- -----------
OTHER INCOME:
Service charges. . . . . . . . . . . . . 764,435 692,301 683,990
Securities gains . . . . . . . . . . . . 1,180,073 1,267,270 2,044,757
Other operating income . . . . . . . . . 270,523 177,663 213,103
----------- ----------- -----------
Total other income . . . . . . . . . 2,215,031 2,137,234 2,941,850
----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits . . . . . 4,012,349 3,545,887 3,249,810
Occupancy expense, net . . . . . . . . . 467,745 558,449 512,086
Furniture and equipment expense. . . . . 594,951 446,453 357,320
Other operating expenses . . . . . . . . 2,459,088 2,446,846 1,977,959
----------- ----------- -----------
Total other expenses . . . . . . . . 7,534,133 6,997,635 6,097,175
----------- ----------- -----------
INCOME BEFORE INCOME TAX
PROVISION. . . . . . . . . . . . . . . . 5,283,243 4,542,664 5,475,031
INCOME TAX PROVISION . . . . . . . . . . . 1,421,231 1,174,091 1,496,535
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . $ 3,862,012 $ 3,368,573 $ 3,978,496
=========== =========== ===========
EARNINGS PER SHARE . . . . . . . . . . . . $ 3.05 $ 2.66 $ 3.14
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . 1,267,538 1,266,878 1,266,878
=========== =========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
UNREALIZED
APPRECIATION
ADDITIONAL (DEPRECIATION) ON TOTAL
COMMON PAID-IN RETAINED SECURITIES SHAREHOLDERS'
STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
----- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992, as
previously reported . . . . . . . . . . . . $ 3,366,000 $2,868,342 $10,720,669 $ - $16,955,011

Adjustments in connection with pooling
of interests . . . . . . . . . . . . . . . 1,016,425 (223,165) 1,275,833 2,069,093
----------- ---------- ----------- ---------- -----------
Balance, December 31, 1992 as restated . . . 4,382,425 2,645,177 11,996,502 - 19,024,104

Net income . . . . . . . . . . . . . . . . . 3,978,496 3,978,496

Dividends declared, $0.89 per share . . . . . (1,130,765) (1,130,765)

Stock dividend 10% . . . . . . . . . . . . . 336,600 1,514,700 (1,851,300) -

Stock split effected in the form of a
100% stock dividend . . . . . . . . . . . . 3,702,600 (3,702,600) -

Stock options exercised . . . . . . . . . . . 11,000 11,500 22,500
----------- ---------- ----------- ---------- -----------
Balance, December 31, 1993 . . . . . . . . . 8,432,625 4,171,377 9,290,333 - 21,894,335

Net income . . . . . . . . . . . . . . . . . 3,368,573 3,368,573

Dividends declared, $0.79 per share . . . . . (999,201) (999,201)

Implementation of SFAS No. 115. . . . . . . . 2,688,966 2,688,966

Stock options exercised, Lock Haven
Savings Bank . . . . . . . . . . . . . . . 4,685 196,770 201,455

Net change in unrealized appreciation
(depreciation) . . . . . . . . . . . . . . (3,314,959) (3,314,959)
----------- ---------- ----------- ---------- -----------

Balance, December 31, 1994 . . . . . . . . . 8,437,310 4,368,147 11,659,705 (625,993) 23,839,169

Net income . . . . . . . . . . . . . . . . . 3,862,012 3,862,012

Dividends declared, $1.00 per share . . . . . (1,239,251) (1,239,251)

Stock split effected in the form of a
50% stock dividend . . . . . . . . . . . . 4,222,660 (4,222,660) -

Net change in unrealized appreciation
(depreciation) . . . . . . . . . . . . . . 3,084,248 3,084,248

Stock options exercised . . . . . . . . . . . 53,420 85,206 138,626
----------- ---------- ----------- ---------- -----------
Balance, December 31, 1995 . . . . . . . . . $12,713,390 $4,453,353 $10,059,806 $2,458,255 $29,684,804
=========== ========== =========== ========== ===========

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . $ 3,862,012 $ 3,368,573 $ 3,978,496
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . 343,470 305,168 288,593
Provision for loan losses. . . . . . . . 300,020 577,020 791,020
Amortization of investment security
premiums. . . . . . . . . . . . . . . 38,195 66,718 92,884
Accretion of investment security
discounts . . . . . . . . . . . . . . (104,713) (62,942) (68,016)
Securities gains . . . . . . . . . . . . (1,180,073) (1,267,270) (2,044,757)
Increase in all other assets . . . . . . (2,247,165) (542,220) (145,877)
Increase (decrease) in all other
liabilities . . . . . . . . . . . . . 2,568,574 (35,506) 158,851
Net decrease in investment security
held for sale . . . . . . . . . . . . - - (113,390)

Net cash provided by operating
activities. . . . . . . . . . . 3,580,320 2,409,541 2,937,804

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-
sale . . . . . . . . . . . . . . . . . . .(52,594,981) (44,812,280) -
Proceeds from sale of securities
available-for-sale . . . . . . . . . . . . 52,585,787 48,588,943 -
Purchase of securities held-to-maturity. . . (514,945) (1,002,300) -
Proceeds from calls and maturities of
securities held-to-maturity. . . . . . . . 5,129,847 1,991,672 25,877,958
Purchase of investment securities. . . . . . - - (36,996,306)
Net increase in loans. . . . . . . . . . . . (2,221,784) (17,327,144) (6,464,992)
Decrease (increase) in foreclosed
assets . . . . . . . . . . . . . . . . . . (528,536) 156,486 (796)
Acquisition of bank premises and
equipment. . . . . . . . . . . . . . . . . (83,432) (417,998) (252,565)

