COMM BANCORP INC, 10-Q, 1996-08-02

COMM BANCORP INC
10-Q, 1996-08-02
STATE COMMERCIAL BANKS

Previous: FIDELITY ADVISOR SERIES VIII, 497, 1996-08-02

Next: Z SEVEN FUND INC, N-30B-2, 1996-08-02

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended JUNE 30, 1996
_____________

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

For the transition period from to
____________ ___________________________________

Commission file number 0-17455
____________
COMM BANCORP, INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 23-2242292
_________________________________________ _____________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

521 MAIN STREET, FOREST CITY, PA 18421
_________________________________________ _____________________________
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (717) 785-3181
______________________________

________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)

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 [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,200,080 AT JULY 22, 1996,
reflecting a 3 for 1 stock split effective April 1, 1996.

Page 1 of 33
COMM BANCORP, INC.
FORM 10-Q

JUNE 30, 1996

INDEX

CONTENTS PAGE NO.

PART I. FINANCIAL INFORMATION:

ITEM 1:

Consolidated Statements of Income - For the Three Months and
Six Months Ended June 30, 1996 and 1995..................... 3

Consolidated Balance Sheets - June 30, 1996, and December 31,
1995........................................................ 4

Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1996...................... 5

Consolidated Statements of Cash Flows For the Six Months
Ended June 30, 1996 and 1995................................ 6

Notes to Consolidated Financial Statements................... 7

ITEM 2:

Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9

PART II. OTHER INFORMATION:

ITEMS 1-6:

Other Information............................................ 31

Signature Page............................................... 33

Comm Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME_______________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable.......................................................... $ 4,637 $ 4,274 $ 9,262 $ 8,395
Tax-exempt....................................................... 57 81 107 129
Interest on investment securities held to maturity:
Taxable.......................................................... 1,290 2,586
Tax-exempt....................................................... 298 599
Interest and dividends on investment securities available for sale:
Taxable.......................................................... 1,037 715 2,063 1,492
Tax-exempt....................................................... 488 973
Dividends........................................................ 28 5 53 37
Interest on deposits with banks.................................... 1 3 5 6
Interest on federal funds sold..................................... 75 31 197 31
_________ ________ _________ ________
Total interest income.......................................... 6,323 6,697 12,660 13,275
_________ ________ _________ ________

INTEREST EXPENSE:
Interest on deposits............................................... 3,327 3,483 6,726 6,749
Interest on short-term borrowings.................................. 343 677
Interest on long-term debt......................................... 33 63 66 123
_________ ________ _________ ________
Total interest expense......................................... 3,360 3,889 6,792 7,549
_________ ________ _________ ________
Net interest income............................................ 2,963 2,808 5,868 5,726
Provision for loan losses.......................................... 75 75 150 285
_________ ________ _________ ________
Net interest income after provision for loan losses............ 2,888 2,733 5,718 5,441
_________ ________ _________ ________

NONINTEREST INCOME:
Service charges, fees and commissions.............................. 372 286 708 614
Net investment securities losses................................... (27) (1,885) (27) (1,885)
_________ ________ _________ ________
Total noninterest income (loss)................................ 345 (1,599) 681 (1,271)
_________ ________ _________ ________

NONINTEREST EXPENSE:
Salaries and employee benefits expense............................. 981 1,219 1,943 2,221
Net occupancy and equipment expense................................ 314 296 641 608
Other expenses..................................................... 663 898 1,261 1,621
_________ ________ _________ ________
Total noninterest expense...................................... 1,958 2,413 3,845 4,450
_________ ________ _________ ________
Income (loss) before income taxes.................................. 1,275 (1,279) 2,554 (280)
Provision for income tax expense (benefit)......................... 274 (253) 552 (22)
_________ ________ _________ ________
Net income (loss).............................................. $ 1,001 $ (1,026) $ 2,002 $ (258)
========= ======== ========= ========

PER SHARE DATA:
Net income (loss).................................................. $ 0.46 $ (0.47) $ 0.91 $ (0.12)
Cash dividends declared............................................ $ 0.06 $ 0.11
Average common shares.............................................. 2,200,080 2,200,080 2,200,080 2,200,080
</TABLE>

See notes to consolidated financial statements.

COMM BANCORP, INC.
CONSOLIDATED BALANCE SHEETS_____________________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
________ ____________
<S> <C> <C>
ASSETS:
Cash and due from banks............................................................. $ 9,247 $ 6,864
Interest-bearing deposits with banks................................................ 47 116
Federal funds sold.................................................................. 8,100 15,100
Investment securities available for sale............................................ 114,922 108,706
Loans, net of unearned income....................................................... 210,920 213,835
Less: allowance for loan losses................................................... 4,056 3,903
________ ________
Net loans........................................................................... 206,864 209,932
Premises and equipment, net......................................................... 3,096 3,070
Accrued interest receivable......................................................... 3,093 2,872
Other assets........................................................................ 4,746 4,288
________ ________
Total assets.................................................................... $350,115 $350,948
======== ========

LIABILITIES:
Deposits:
Noninterest-bearing............................................................... $ 29,691 $ 25,423
Interest-bearing.................................................................. 285,774 291,676
________ ________
Total deposits.................................................................. 315,465 317,099
Long-term debt...................................................................... 3,047 3,048
Accrued interest payable............................................................ 1,691 1,761
Other liabilities................................................................... 1,179 1,145
________ ________
Total liabilities............................................................... 321,382 323,053
________ ________