Net cash provided by (used in)
investing activities. . . . . . 1,771,956 (12,822,621) (17,836,701)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing
deposits . . . . . . . . . . . . . . . . . 7,052,970 8,054,907 4,216,010
Net increase in noninterest-bearing
deposits . . . . . . . . . . . . . . . . . 4,366,043 2,196,318 1,210,338
Net increase in securities sold under
repurchase agreements. . . . . . . . . . . 1,327,544 1,061,485 536,751
Increase (decrease) in other borrowed
funds. . . . . . . . . . . . . . . . . . . (7,170,000) (2,232,400) 7,102,400
Long-term borrowings . . . . . . . . . . . . - 1,175,000 5,825,000
Repayment of long-term borrowings. . . . . . (7,000,000) - (2,733,561)
Dividends paid . . . . . . . . . . . . . . . (1,239,251) (999,201) (1,130,766)
Stock options exercised. . . . . . . . . . . 138,626 201,455 22,500

Net cash (used in) provided by
financing activities. . . . . . (2,524,068) 9,457,564 15,048,672
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . $ 2,828,208 $ (955,516) $ 149,775

CASH AND CASH EQUIVALENTS, BEGINNING 12,025,441 12,980,957 12,831,182
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $14,853,649 $12,025,441 $12,980,957
=========== =========== ===========
<FN>

The Company paid $7,484,756, $6,849,515 and $6,617,550 in interest on deposits and other borrowings during 1995, 1994 and 1993,
respectively.

The Company made income tax payments of $1,350,400, $1,706,817 and $1,552,776 during 1995, 1994 and 1993, respectively.

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements
include the accounts of Penns Woods Bancorp, Inc.
and its wholly-owned subsidiaries, Jersey Shore
State Bank ("Bank"), Woods Real Estate Development
Co., Inc. and Woods Investment Company, Inc.
(collectively, the "Company"). All significant
intercompany balances and transactions have been
eliminated.

NATURE OF BUSINESS

The Bank engages in a full service commercial
banking business, making available to the community
a wide range of financial services, including, but
not limited to, installment loans, credit cards,
mortgage and home equity loans, lines of credit,
construction financing, farm loans, community
development loans, loans to non-profit entities and
local government loans and various types of time
and demand deposits, including, but not limited to,
checking accounts, savings accounts, clubs, money
market deposit accounts, certificates of deposit
and IRAs. Deposits are insured by the Federal
Deposit Insurance Corporation (FDIC) to the extent
provided by law.

The financial services are provided to individuals,
partnerships, non-profit organizations and
corporations through its seven offices located in
Clinton and Lycoming Counties, Pennsylvania.

Woods Real Estate Development Company engages in
real estate transactions on behalf of the Company
and the Bank.

Woods Investment Company, Inc. is engaged in
investing activities.

USE OF ESTIMATES

The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reporting amounts
of assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting periods.
Actual results may differ from those estimates.

Material estimates that are particularly
susceptible to significant change relate to the
determination for the allowance for the loan
losses, and the valuation of real estate acquired
through, or in lieu of, foreclosure on settlement
of debt.

While it is reasonably possible that the estimate
of the effect on the financial statements of a
condition, situation, or set of circumstances that
existed at the date of the financial statements
will change in near term due to one or more future
confirming events, based on current information
known to management, management is not aware of a
condition, situation, or set of circumstances
whereby the offset of the change would be material
to the financial statements.

BUSINESS COMBINATION

On April 7, 1995, Lock Haven Savings Bank was
merged with and into the Company, and 102,111
shares of the Company's common stock were issued in
exchange for all of the outstanding stock of Lock
Haven Savings Bank. The merger was accounted for
as a pooling of interests, and, accordingly, the
accompanying financial statements have been
restated to include the accounts and operations of
Lock Haven Savings Bank for all periods prior to
the merger.

Prior to the pooling of interests, net interest
income and net loss of Lock Haven Savings Bank for
the period ended April 7, 1995 were $430,945 and
$188,149, respectively. Separate results for the
two years in the period ended December 31, 1994 are
as follows (in thousands):

YEARS ENDED
DECEMBER 31,
---------------
1994 1993
---- ----
Net interest income:
As previously reported . . . $8,281 $7,674
Acquired Company . . . . . . 1,699 1,747
------ ------
As restated. . . . . . . . $9,980 $9,421
====== ======
Net income:
As previously reported . . . $3,248 $3,581
Acquired Company . . . . . . 121 397
------ ------
As restated. . . . . . . . $3,369 $3,978
====== ======

INVESTMENT SECURITIES

Effective January 1, 1994, the Company implemented
Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which
was issued by the Financial Accounting Standards
Board ("FASB"). SFAS No. 115 requires the
classification of investment securities as held-to-
maturity, available-for-sale or trading.

Securities held-to-maturity include bonds, notes,
and debentures for which the Company has the
positive intent and ability to hold to maturity and
are reported at amortized cost.

Trading account securities are recorded at their
fair values. Unrealized gains and losses on
trading account securities are included in other
income. The Company has no trading account
securities as of December 31, 1995 or 1994.

Available-for-sale securities consist of bonds,
notes, debentures, and certain equity securities
not classified as trading securities nor as held-
to-maturity securities. Unrealized holding gains
and losses, net of tax, on available-for-sale
securities are reported as a net amount in a
separate component of shareholders' equity until
realized.

Gains and losses on the sale of all securities are
determined using the specific-identification
method.

Declines in the fair value of individual securities
held-to-maturity and available-for-sale below their
cost that are other than temporary result in
write-downs of the individual securities to their
fair value. Any related write-downs are included
in earnings as realized losses.

Premiums and discounts on all securities are
recognized in interest income using the interest
method over the period to maturity.

The fair value of investments and mortgage-backed
securities, except certain state and municipal
securities, is estimated based on bid prices
published in financial newspapers or bid quotations
received from securities dealers. The fair value
of certain state and municipal securities is not
readily available through market sources other than
dealer quotations, so fair value estimates are
based on quoted market prices of similar
instruments, adjusted for differences between the
quoted instruments and the instruments being
valued.

LOANS

Loans are stated at the principal amount
outstanding, net of unearned interest, unamortized
loan fees and costs, and the allowance for loan
losses. Interest on real estate loans is accrued
on the principal balance using a 360-day year.
Interest on other loans is accrued on the principal
balance, primarily on an actual day basis.
Interest on consumer loans is accrued over the term
of each loan using the "actuarial method." Loans
are placed on a nonaccrual basis when there are
serious doubts about the collectibility of
principal or interest.

The Company recognizes nonrefundable loan
origination fees and certain direct loan
origination costs over the life of the related
loans as an adjustment of loan yield using the
interest method. For loans made before 1988, the
Company has recognized such fees and costs in the
year received or incurred.

ALLOWANCE FOR LOAN LOSSES

The provision for loan losses charged to operations
reflects the amount deemed appropriate by
management to establish an adequate allowance to
meet the present and foreseeable risks of the loan
portfolio. Management's judgment is based upon
evaluation of individual loans, overall risk of the
various portfolio segments, past experience with
losses, the impact of economic conditions on
borrowers and other relevant factors.

It is the opinion of management that the allowance
for loan losses is adequate to absorb foreseeable
loan losses. Loan losses are charged directly
against the allowance and recoveries on previously
charged-off loans are added to the allowance.

FORECLOSED ASSETS HELD FOR SALE

Foreclosed assets held for sale are carried at the
lower of fair value minus estimated costs to sell
or cost. Prior to foreclosure, the value of the
underlying loan is written down to the fair value
of the real estate to be acquired by a charge to
the allowance for loan losses, if necessary. Any
subsequent write-downs are charged against
operating expenses. Operating expenses of such
properties, net of related income, and gains and
losses on their disposition are included in other
expenses.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed
using straight-line and accelerated methods over
the estimated useful lives of the related assets.
Costs incurred for routine maintenance and repairs
are expensed currently.

EMPLOYEE BENEFIT PLAN

It is the Company's policy to fund pension cost on
a current basis to the extent deductible under
existing tax regulations. Such contributions are
intended to provide not only for benefits
attributed to service to date, but also for those
expected to be earned in the future.

INCOME TAXES

Deferred tax assets and liabilities are reflected
at currently enacted income tax rates applicable to
the period in which the deferred tax assets or
liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted
through the provision for income taxes.

EARNINGS PER SHARE

Earnings per share are calculated by dividing net
income by the weighted average number of shares
outstanding during the periods presented which have
been adjusted to give retroactive effect to stock
dividends and stock splits. Outstanding stock
options are common stock equivalents but have no
material dilutive effect on earnings per share.

CASH FLOWS

The Company utilizes the net reporting of cash
receipts and cash payments for deposit and lending
activities.

The Company considers amounts due from banks and
federal funds sold as cash equivalents. Transfers
from loans to foreclosed assets held for sale
amounted to $1,372,173, $231,864 and $410,142 in
1995, 1994 and 1993, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company has no derivative financial instruments
requiring disclosure under SFAS No. 119.

REPORTING FORMAT

Certain 1994 and 1993 financial information has
been reclassified to conform to the 1995 financial
statement presentation.

NOTE B - INVESTMENT SECURITIES

The amortized cost of investment securities and their
approximate fair values at December 31, 1995 and 1994
were as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities available-for-sale:
Equity securities . . . . . . $10,298 $2,051 $ 48 $12,301
U.S. government and agency
securities. . . . . . . . . 33,073 530 14 33,589
State and municipal
securities. . . . . . . . . 16,273 1,192 9 17,456
Other securities. . . . . . . 1,954 30 8 1,976
------- ------ ------ -------
$61,598 $3,803 $ 79 $65,322
======= ====== ====== =======
Securities held-to-maturity:
U.S. government and agency
securities. . . . . . . . . $ 791 $ 32 $ - $ 23
State and municipal
securities. . . . . . . . . 1,816 18 - 1,834
Other securities. . . . . . . 210 - 1 209
------- ------ ------ -------
$ 2,817 $ 50 $ 1 $ 2,866
======= ====== ====== =======

<CAPTION>
DECEMBER 31, 1994
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities available-for-sale:
Equity securities . . . . . . $ 8,947 $ 666 $ 518 $ 9,095
U.S. government and agency
securities. . . . . . . . . 32,853 - 990 31,863
State and municipal
securities. . . . . . . . . 15,213 387 435 15,165
Other securities. . . . . . . 3,977 7 40 3,944
-------- ------ ------ -------
$ 60,990 $1,060 $1,983 $60,067
======== ====== ====== =======
Securities held-to-maturity:
U.S. government and agency
securities. . . . . . . . . $ 4,051 $ 3 $ 11 $ 4,043
State and municipal
securities. . . . . . . . . 2,454 8 68 2,394
Other securities. . . . . . . 253 - 3 250
$ 6,758 $ 11 $ 82 $ 6,687
======= ====== ====== =======
</TABLE>

The amortized cost and fair value of debt securities at
December 31, 1995, by contractual maturity, are shown
below (in thousands). Expected maturities will differ
from contractual maturities because borrowers may have
the right to call or prepay obligations with or without
call or prepayment penalties.
Securities Securities
Held-to-Maturity Available-for-Sale
----------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
Due in one year or less $ 115 $ 116 $ 1,097 $ 1,117
Due from one year to five
years 15 15 3,058 3,138
Due from five to ten
years 1,186 1,200 4,709 4,827
Due after ten years 1,501 1,535 42,436 43,939
------ ------ ------- -------
$2,817 $2,866 $51,300 $53,021
====== ====== ======= =======

Gross realized gains and gross realized losses on
sales of available-for-sale securities were:

1995
----
Gross realized gains:
U.S. government and agency securities $ 87,627
State and municipal securities 511,432
Equity securities 1,123,758
$1,722,817
==========
Gross realized losses:
U.S. government and agency securities $ 408,007
State and municipal securities 126,381
Equity securities 4,377
Other debt securities 3,979
$ 542,744
==========

There were no sales of securities classified as held-
to-maturity in 1995 or 1994.

Proceeds from sales of investments in debt securities
during 1993 were $5,873,507. Gross gains of $73,025
and gross losses of $73,075 were realized on those
sales.

Investment securities with a carrying value of
approximately $10,646,000 and $8,975,000 at
December 31, 1995 and 1994, respectively, were
pledged to secure certain deposits, security
repurchase agreements and for other purposes as
required by law.

There is no concentration of investments that exceed
10% of shareholders' equity for any individual
issuer, excluding those guaranteed by the U.S.
government.