STOCKHOLDERS' EQUITY:
Common stock, par value $0.33, authorized 12,000,000 shares, issued and outstanding
2,200,080 shares................................................................... 726 733
Capital surplus..................................................................... 6,317 6,310
Retained earnings................................................................... 21,825 20,072
Net unrealized gain (loss) on available for sale securities......................... (135) 780
________ ________
Total stockholders' equity...................................................... 28,733 27,895
________ ________
Total liabilities and stockholders' equity...................................... $350,115 $350,948
======== ========
</TABLE>

See notes to consolidated financial statements.

COMM BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY_______________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

NET UNREALIZED TOTAL
COMMON CAPITAL RETAINED GAIN (LOSS) ON STOCKHOLDERS'
STOCK SURPLUS EARNINGS SECURITIES EQUITY
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.......................... $733 $6,310 $20,072 $ 780 $27,895
Net income.......................................... 2,002 2,002
Dividends declared: $0.11 per share................. (249) (249)
Net change in unrealized adjustment on securities... (915) (915)
Three-for-one stock split........................... (7) 7
____ ______ _______ _____ _______
BALANCE, JUNE 30, 1996.............................. $726 $6,317 $21,825 $(135) $28,733
==== ====== ======= ===== =======
</TABLE>

See notes to consolidated financial statements.
COMM BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS___________________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30 1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................................... $ 2,002 $ (258)
Adjustments:
Provision for loan losses............................................................... 150 285
Depreciation and amortization........................................................... 310 304
Amortization of loan fees............................................................... (111) (85)
Deferred income tax..................................................................... (623) 1,353
Losses on sale of investment securities available for sale.............................. 27 1,885
(Gains) losses on sale of other real estate............................................. (1) 2
Changes in:
Interest receivable................................................................... (221) 261
Other assets.......................................................................... 662 (1,571)
Interest payable...................................................................... (70) 213
Other liabilities..................................................................... 197 251
_______ _______
Net cash provided by operating activities........................................... 2,322 2,640
_______ _______

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities...................................... 873 24,500
Proceeds from repayments of investment securities:
Held to maturity........................................................................ 806
Available for sale...................................................................... 5,877 510
Purchases of investment securities:
Held to maturity........................................................................ (179)
Available for sale...................................................................... (14,308) (798)
Net receipts from lending activities...................................................... 2,878 453
Proceeds from sale of other real estate................................................... 69 224
Purchases of premises and equipment....................................................... (281) (292)
_______ _______
Net cash provided by (used in) investing activities................................. (4,892) 25,224
_______ _______

CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in:
Money market, NOW, savings and noninterest-bearing accounts............................. 6,397 (8,499)
Time deposits........................................................................... (8,032) 12,968
Short-term borrowings................................................................... (15,956)
Payments on long-term debt................................................................ (1) (1)
Cash dividends paid....................................................................... (411) (286)
_______ _______
Net cash used in financing activities............................................... (2,047) (11,774)
_______ _______
Net increase (decrease) in cash and cash equivalents................................ (4,617) 16,090
Cash and cash equivalents at beginning of year...................................... 21,964 6,783
_______ _______
Cash and cash equivalents at end of period.......................................... $17,347 $22,873
======= =======

SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest................................................................................ $ 6,862 $ 7,336
Income taxes............................................................................ 674 114
Noncash items:
Transfer of loans to other real estate.................................................. 150 182
Change in net unrealized losses on available for sale securities........................ 915 $(4,047)
Cash dividends declared................................................................. $ 249
</TABLE>

See notes to consolidated financial statements.

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS______________________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. BASIS OF PRESENTATION:

The accompanying unaudited consolidated financial statements of Comm Bancorp,
Inc. and subsidiary, Community Bank and Trust Company (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for the periods have been included.

The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affected the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates. For additional information
and disclosures required under generally accepted accounting principles,
reference is made to the Company's Annual Report on Form 10-K for the period
ended December 31, 1995.

2. PER SHARE DATA:

Per share data has been adjusted to reflect a three-for-one stock split
effective April 1, 1996.

3. LONG-LIVED AND INTANGIBLE ASSETS:

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 121 establishes accounting standards for the impairment of long-
lived assets, certain identified intangibles and goodwill related to those
assets to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. The excess cost over the net
assets acquired, accounted for as a purchase, is included in other assets and
amortized on a straight-line basis over fifteen years. SFAS No. 121 is
effective for financial statements for fiscal years beginning after December 15,
1995, with earlier application encouraged. The Company's adoption of SFAS No.
121 on January 1, 1996, did not have a material effect on operating results or
financial position.

COMM BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)__________________________
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

4. MORTGAGE SERVICING RIGHTS:

Effective January 1, 1996, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." This statement requires the recognition of separate
assets relating to the rights to service mortgage loans for others based on
their fair value if it is practicable to estimate the value. The Company does
not sell or securitize mortgage loans with servicing rights retained.
Accordingly SFAS No. 122, which was required to be applied prospectively in
fiscal years beginning after December 15, 1995, did not have any effect on
operating results or financial position.