NOTE C - LOANS

Major loan classifications are summarized as follows
(in thousands):
DECEMBER 31, 1995
---------------------------------------------
PAST DUE PAST DUE
30 TO 90 90 DAYS NON-
CURRENT DAYS OR MORE ACCRUAL TOTAL
------- -------- ------- ------- -----

Real estate loans -
mortgage $ 52,792 $1,964 $ 433 $ 108 $ 55,297
Real estate loans -
construction 1,212 - - - 1,212
Commercial and
industrial loans 70,141 2,104 172 880 73,297
Consumer and all
other loans 23,332 656 186 21 24,195

Gross loans $147,477 $4,724 $ 791 $1,009 $154,001
======== ====== ===== ====== ========

Less: Unearned income 15
Unamortized loan fees/costs 346
Allowance for loan losses 2,353
--------
Loans, net $151,287
========

DECEMBER 31, 1994
---------------------------------------------

PAST DUE PAST DUE
30 TO 90 90 DAYS NON-
CURRENT DAYS OR MORE ACCRUAL TOTAL
------- -------- -------- ------- -----

Real estate loans -
mortgage $ 49,390 $1,178 $138 $ 68 $ 50,774
Real estate loans -
construction 1,570 - - - 1,570
Commercial and
industrial loans 72,840 1,119 386 2,176 76,521
Consumer and all
other loans 22,325 500 153 31 23,009

Gross loans $146,125 $2,797 $677 $2,275 151,874
======== ====== ==== ====== ========

Less: Unearned income 70
Unamortized loan fees/costs 312
Allowance for loan losses 2,127
--------
Loans, net $149,365
========

Loans on which the accrual of interest has been
discontinued or reduced amounted to approximately
$1,009,000 and $2,275,000 at December 31, 1995 and
1994, respectively. If interest had been recorded at
the original rate on those loans, such income would
have approximated $101,000, $244,000 and $226,000 for
the years ended December 31, 1995, 1994 and 1993,
respectively. Interest income on such loans, which
is recorded as received, amounted to approximately
$63,000 $143,000 and $127,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.

Transactions in the allowance for loan losses are
summarized as follows (in thousands):

YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
---- ---- ----
Balance, beginning of year $2,127 $1,956 $1,695
Provision charged to operations 300 577 791
Loans charged off (254) (494) (686)
Recoveries 180 88 156
------ ------ ------
Balance, end of year $2,353 $2,127 $1,956
====== ====== ======

At December 31, 1995, the Company had loans amounting
to approximately $165,000 that were specifically
classified as impaired, $133,000 of which are
included in nonaccrual loans. By definition, a loan
is impaired when, based on current information and
events, it is probable that all amounts due will not
be collected according to the contractual terms of
the loan agreement. In 1995, the average balance of
these loans amounted to approximately $165,000 for
the year. Due to the low level of loans classified
as impaired, and the fact that the majority of such
impaired loans are adequately collateralized,
impaired loans should not have a material effect on
the allowance for loan losses or the earnings of the
Company. The following is a summary of cash receipts
on these loans and how they were applied in 1995 (in
thousands):

Cash receipts applied to reduce
principal balance $ 1
Cash receipts recognized as interest income 3
--------
Total $ 4
========

The Company has no commitments to loan additional
funds to borrowers with impaired or nonaccrual loans.

The Company grants commercial, industrial,
residential and consumer loans to customers
throughout Northcentral Pennsylvania. Although the
Company has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor
their contracts is dependent on the economic
conditions within this region.

NOTE D - BANK PREMISES AND EQUIPMENT

Bank premises and equipment are summarized as follows
(in thousands):

DECEMBER 31,
-----------------
1995 1994
---- ----
Land $ 430 $ 430
Bank premises 3,529 3,583
Furniture and equipment 3,093 3,003
Leasehold improvements 493 489
------- ------
Total 7,545 7,505

Less accumulated depreciation (3,736) (3,436)

Net $3,809 $4,069
====== ======

NOTE E - OTHER BORROWED FUNDS

The composition of other borrowed funds is summarized
as follows (in thousands):

DECEMBER 31,
--------------
1995 1994
---- ----
Federal funds purchased . . . . . . $ - $7,170
==== ======

Federal funds purchased generally represent the
overnight federal funds transactions with
correspondent banks. The weighted average interest
rate for the years ended December 31, 1995, 1994 and
1993 was 6.18%, 5.72%, and 3.24%, respectively. The
maximum amount of other borrowed funds outstanding at
any time was $8,185,600, $16,635,500, and
$16,642,900, respectively, for those same periods.

NOTE F - LONG-TERM BORROWINGS

Long-term borrowings of $7,000,000 were repaid in
1995.

NOTE G - DEPOSITS

Time deposits of $100,000 or more totaled $14,829,000
on December 31, 1995 and $10,577,148 on December 31,
1994. Interest expense related to such deposits was
approximately $727,000, $407,000 and $436,000 for the
years ended December 31, 1995, 1994 and 1993,
respectively.

NOTE H - INCOME TAXES

The following temporary differences gave rise to the
net deferred tax (liability) asset at December 31,
1995 and 1994:

1995 1994
---- ----
Deferred tax asset:
Allowance for loan losses . . . . . . $ 468,238 $389,281
Deferred compensation . . . . . . . . 126,198 102,107
Contingencies . . . . . . . . . . . . 74,225 67,085
Pension . . . . . . . . . . . . . . . 90,572 66,537
Loan fees and costs . . . . . . . . . 117,619 74,339
Stock option. . . . . . . . . . . . . 31,960 32,769
Unrealized losses on available-
for-sale securities . . . . . . . . - 256,347
---------- --------
Total . . . . . . . . . . . . . . 908,812 988,465
---------- --------
Deferred tax liability:
Bond accretion. . . . . . . . . . . . (153,654) (144,858)
Depreciation. . . . . . . . . . . . . (112,236) (123,746)
Unrealized gains on available-
for-sale securities . . . . . . . . (1,266,374 -
---------- --------
Total (1,532,264) (268,604)
---------- --------
Deferred tax (liability)
asset, net. . . . . . . . . . $ (623,452) $719,861
========== ========