OPERATING ENVIRONMENT:

The Federal Reserve Board decided to maintain its target rate for federal funds
at 5.25 percent during the second quarter of 1996 despite strong concerns over
inflationary pressure brought on by increased economic activity. The nationwide
unemployment rate fell to 5.3 percent in June 1996, the lowest level in six
years. It is feared that this tightening of labor markets will result in higher
prices for consumer goods and services. Many analysts expect the Federal
Reserve Board to counteract inflationary pressure through monetary policy
changes that could result in higher interest rates during the remainder of 1996.
Contrary to improvements experienced nationally, local unemployment rates
remained unchanged averaging above 7.0 percent during the second quarter of
1996. Despite unresponsive local employment statistics to an improving economy,
credit demand and nonperforming asset levels continue to improve for
Northeastern Pennsylvania financial institutions. Competitors remained
aggressive in pursuing credit extension opportunities despite a 1.25 percent
rise in long-term interest rates in 1996. Such improvements have favorably
affected profitability for regional financial institutions allowing for
increased income through interest and fees from lending activities. In
addition, asset quality improvements have lowered costs associated with
providing reserves for loan losses and problem asset collections. Management
expects moderate local economic activity during the remainder of 1996 as higher
rates and reductions in consumer expenditures for durable goods curtail further
borrowings.

OVERVIEW:

Management, consisting of the Board of Directors and executive officers,
accomplished several significant undertakings during the second quarter of 1996.
Such undertakings included the effectuation of a three-for-one stock split,
approval of the Company's common stock listing on the Nasdaq National Market
System ("NMS") and recognition of earnings exceeding $1.0 million for the second
consecutive quarter. The three-for-one stock split declared during the first
quarter of 1996 became effective April 1, 1996. Such split fulfilled the
minimum share requirement for Nasdaq NMS listing and should foster additional
liquidity in the Company's common stock.

On June 17, 1996, the Company began listing on the Nasdaq NMS, the upper-tier of
the Nasdaq stock market, as CommBcp under the symbol CCBP. The Nasdaq stock
market is a highly-regulated electronic securities market comprised of competing
Market Makers whose trading is supported by a communications network linking
them to quotation dissemination, trade reporting and order execution systems.
This market also provides specialized automation services for screen-based
negotiations of transactions, on-line comparison of transactions and a range of
informational services tailored to the needs of the securities industry,
investors and issuers. The Nasdaq NMS listing is expected to increase public
interest in the Company's common stock by publishing on a consistent basis bid
and ask prices.

The Company's net income surpassed the $1.0 million level for the second
consecutive quarter resulting in year-to-date earnings of $2.0 million or $0.91
per share. The favorable earnings were a reflection of an increased net
interest margin, the generation of higher volumes of noninterest income and the
controlling of noninterest expenses.

INVESTMENT PORTFOLIO:

The Company's profitability should improve as a result of the actions taken in
1995 to reconstitute the investment portfolio. Many of the securities purchased
with the proceeds of sales will mature shortly and should be reinvested at
higher yields. The yield curve has steepened significantly since January 1996,
especially in maturities of two years or greater, improving nearly 1.25 percent.
The size of the investment portfolio was unchanged throughout the second quarter
of 1996 at $115.0 million as maturing investments were reinvested in two-year
U.S. Treasury securities.
Management expects to invest funds not utilized in fulfilling credit demand in
two- to three-year U.S. Treasury securities and intermediate term obligations of
states and municipalities.

Management mitigated the Company's exposure to credit, extension, prepayment,
call and marketability risk as a result of the composition of the portfolio.
Approximately 70.0 percent of the aggregate portfolio was invested in U.S.
Treasury securities and insured general obligations of state and municipal
governments with AAA ratings.

Management performs quarterly stress tests utilizing a national computerized
pricing system in assessing the price volatility associated with changing
interest rates. The results of these tests at June 30, 1996, indicated that the
investment portfolio would lose approximately 1.7 percent of its value given an
instantaneous parallel increase of 100 basis points in the yield curve. As a
result of the increase in interest rates during the second quarter of 1996, the
net unrealized gain on available for sale securities of $83 at March 31, 1996,
was transformed into a net unrealized loss of $135 at June 30, 1996. The yield
curve did not experience an instantaneous parallel shift during the second
quarter of 1996 as yields changed by a range of 7 basis points on the short-end
to 50 basis points on the intermediate- to long-end. Such disparity in short-
and long-term rates caused the $330 reduction in the investment portfolio's
market value, which represented less than one-half of the anticipated loss based
on the stress tests at March 31, 1996. The underlying negative net market value
of $203 or 0.18 percent of amortized cost at June 30, 1996, was significantly
less than the average loss of 0.94 percent experienced in the peer group's
investment portfolios. The peer group consists of 35 banks in Northeastern
Pennsylvania. The weighted average life and duration of the investment
portfolio were 3.9 years and 2.7 years at March 31, 1996, and 3.8 years and 2.7
years at June 30, 1996. As a result of the slight deterioration in market
values, the total return on the investment portfolio approximated 4.4 percent
during the three months ended June 30, 1996. The tax-equivalent yield on the
investment portfolio during the second quarter of 1996 was constant at 6.4
percent as compared to the first quarter of 1996.