The provision for income taxes is comprised of the
following:
YEAR ENDED DECEMBER 31,
1995 1994 1993
---- ---- ----
Currently payable . . . $1,600,639 $1,255,383 $1,560,767

Deferred benefit. . . . (179,408) (81,292) (64,232)
---------- ---------- ----------
Total provision $1,421,231 $1,174,091 $1,496,535
========== ========== ==========

The effective federal income tax rate for the years
ended December 31, 1995, 1994 and 1993 was 26.9%,
25.8% and 27.3%, respectively. A reconciliation
between the expected income tax and rate and the
effective income tax and rate on income before income
tax provision follows (in thousands):

[CAPTION]
<TABLE> 1995 1994 1993
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Provision at expected
rate . . . . . . . . . . . $1,796 34.0% $1,544 34.0% $1,862 34.0%
Increase (decrease) in
tax resulting from:
Tax-exempt income. . . . (452) (8.6) (456) (10.0) (460) (8.4)
Other, net . . . . . . . 77 1.5 86 1.8 95 1.7
------ ---- ------ ----- ------ ----
Effective
income tax
and rates $1,421 26.9% $1,174 25.8% $1,497 27.3%
===== ===== ====== ====== ====== =====
</TABLE>

NOTE I - PENSION PLAN

The Company has a noncontributory defined benefit
pension plan (the "Plan") for all employees meeting
certain age and length of service requirements.
Benefits are based primarily on years of service and
the average annual compensation during the highest
five consecutive years within the final ten years of
employment. The Company's funding policy is
consistent with the funding requirements of federal
law and regulations. Plan assets are comprised of
common stock, U.S. government and corporate debt
securities.

Net periodic pension cost includes the following
components (in thousands):

Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Service costs benefits earned
during the period . . . . . . . . $180 $171 $140
Interest cost on projected
benefit obligation. . . . . . . . 158 137 116
Return on assets. . . . . . . . . . (119) (110) (89)
Amortization of transition gain . . (1) 1 -
Prior service costs . . . . . . . . 24 18 12
---- ---- ----
Net periodic pension cost $242 $217 $179
==== ==== ====

The funded status of the Plan and amount recognized
in the Company's balance sheet is summarized below
(in thousands):

Years ended December 31,
------------------------
1995 1994
---- ----
Actuarial present value of:
Vested benefit obligation $1,224 $ 736
====== ======
Accumulated benefit obligation $1,162 $1,004
====== ======

Projected benefit obligation $2,400 $2,168
Plan assets at fair value 1,678 1,510
------ ------
Excess of projected benefit obligation
over assets (722) (658)
Unrecognized prior-service cost 174 146
Unrecognized transition gain being
recognized over employees' average
remaining service life (31) (32)
Deferred unexpected loss 99 325
------ ------
Accrued pension cost $ (480) $ (219)
====== ======
The projected benefit obligation at December 31, 1995
and 1994 was determined using an assumed discount
rate of 7.5%, and an assumed long-term rate of
compensation increase of 6%. An assumed long-term
rate of return on Plan assets of 8.5% was used in
both 1995 and 1994.

NOTE J - STOCK OPTION AGREEMENTS

In August 1992, the Company granted to one of its
officers an option to purchase, at $45 per share, 500
shares of its common stock with a market value of $52
per share. These options, adjusted for the 1992
stock dividend and the 1993 stock split, were
exercised in December 1993.

In December 1993, the Company granted to one of its
officers an option to purchase, at $26 per share,
2,000 shares of its common stock, with a market value
of $40 per share. These options, adjusted for the
1995 stock split, were exercised in November 1995.

In December 1994, the Company granted to three of its
officers options to purchase, at $32 per share, a
combined total of 3,000 shares of its common stock
with a market value of $48 per share. If not
exercised, these options will expire in December
1996.

In December 1995, the Company granted to five of its
officers an option to purchase, at $35 per share, a
combined total of 5,100 shares of its common stock
with a market value of $36 per share. If not
exercised, these options will expire in December
1997.

In addition, 1,086 and 4,685 stock options issued by
Lock Haven Savings Bank were exercised in 1995 and
1994, respectively.

NOTE K - RELATED PARTY TRANSACTIONS

Certain directors and executive officers of the
Company and the Bank, including their immediate
families and companies in which they are principal
owners (more than 10%), are indebted to the Company.
Such indebtedness was incurred in the ordinary course
of business on the same terms and at those rates
prevailing at the time for comparable transactions
with others.

A summary of loan activity with officers, directors,
stockholders and associates of such persons is listed
below:

BEGINNING CHARGE- ENDING
YEAR BALANCE ADDITIONS PAYMENTS OFFS BALANCE
- ---- --------- --------- -------- ------- -------
1995 $1,271,807 $652,519 $143,079 $ - $1,781,247

1994 $ 891,111 $715,410 $334,714 $ - $1,271,807

1993 $ 506,454 $591,874 $207,217 $ - $ 891,111

NOTE L - COMMITMENTS AND CONTINGENT LIABILITIES

The following is a schedule of future minimum rental
payments under operating leases with noncancellable
terms in excess of one year as of December 31, 1995
(in thousands):

YEAR ENDING DECEMBER 31

1996 . . . . . . . . . $119
1997 . . . . . . . . . 119
1998 . . . . . . . . . 111
1999 . . . . . . . . . 39
2000 . . . . . . . . . 39
Thereafter . . . . . . 171
----
Total $598
====

Total rental expense for all operating leases for
years ended December 31, 1995, 1994 and 1993 was
$96,226, $94,981 and $97,682, respectively.

The Company is subject to lawsuits and claims arising
out of its business. In the opinion of management,
after review and consultation with counsel, any
proceedings that may be assessed will not have a
material adverse effect on the consolidated financial
position of the Company.

NOTE M - OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of
business to meet the financing needs of its
customers. These financial instruments include
commitments to extend credit and standby letters of
credit. These instruments involve, to varying
degrees, elements of credit, interest rate or
liquidity risk in excess of the amount recognized in
the consolidated balance sheet. The contract amounts
of these instruments express the extent of
involvement the Company has in particular classes of
financial instruments.