The following table sets forth the carrying values of the major classifications
of securities as they relate to the total investment portfolio at June 30, 1996,
and December 31, 1995:

DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
_______________ ________________
AMOUNT % AMOUNT %
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury securities............................ $ 49,156 42.77% $ 43,751 40.25%
U.S. Government agencies............................ 22,665 19.72 26,213 24.11
State and municipals................................ 35,620 31.00 30,512 28.07
Mortgage-backed securities.......................... 5,130 4.46 6,154 5.66
Other securities.................................... 2,351 2.05 2,076 1.91
________ ______ ________ ______
Total............................................. $114,922 100.00% $108,706 100.00%
======== ====== ======== ======
</TABLE>

The following table sets forth the maturity distribution of the book and market
values and weighted average tax-equivalent yields of the available for sale
portfolio at June 30, 1996. The weighted average yield has been computed on a
tax-equivalent basis using the statutory tax rate of 34.0 percent. The
distributions are based on contractual maturity with the exception of mortgage-
backed securities and collateralized mortgage obligations that have been
presented based upon estimated cash flows, assuming no change in the current
interest rate environment. Expected maturities will differ from contracted
maturities because borrowers have the right to call or prepay obligations with
or without call or prepayment penalties:

MATURITY DISTRIBUTION OF AVAILABLE FOR SALE PORTFOLIO
<TABLE>
<CAPTION>

AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
_____________________________________________________________________________
JUNE 30, 1996 AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury securities..... $23,589 5.63% $25,746 5.65% $ 49,335 5.64%
U.S. Government agencies..... 5,197 4.81 17,829 4.71 23,026 4.73
State and municipals......... 685 5.19 3,972 6.03 $6,415 8.35% $24,616 7.92% 35,688 7.73
Mortgage-backed securities... 311 7.15 4,284 6.02 592 5.77 5,187 6.06
Other securities............. 1,889 5.96 1,889 5.96
_______ _______ ______ _______ ________
Total...................... $29,782 5.49% $51,831 5.39% $7,007 8.13% $26,505 7.78% $115,125 6.13%
======= ======= ====== ======= ========

Fair value:
U.S. Treasury securities..... $23,593 $25,563 $ 49,156
U.S. Government agencies..... 5,188 17,477 22,665
State and municipals......... 684 3,948 $6,586 $24,402 35,620
Mortgage-backed securities... 309 4,252 569 5,130
Other securities............. 2,351 2,351
_______ _______ ______ _______ ________
Total...................... $29,774 $51,240 $7,155 $26,753 $114,922
======= ======= ====== ======= ========
</TABLE>

LOAN PORTFOLIO:

The nation gained seven hundred thousand new homeowners in the second quarter of
1996. Over the past three and one-half years the number of new homeowners rose
by 4.4 million, bringing the homeownership rate to its highest level in fifteen
years. Federal budgetary policies that have cut the annual federal deficit in
half were some of the driving influences behind the surge in new homeowners.
The federal deficit reduction was one of the factors that allowed mortgage rates
to remain relatively low despite the stronger economy and rapid job growth. For
the last three years national mortgage rates have averaged 7.8 percent.
Competition for residential mortgage lending in the Company's market area has
been strong as rates averaged 7.9 percent during the first six months of 1996.

During the quarter ended June 30, 1996, management was more aggressive in
product pricing than competitors as it reinvested $11.0 million from maturing
short-term credit extensions into real estate loans. For the six months ended
June 30, 1996, loans, adjusted for repayments on such short-term credit
extensions, grew $16.8 million, a 16.7 percent annualized rate. The average
volume of loans during the first half of 1996 totaled $212.6 million compared to
$197.4 million during the same period of 1995.

Management continued to focus on traditional community banking and to
restructure the Company's balance sheet as indicated by an increase in loans as
compared to investments in the overall asset mix. Loans, net of unearned
income, accounted for 60.3 percent of total assets at June 30, 1996, as compared
to 54.6 percent at June 30, 1995. Conversely, investments represented 32.8
percent and 37.1 percent of total assets at June 30, 1996 and 1995,
respectively. In addition to the composition changes in the balance sheet, the
structure of the loan portfolio represented a transformation as a higher volume
of the portfolio was invested in loans secured by real estate. Loans secured by
real estate represented 79.3 percent of total loans, net, at June 30, 1996, as
compared to 75.7 percent at the same period last year. The loan portfolio's tax
equivalent yield, unchanged at 8.9 percent during the first two quarters of
1996, exceeded the 8.8 percent rate reported during the first half of 1995.
However, the current yield of 8.9 percent was lower than the peer group's yield
of 9.1 percent. Such variance was mainly attributed to the Company's higher
proportion of real estate loans to total loans as compared to the peer group's
ratio that had 61.6 percent of its loans in real estate loans at June 30, 1996.
In general consumer and commercial loans typically yield higher rates than real
estate loans as such loans have greater associated risk.

Management deems there to be an adequate amount of liquidity available to
support loan growth in the final half of 1996. Management will continue to
analyze its product pricing given the rise in market rates and successful
reinvestment of the short-term credit extensions into longer-term mortgages.
Based on the Company's asset/liability simulation model, management feels
confident it will have adequate cash flow from repayments on loans and
investments and increases in core deposits to have funds available to meet loan
demand.