The Company's exposure to credit loss from
nonperformance by the other party to the financial
instruments for commitments to extend credit and
standby letters of credit is represented by the
contractual amount of these instruments. The Company
uses the same credit policies in making commitments
and conditional obligations as it does for on-
balance-sheet instruments.

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

Financial instruments whose contract amounts
represent credit risk are as follows:

CONTRACT AMOUNT
DECEMBER 31
-------------------------
1995 1994
---- ----
Commitments to extend credit . . . . $18,281,000 $16,321,000
=========== ===========

Standby letters of credit. . . . . . $ 1,332,000 $ 1,161,000
=========== ===========

Commitments to extend credit are legally binding
agreements to lend to customers. Commitments
generally have fixed expiration dates or other
termination clauses and may require payment of fees.
Since many of the commitments are expected to expire
without being drawn upon, the total commitment
amounts do not necessarily represent future liquidity
requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by
the Company, on extension of credit is based on
management's credit assessment of the counterparty.

Standby letters of credit are conditional commitments
issued by the Company guaranteeing performance by a
customer to a third party. Those guarantees are
issued primarily to support public and private
borrowing arrangements, including commercial paper,
bond financing and similar transactions. The credit
risk involved in issuing letters of credit is
essentially the same as that involved in extending
loan facilities to customers.

NOTE N - REGULATORY MATTERS

Various regulatory agencies require banks and bank
holding companies to maintain a leverage ratio of
core capital to total assets at a prescribed level,
currently 3 percent. In addition, bank regulators
have issued risk-based capital guidelines. Under
such guidelines, minimum ratios of core capital and
total qualifying capital as a percentage of risk-
weighted assets and certain off-balance sheet items
of 4.0 percent and 8.0 percent, respectively, are
required at December 31, 1995.

At December 31, 1995, the Company met all capital
requirements. Core capital was $27,227,000 or 11.22
percent of total assets and 17.56 percent of total
risk-weighted assets, while total qualifying capital
was $29,166,000 or 18.81 percent of total risk-
weighted assets.

Banking regulations limit the amount of dividends
that may be paid by the Bank to Penns Woods Bancorp,
Inc. Retained earnings against which dividends may
be paid without prior approval of the banking
regulators amounted to approximately $18,104,000 at
December 31, 1995, subject to minimum capital ratio
requirements noted above.

The Bank is subject to regulatory restrictions which
limit its ability to loan funds to Penns Woods
Bancorp, Inc. At December 31, 1995, the regulatory
lending limit amounted to approximately $2,585,000.

NOTE O - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," requires that the Company
disclose estimated fair values for its financial
instruments. Fair value estimates are made at a
specific point in time, based on relevant market
information and information about the financial
instrument. These estimates do not reflect any
premium or discount that could result from offering
for sale at one time the Company's entire holdings of
a particular financial instrument. Also, it is the
Company's general practice and intention to hold most
of its financial instruments to maturity and not to
engage in trading or sales activities. Because no
market exists for a significant portion of the
Company's financial instruments, fair value estimates
are based on judgments regarding future expected loss
experience, current economic conditions, risk
characteristics of various financial instruments and
other factors. These estimates are subjective in
nature and involve uncertainties and matters of
significant judgment and therefore cannot be
determined with precision. Changes in assumptions
can significantly affect the estimates.

Estimated fair values have been determined by the
Company using historical data, as generally provided
in the Company's regulatory reports, and an
estimation methodology suitable for each category of
financial instruments. The estimated fair value of
the Company's investment securities is described in
Note B. The Company's fair value estimates, methods
and assumptions are set forth below for the Company's
other financial instruments.

Cash and cash equivalents:

The carrying amounts for cash, due from banks and
federal funds sold approximate fair value because
they mature in 90 days or less and do not present
unanticipated credit concerns.

Loans:

Fair values are estimated for portfolios of loans
with similar financial characteristics. Loans are
segregated by type such as commercial, commercial
real estate, residential mortgage, credit card and
other consumer. Each loan category is further
segmented into fixed and adjustable rate interest
terms and by performing and nonperforming
categories.

The fair value of performing loans, except
residential mortgage and credit card loans, is
calculated by discounting scheduled cash flows
through the estimated maturity using estimated
market discount rates that reflect the credit and
interest rate risk inherent in the loan. The
estimate of maturity is based on the Company's
historical experience with repayments for each loan
classification, modified, as required, by an
estimate of the effect of current economic and
lending conditions. For performing residential
mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for
prepayment estimates using discounted rates based
on secondary market sources adjusted to reflect
differences in servicing and credit costs. For
credit card loans, cash flows and maturities are
estimated based on contractual interest rates and
historical experience and are discounted using
secondary market rates adjusted for differences in
servicing and credit costs.

Fair value for significant nonperforming loans is
based on recent external appraisals. If appraisals
are not available, estimated cash flows are
discounted using a rate commensurate with the risk
associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and
discounted rates are judgmentally determined using
available market information and specific borrower
information.

The following table presents information for loans
(in thousands):

<TABLE>
<CAPTION>
AVERAGE AVERAGE ESTIMATED
BOOK HISTORICAL MATURITY DISCOUNT
DECEMBER 31, 1995 VALUE YIELD (YRS)(1) RATE(2) FAIR VALUE
- ----------------- ----- --------- --------- --------- ----------

<S> <C> <C> <C> <C> <C>
Commercial ....... $73,297 9.99% 4.41 10.75% $72,906
Real Estate ...... 56,509 9.15% 5.66 9.41% 56,375
Other ............ 24,195 10.05% 5.54 10.10% 24,184

<CAPTION>
DECEMBER 31, 1994
- -----------------
Commercial ....... $76,521 8.78% 4.10 9.60% $72,294
Real Estate ...... 52,344 8.25% 5.11 9.65% 51,241
Other ............ 23,009 9.19% 5.22 10.00% 22,839
</TABLE>

(1) Average maturity represents the expected average
cash-flow period, which in some instances is
different than the stated maturity.

(2) Management has made estimates of fair value
discount rates that it believes to be reasonable.
However, because there is no market for many of
these financial instruments, management has no
basis to determine whether the fair value
presented above would be indicative of the value
negotiated in an actual sale.

Deposits:

The fair value of deposits with no stated
maturity, such as noninterest bearing demand
deposits, savings and NOW accounts, and money
market and checking accounts, is equal to the
amount payable on demand as of December 31,
1995 and 1994. The fair value of
certificates of deposit is based on the
discounted value of contractual cash flows.
The discount rate is estimated using the
rates currently offered for deposits of
similar remaining maturities (in thousands):
BOOK
VALUE FAIR VALUE
----- ----------
DECEMBER 31, 1995
- -----------------
Interest-bearing deposits . . . . . . $175,079 $175,392

Noninterest-bearing deposits. . . . . $ 27,179 $ 27,179

DECEMBER 31, 1994
- -----------------
Interest-bearing deposits $168,026 $166,864

Noninterest-bearing deposits $ 22,813 $ 22,813

The fair value estimates on the previous page
do not include the benefit that results from
the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing
funds in the market, commonly referred to as
the core deposit intangible.

Commitments to Extend Credit, Standby Letters of Credit
and Financial Guarantees Written:

There is no material difference between the
notional amount and the estimated fair value
of off-balance sheet items which total
$19,613,000 and $17,482,000 at December 31,
1995 and 1994, respectively, and are
primarily comprised of unfunded loan
commitments which are generally priced at
market at the time of funding.

NOTE P - PARENT COMPANY ONLY FINANCIAL STATEMENTS (UNAUDITED)

Condensed financial information for Penns Woods
Bancorp, Inc. follows:

CONDENSED BALANCE SHEET, DECEMBER 1995 1994
---- ----
ASSETS:
Cash . . . . . . . . . . . . . . . $ 105,752 $ 58,737
Investment in subsidiaries:
Bank . . . . . . . . . . . . . . 25,851,112 21,309,419
Nonbank. . . . . . . . . . . . . 4,060,954 3,000,001
Deferred tax asset . . . . . . . . 31,960 -
Prepaid taxes. . . . . . . . . . . 72,455 31,960
----------- -----------
Total assets . . . . . . . . . $30,122,233 $24,400,117
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Other liabilities. . . . . . . . . $ 437,429 $ 568,948
Shareholders' equity 29,684,804 23,831,169
----------- -----------
Total liabilities and
shareholders'
equity $30,122,233 $24,400,117
=========== ===========
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME FOR
THE YEARS ENDED DECEMBER 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating income:
Dividends from
subsidiaries $1,530,000 $1,583,416 $1,467,494
Equity in undistributed
net income of
subsidiaries 2,581,200 1,798,229 2,059,706
Other income - 174,690 844,526

Operating expenses (249,188) (187,762) (393,230)
---------- ----------- ----------
Net income $3,862,012 $3,368,573 $3,978,496
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $3,862,012 $3,368,573 $3,978,496
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
net income of
subsidiaries (2,581,200) (1,798,229) (2,059,706)
Decrease in income taxes
payable (72,455) (22,440) (9,521)
Gains on investment
securities - (119,415) (770,788)
Increase (decrease) in
liabilities (4,834) (242,943) 247,423
---------- ---------- ----------
Net cash provided by
operating activities 1,203,523 1,185,546 1,385,904
---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment
securities - 596,969 2,098,522
Purchase of investment securities - (715,337) (2,442,179)
Advance to subsidiary - - (45,152)
Additional investment (18,000) (107,539) -
---------- ---------- ----------
Net cash used in investing
activities (18,000) (225,907) (388,809)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,239,251) (978,939) (1,110,780)
Proceeds from intercompany
loan - 16,196 127,000
Proceeds from exercise of stock
options 100,743 - 22,500
---------- ---------- ----------
Net cash used in financing
activities (1,138,508) (962,743) (961,280)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 47,015 (3,104) 35,815

CASH, BEGINNING OF YEAR 58,737 61,841 26,026
---------- ---------- ----------
CASH, END OF YEAR $ 105,752 $ 58,737 $ 61,841
========== ========== ==========
</TABLE>

CONDENSED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITY:

During 1994, Penns Woods Bancorp, Inc. transferred
$2,926,345 in equity securities to Woods Investment Company,
Inc.; in a related transaction, Woods Investment Company, Inc.
assumed a liability for $191,696 which Penns Woods Bancorp, Inc.
owed to Jersey Shore State Bank.

NOTE Q - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1995 31, 30, 30, 31,
<S> <C> <C> <C> <C>
Interest income $4,551 $4,623 $4,765 $4,756
Interest expense 1,881 1,949 1,968 1,995

Net interest income 2,670 2,674 2,797 2,761

Provision for loan losses 100 124 76 -
Other income 237 251 256 291
Securities gains 283 308 296 293
Other expenses 2,008 2,189 1,712 1,625

Income before income tax provision 1,082 920 1,561 1,720
Income tax provision 289 54 545 533

Net income $ 793 $ 866 $1,016 $1,187
====== ====== ====== ======

Net income per share $ 0.63 $ 0.68 $ 0.80 $ 0.94
====== ====== ====== ======

<CAPTION>
FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1994 31, 30, 30, 31,
<S> <C> <C> <C> <C>
Interest income $3,942 $4,043 $4,376 $4,523
Interest expense 1,645 1,678 1,760 1,819

Net interest income 2,297 2,365 2,616 2,704

Provision for loan losses 152 150 125 150
Other income 202 225 247 201
Securities gains (losses) 625 329 341 (28)
Other expenses 1,575 1,600 1,667 2,162
Income before income tax provision 1,397 1,169 1,412 565
Income tax provision 350 314 401 109

Net income $1,047 $ 855 $1,011 $ 456
====== ====== ====== ======

Net income per share $ 0.83 $ 0.67 $ 0.80 $ 0.36
====== ====== ====== ======

FOR THE THREE MONTHS ENDED
MAR. JUN. SEP. DEC.
1993 31, 30, 30, 31,
<S> <C> <C> <C> <C>
Interest income $3,937 $3,955 $3,939 $4,136
Interest expense 1,665 1,654 1,632 1,594