The following table sets forth the major categories of the loan portfolio at
June 30, 1996, and December 31, 1995:

DISTRIBUTION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
_____________________ ____________________
AMOUNT % AMOUNT %
________________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, financial and others.......... $ 23,387 11.09% $ 41,593 19.45%
Real estate:
Construction............................ 2,094 0.99 1,014 0.47
Mortgage................................ 165,087 78.27 151,926 71.05
Consumer, net............................. 20,352 9.65 19,302 9.03
________ ______ ________ ______
Loans, net of unearned income........... 210,920 100.00% 213,835 100.00%
Less: allowance for loan losses........... 4,056 ====== 3,903 ======
________ ________
Net loans............................. $206,864 $209,932
======== ========
</TABLE>

Management continually examines the maturity distribution and interest rate
sensitivity of the loan portfolio to limit interest rate risk and manage
liquidity. Approximately 33.9 percent of the loan portfolio will reprice within
the next twelve months as management attempts to reduce the average term on
fixed-rate loans and to increase its holdings of adjustable rate loans to limit
future interest rate risk. This percentage rate of the loan portfolio repricing
within twelve months falls below the 37.8 percent recorded on March 31, 1996,
and the 41.1 percent recorded at December 31, 1995. This change resulted from
increased demand for longer-term mortgage loans that were funded by the
repayments on short term federal funds extended to other financial institutions.
Variable rate loans increased $2.2 million from $42.2 million at March 31, 1996,
to $44.4 million at June 30, 1996.

The following table sets forth the maturity and repricing schedule of the loan
portfolio at June 30, 1996:

MATURITY DISTRIBUTION AND INTEREST SENSITIVITY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>

AFTER ONE
WITHIN BUT WITHIN AFTER
JUNE 30, 1996 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Maturity schedule:
Commercial, financial and others..... $ 4,615 $ 9,504 $ 9,268 $ 23,387
Real estate:
Construction....................... 2,094 2,094
Mortgage........................... 3,437 19,628 142,022 165,087
Consumer, net........................ 4,169 11,911 4,272 20,352
_______ _______ ________ ________
Total............................ $14,315 $41,043 $155,562 $210,920
======= ======= ======== ========

Repricing schedule:
Predetermined interest rates......... $27,014 $59,007 $ 80,491 $166,512
Floating or adjustable interest rates 44,408 44,408
_______ _______ ________ ________
Total............................ $71,422 $59,007 $ 80,491 $210,920
======= ======= ======== ========

</TABLE>

ASSET QUALITY:

National and Pennsylvania unemployment rates for the second quarter of 1996 were
at 5.3 percent and 5.7 percent, respectively. For the area served by the
Company, unemployment rates were considerably higher. Lackawanna, Susquehanna,
Wayne and Wyoming counties reported average unemployment rates in the second
quarter of 1996 of 7.1 percent, 7.3 percent, 8.4 percent and 7.1 percent,
respectively. With the exception of Wayne county, which declined slightly, all
other counties served experienced a rise in such rates from year end 1995. In
general, higher levels of unemployment normally would cause a deterioration of
asset quality in the loan portfolio, however the Company had a reduction in the
volume of nonperforming assets from $4.2 million or 1.96 percent of loans, net,
at December 31, 1995, to $3.6 million or 1.69 percent at June 30, 1996.
Nonperforming assets were constant as compared to the figures at March 31, 1996.
Management believed the reduction of $616 in nonperforming assets was a
reflection of an increase in the average weekly pay for manufacturing workers
and reductions in interest rates charged for loans. The improvements in average
weekly pay were a result of gains in the average weekly hours worked and the
average hourly pay. The competitive loan pricing environment benefitted
consumers by reducing their monthly costs to service outstanding debt.

The following table sets forth information concerning impaired and nonperforming
loans and nonperforming assets at June 30, 1996, and December 31, 1995. The
table includes all credits classified for regulatory purposes. Also included
are all material credits that cause management to have serious doubts as to the
borrowers' ability to comply with present loan repayment terms:

DISTRIBUTION OF NONPERFORMING ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
______________________________________________________________________________________
<S> <C> <C>
Impaired loans:
Nonaccrual loans:
Commercial, financial and others............................... $ 164 $ 167
Real estate:
Construction.................................................
Mortgage..................................................... 966 1,164
Consumer, net..................................................
______ ______
Total nonaccrual loans..................................... 1,130 1,331
______ ______
Restructured loans............................................. 243 262
______ ______
Total impaired loans....................................... 1,373 1,593
______ ______

Loans past due 90 days or more:
Commercial, financial and others............................... 243 181
Real estate:
Construction.................................................
Mortgage..................................................... 1,139 1,633
Consumer, net.................................................. 289 336
______ ______
Total loans past due 90 days or more....................... 1,671 2,150
______ ______
Total nonperforming loans.................................. 3,044 3,743
______ ______
Other real estate.............................................. 524 441
______ ______
Total nonperforming assets................................. $3,568 $4,184
====== ======

Ratios:
Impaired loans as a percentage of loans, net................... 0.65% 0.74%
Nonperforming loans as a percentage of loans, net.............. 1.44 1.75
Nonperforming assets as a percentage of loans, net............. 1.69% 1.96%
</TABLE>

The Company's recorded investment in impaired loans, consisting of nonaccrual
and restructured loans, was $1,373 at June 30, 1996, $1,600 at March 31, 1996,
and $1,593 at December 31, 1995. The $227 reduction in the second quarter of
1996 was primarily attributable to a decrease in the volume of nonaccrual loans
secured by real estate. Approximately two-thirds of the reduction in such loans
resulted from loan payoffs with the remainder attributable to other real estate
transfers. The average recorded investment in impaired loans during the three
and six months ended June 30, 1996, was $1,440 and $1,532, respectively. The
average recorded investment in impaired loans for the comparable periods of 1995
was $1,542 and $1,572, respectively. Impaired loans included a $243
restructured loan to one commercial customer at June 30, 1996. Such credit
continued to perform in accordance with its modified terms during the second
quarter of 1996. Had such loans been current and the terms not modified,
interest income on impaired loans would have been $26 and $42 for the second
quarter and first half of 1996, respectively, and $22 and $52 for the same
periods of 1995, respectively. Interest recognized on impaired loans amounted
to $23 for the first six months of 1996 and $22 for the comparable period last
year. For the quarter ended June 30, 1996 and 1995, interest recognized on
impaired loans totaled $7 and $16, respectively. Cash received on impaired
loans applied as a reduction of principal totaled $243 and $124 for the six
months ended June 30, 1996 and 1995, respectively. For the quarter ended June
30, 1996 and 1995, cash receipts on impaired loans amounted to $202 and $110,
respectively. There were no commitments to extend additional funds to such
parties at June 30, 1996.

Accruing loans past due ninety days or more totaled $1,671 at June 30, 1996,
$1,519 at March 31, 1996, and $2,150 at December 31, 1995. The slight
deterioration of the loan portfolio, indicated by the $152 increase in past due
loans during the second quarter of 1996, was attributable to cyclical trends.
Nonperforming loans as a percentage of total loans, net, declined to 1.44
percent at June 30, 1996, from 1.48 percent and 1.75 percent at March 31, 1996,
and December 31, 1995, respectively. The peer group's comparable ratio at June
30, 1996, was 1.70 percent.

The Company minimizes credit risk by conducting internal loan review and
contracting with an external independent loan review company to perform such
function annually. Such independent loan review aids management in identifying
deteriorating financial conditions of borrowers, allowing them to assist
customers in remedying these situations. The results of such review, completed
during the second quarter of 1996, indicated a slight increase in the level of
criticized assets as compared to the same period last year. Total criticized
assets, consisting of classified and specially mentioned assets, as a percentage
of total loans increased moderately from 4.7 percent in 1995 to 4.9 percent in
1996. As a percentage of Tier I capital plus the allowance for loan losses,
total criticized assets represented 32.7 percent in 1995 as compared to 34.1
percent in 1996.

The allowance for loan losses account is established through charges to earnings
in the form of a provision for loan losses. Loans, or portions of loans,
determined to be uncollectible are charged against the allowance account with
subsequent recoveries, if any, being credited to the account. The allowance is
maintained at a level believed by management to adequately absorb estimated
potential credit losses. While historical loss experience provides a reasonable
starting point in assessing the adequacy of the allowance account, management
also considers a number of relevant factors likely to cause estimated credit
losses associated with the Company's current portfolio to differ from historical
loss experience. Such factors include changes in lending policies and
procedures, economic conditions, nature and volume of the portfolio, loan review
system, volumes of past due and classified loans, concentrations, borrowers'
financial status, collateral value and other factors deemed relevant by
management. In addition to management's assessment, various regulatory
agencies, as an integral part of their routine annual examination process,
review the Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments
concerning information available to them at the time of their examination.

In general, the allowance for loan losses account is available to absorb losses
throughout the loan portfolio, although in some instances allocation is made for
specific loans or groups of loans. Accordingly, the following table attempts to
allocate this reserve among the major categories. However, it should not be
interpreted as an indication that charge-offs in future periods will occur in
these amounts or proportions, or that the allocation indicates future charge-off
trends:

DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
_______________ ________________
CATEGORY CATEGORY
AS A AS A
% OF % OF
AMOUNT LOANS AMOUNT LOANS
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Commercial, financial and others................... $1,358 11.09% $1,358 19.45%
Real estate:
Construction..................................... 0.99 0.47
Mortgage......................................... 1,282 78.27 1,333 71.05
Consumer, net...................................... 1,416 9.65 1,212 9.03
______ ______ ______ ______
Total.......................................... $4,056 100.00% $3,903 100.00%
====== ====== ====== ======

The following table sets forth a reconciliation of the allowance for loan losses
account and illustrates the charge-offs and recoveries by major loan category
for the quarter ended June 30, 1996:

RECONCILIATION OF ALLOWANCE FOR LOAN LOSSES

</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
______________________________________________________________________________________
<S> <C>
Allowance for loan losses at beginning of period............................... $3,903
Loans charged-off:
Commercial, financial and others............................................... 7
Real estate:
Construction.................................................................
Mortgage..................................................................... 22
Consumer, net.................................................................. 21
______
Total...................................................................... 50
______