Net interest income 2,272 2,301 2,307 2,542

Provision for loan losses 206 231 181 173
Other income 210 292 239 157
Securities gains 465 235 378 967
Other expenses 1,525 1,475 1,443 1,654

Income before income tax provision 1,216 1,122 1,300 1,839
Income tax provision 331 260 346 561

Net income $ 885 $ 862 $ 954 $1,278
====== ====== ====== ======

Net income per share $ 0.70 $ 0.68 $ 0.75 $ 1.01
====== ====== ====== ======
</TABLE>

SCHEDULE 1
PENNS WOODS BANCORP, INC.
INDEBTEDNESS OF RELATED PARTIES

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Deductions Balance
Beginning of Written at End
Name of Debtor Period Additions Collected off of Period
<S> <C> <C> <C> <C> <C>
1995 6 directors, 7 affiliated
interests, and 3 officers $1,271,807 $ 652,519 143,079 $ 0 $1,781,247
1994 5 directors, 7 affiliated
interests, and 3 officers 891,111 715,410 334,714 0 1,271,807
1993 7 directors, 8 affiliated
interests, and 2 officers 506,454 591,874 207,217 0 891,111
</TABLE>

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information appearing in the Proxy Statement under the
captions "Election of Directors" and "Additional Information
Regarding Directors and Officers" is incorporated herein by
reference.

(a) Identification of directors. The information appearing under
the caption "Election of Directors" in the Company's Proxy
Statement dated March 22, 1996 (at page 5 thereto) is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation"
in the Company's Proxy Statement (at page 6 thereto) is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing under the caption "Principal
Beneficial Owners of the Corporation's Common Stock" in the
Company's Proxy Statement (at page 3 thereto) is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
There have been no material transactions between the
Corporation and the Bank, nor any material transactions proposed,
with any Director or executive officer of the Corporation and the
Bank, or any associate of the foregoing persons. The Corporation
and the Bank have had, and intend to continue to have, banking
and financial transactions in the ordinary course of business
with Directors and Officers of the Corporation and the Bank and
their associates on comparable terms and with similar interest
rates as those prevailing from time to time for other customers
of the Corporation and the Bank.

Total loans outstanding from the Bank at December 31, 1995
to the Corporation's and the Bank's Officers and Directors as a
group and members of their immediate families and companies in
which they had an ownership interest of 10% or more was
$1,781,247 or approximately 6.00% of the total equity capital of
the bank. Loans to such persons were made in the ordinary course
of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and did not
involve more than the normal risk of collectability or present
other unfavorable features.

See also the information appearing in footnote K to the
Consolidated Financial Statements included elsewhere in the
Annual Report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K

(a) Financial Statements
1. The following consolidated financial statements
and reports are set forth in Item 8:
Report of Independent Certified Public Accountants
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes in Shareholders'
Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements

2. The following schedules are submitted herewith:
I. Indebtedness of Related Parties

(b) Reports on Form 8-K
No reports were required to be filed on Form 8-K during
1995.

The schedules not included are omitted because the required
matter or conditions are not present, the data is insignificant
or the required information is submitted as part of the
consolidated financial statements and notes thereto.

(3)(i) Articles of Incorporation of the Registrant,
as presently in effect (incorporated herein
by reference to Exhibit B to Amendment No. 2
of Form 10 filed on February 3, 1989).

(3)(ii) Bylaws of the Registrant as presently in
effect (incorporated herein by reference to
Exhibit C to Amendment No. 2 of Form 10
filed on February 3, 1989).

(21) Subsidiaries of the Registrant (incorporated
herein by reference to Exhibit F to Amendment
No. 2 of Form 10 filed on February 3, 1989).

(27) Financial Data Schedule
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

March 12, 1996 PENNS WOODS BANCORP, INC.
BY: THEODORE H. REICH
President

Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:

Theodore H. Reich, President and Director March 12, 1996
/s/Theodore H. Reich

Sonya E. Hartranft, Principal Accounting March 12, 1996
Officer and
Principal Financial Officer
/s/Sonya E. Hartranft

Phillip H. Bower, Director March 12, 1996
/s/Phillip H. Bower

Lynn S. Bowes, Director March 12, 1996
/s/Lynn S. Bowes

William S. Frazier, Director March 12, 1996
/s/William S. Frazier

James M. Furey II, Director March 12, 1996
/s/James M. Furey II

Allan W. Lugg, Director March 12, 1996
/s/Allan W. Lugg

Jay H. McCormick, Director March 12, 1996
/s/Jay H. McCormick

R. Edward Nestlerode, Jr., Director March 12, 1996
/s/R. Edward Nestlerode, Jr.

James E. Plummer, Director March 12, 1996
/s/James E. Plummer

Howard M. Thompson, Director March 12, 1996
/s/Howard M. Thompson

William F. Williams, Jr., Director March 12, 1996
/s/William F. Williams, Jr.
<PAGE>
EXHIBIT INDEX

(3)(i) Articles of Incorporation of the Registrant,
as presently in effect (incorporated herein
by reference to Exhibit B to Amendment No. 2
of Form 0 filed on February , 1989).

(3)(ii) Bylaws of the Registrant as presently in
effect (incorporated herein by reference to
Exhibit C to Amendment No. 2 of Form 10
filed on February 3, 1989).

(21) Subsidiaries of the Registrant (incorporated
herein by reference to Exhibit F to Amendment
No. 2 of Form 10 filed on February 3, 1989).

(27) Financial Data Schedule

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<MULTIPLIER> 1000

<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 65322
<INVESTMENTS-CARRYING> 2817
<INVESTMENTS-MARKET> 0
<LOANS> 153640
<ALLOWANCE> 2353
<TOTAL-ASSETS> 242629
<DEPOSITS> 202258
<SHORT-TERM> 7263
<LIABILITIES-OTHER> 3423
<LONG-TERM> 0
<COMMON> 12713
0
0
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<INCOME-PRETAX> 5283
<INCOME-PRE-EXTRAORDINARY> 5283
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<EPS-PRIMARY> 3.05
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<RECOVERIES> 180
<ALLOWANCE-CLOSE> 2353
<ALLOWANCE-DOMESTIC> 2353
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>