Loans recovered:
Commercial, financial and others............................................... 7
Real estate:
Construction.................................................................
Mortgage..................................................................... 21
Consumer, net.................................................................. 25
______
Total...................................................................... 53
______
Net loans charged-off.......................................................... (3)
______
Provision charged to operating expense......................................... 150
______
Allowance for loan losses at end of period..................................... $4,056
======

Ratios:
Net loans charged-off as a percentage of average loans outstanding............ 0.00%
Allowance for loan losses as a percentage of period end loans................. 1.92%
</TABLE>

On a quarterly basis, the Company analyzes the adequacy of its allowance for
loan losses account, in conjunction with its internal loan review and criticized
asset identification system. Management analyzes the reasonableness of its
allowance for loan losses account through utilizing the federal banking agency's
analytical tool and compares such account against the sum of specified
percentages, based on industry averages, applied to certain loan
classifications. Based on the results of this regulatory calculation,
management considered its allowance for loan losses account to be adequate to
absorb potential losses.

The allowance for loan losses account was $4,056 at June 30, 1996, as compared
to $3,960 at March 31, 1996. As a percentage of nonperforming loans, the
allowance account covered 133.2 percent and 127.0 percent at June 30, 1996, and
March 31, 1996, respectively. Relative to all nonperforming assets, the
allowance account covered 113.7 percent at June 30, 1996, and 111.1 percent at
March 31, 1996. The increased volume of the allowance for loan losses account
was attributable to the Company recording a net recovery position and a
continuation of monthly additions to such allowance through provisions charged
to operations. The allowance for loan losses account as a percentage of period
end loans was 1.92 percent at June 30, 1996. Although this ratio exceeds the
peer group's ratio of 1.45 percent, management believed the monthly provision
was justified as a result of increased loan demand as illustrated by the
reduction of such ratio from the March 31, 1996, figure of 1.99 percent.

Included in the allowance account were amounts for impaired loans of $1,130,
$1,342 and $1,331 at June 30, 1996, March 31, 1996, and December 31, 1995,
respectively. The related allowance for loan losses for these three periods was
$623, $614 and $614, respectively. The recorded investment for which there was
no related allowance for loan losses was $243 at June 30, 1996, $258 at March
31, 1996, and $262 at December 31, 1995.

Past due loans that have not been satisfied through repossession, foreclosure or
related actions, are evaluated individually to determine if all or part of the
outstanding balance should be charged against the allowance for loan losses
account. Subsequent recoveries, if any, are credited to the allowance account.
Net recoveries were $3 compared to net chargeoffs of $37 for the six months
ended June 30, 1996 and 1995, respectively.

Deposits:

For the quarter ended June 30, 1996, total deposits increased $7.5 million to
$315.5 million from $308.0 million at March 31, 1996. This marked a reversal
from the $9.1 million decline during the first quarter of 1996. The higher
deposit level came primarily as a result of an increase in commercial money
market accounts of $4.7 million and an increase in commercial interest checking
accounts of $2.1 million. The majority of such increases resulted from deposits
of local school districts. Although such deposits are considered core by
regulatory definition, management considers such deposits to be volatile in
nature. The cost of interest-bearing deposits declined from 4.75 percent for
the first quarter of 1996 to 4.69 percent for the second quarter of 1996. The
decline was primarily attributable to the Company being less aggressive in
product pricing as it had sufficient liquidity available from maturing short-
term credit extensions to other financial institutions to support loan demand.
Despite the decline, the Company's average cost of funds at 4.72 percent for the
six months ended June 30, 1996, exceeded that of the peer group at 4.28 percent.
The unfavorable rate variance as compared to the peer group stemmed from the
residual affects of the Company's prior year liquidity position along with
historically having a greater mix of higher costing retail certificates of
deposit. Such deposits accounted for 50.3 percent of the Company's deposit mix
in 1996 as compared to 34.8 percent for the peer group.

The Company is analyzing its pricing strategies in light of current conditions.
Factors such as an increase in general market rates, higher loan demand and
tighter liquidity position are all being taken into consideration in making
decisions for future actions regarding deposit pricing.

The following table sets forth the average amount of and the rate paid on the
major classifications of deposits for the six months ended June 30, 1996, and
June 30, 1995:

DEPOSIT DISTRIBUTION
<TABLE>
<CAPTION>

JUNE 30, JUNE 30,
1996 1995
_________________ _________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
______________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest-bearing:
Money market accounts....................... $ 18,209 2.85% $ 22,443 3.63%
NOW accounts................................ 15,813 1.98 15,259 1.96
Savings accounts............................ 67,205 2.94 73,775 3.23
Time less than $100......................... 157,351 5.74 147,804 5.63
Time $100 or more........................... 27,943 6.02 30,368 5.90
________ ________
Total interest-bearing.................... 286,521 4.72% 289,649 4.70%
Noninterest-bearing......................... 26,042 23,286
________ ________
Total deposits............................ $312,563 $312,935
======== ========
</TABLE>

Average volumes of noninterest-bearing deposits increased from $23.3 million for
the six months ended June 30, 1995, to $26.0 million for the comparable period
of 1996. Such volumes as a percentage of average assets lagged behind the local
peer group average of 12.6 percent, which effectively increased the Company's
cost of funds.

Volatile liabilities, time deposits in denominations of $100 or more, declined
from $28.6 million at March 31, 1996, to $23.3 million at June 30, 1996. Such
decline resulted from management's decision to compete less aggressively for
these higher priced deposit products based on the Company's improved liquidity
position. The Company's average cost of such deposits fell slightly to 6.0
percent from 6.1 percent at year end 1995. The following table sets forth
maturities of time deposits of $100 or more for June 30, 1996, and December 31,
1995:

MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100 OR MORE
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1996 1995
_______________________________________________________________________________________
<S> <C> <C>
Within three months......................................... $ 5,007 $ 6,466
After three months but within six months.................... 6,637 6,646
After six months but within twelve months................... 5,450 8,590
After twelve months......................................... 6,186 7,982
_______ _______
Total..................................................... $23,280 $29,684
======= =======
</TABLE>

INTEREST RATE SENSITIVITY:

Interest rate sensitivity management attempts to limit, and to the extent
possible, control the effects interest rate fluctuations have on net interest
income. The responsibility of such management has been delegated to the Asset
Liability Management Committee ("ALCO"). Specifically, ALCO utilizes a number
of computerized modeling techniques to monitor and attempt to control influences
that market changes have on the Company's rate sensitive assets and liabilities.
One such technique utilizes a static gap report, which attempts to measure the
Company's interest rate exposure by calculating the net amount of rate sensitive
assets ("RSA") and rate sensitive liabilities ("RSL") that reprice within
specific time intervals. A positive gap, indicated by an RSA/RSL ratio greater
than 1.0, means that earnings will be impacted favorably if interest rates rise
and adversely if interest rates fall during the period. A negative gap tends to
indicate that earnings will be affected inversely to interest rate changes.

The following table sets forth the Company's interest rate sensitivity gap
position. The distributions in the table are based on a combination of
maturities, repricing frequencies and prepayment patterns. Variable rate assets
and liabilities are distributed based on the repricing frequency of the
instrument. Mortgage instruments are distributed in accordance with estimated
cash flows assuming there is no change in the current interest rate environment:

INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>

DUE AFTER DUE AFTER
THREE MONTHS ONE YEAR
DUE WITHIN BUT WITHIN BUT WITHIN DUE AFTER
JUNE 30, 1996 THREE MONTHS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL
_____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Investment securities............... $26,871 $ 14,276 $ 40,920 $ 32,855 $114,922
Loans, net of unearned income....... 45,023 26,399 59,007 80,491 210,920
Interest-bearing deposits........... 47 47
Federal funds sold.................. 8,100 8,100
_______ ________ ________ _________ ________
Total............................. $80,041 $ 40,675 $ 99,927 $ 113,346 $333,989
======= ======== ======== ========= ========

Rate sensitive liabilities:
Money market accounts............... $ 19,863 $ 19,863
NOW accounts........................ 17,264 17,264
Savings accounts.................... $ 67,966 67,966
Time deposits less than $100........ $31,931 56,466 68,965 $ 39 157,401
Time deposits $100 or more.......... 5,007 12,087 6,186 23,280
Other borrowings.................... 3,000 47 3,047
_______ ________ ________ _________ ________
Total............................. $39,938 $105,680 $143,117 $ 86 $288,821
======= ======== ======== ========= ========

Rate sensitivity gap:
Period............................ $40,103 $(65,005) $(43,190) $ 113,260
Cumulative........................ $40,103 $(24,902) $(68,092) $ 45,168 $ 45,168

RSA/RSL ratio:
Period............................ 2.00 0.38 0.70 1,317.98
Cumulative........................ 2.00 0.83 0.76 1.16 1.16
</TABLE>

During the second quarter of 1996, the ratio of cumulative one year rate
sensitive assets to rate sensitive liabilities fell to 0.83 compared to 0.87 at
March 31, 1996. Based upon the guidelines set forth in the Company's
asset/liability management policy, this ratio fell within the 0.7 and 1.3 deemed
by management to be acceptable. Such decline resulted from management placing
maturing funds from short-term credit extensions into residential mortgages.
The Company experienced an increase in the three month ratio to 2.00 at June 30,
1996, from 1.79 at March 31, 1996. Such increase was primarily attributable to
a higher volume of investment securities that will mature during the third
quarter of 1996. Such ratio was also affected by a reduction in the volume of
short-term commercial time deposits as management was less aggressive in
competing for these higher costing funds. The Company was liability rate
sensitive for the cumulative one year period based on the results of the June
30, 1996, static gap report meaning that an increase in general market rates
will have an adverse impact on net interest income. Conversely, a decline in
general market rates would have a positive impact on net interest income.
Static gap analytics does not fully illustrate the impact of interest rate
changes on future earnings. First, market rate changes will not equally or
simultaneously affect all categories of assets and liabilities. Second, assets
and liabilities that can contractually reprice within the same period may not do
so at the same time or to the same magnitude. Third, the table presents a one-
day position; variations occur daily as the Company adjusts its rate sensitivity
throughout the year. Finally, assumptions must be made in constructing such a
table. For example, the conservative nature of the Company's asset/liability
management policy assigns money market and NOW accounts to the due after three
but within twelve months repricing interval. In reality, these items may
reprice less frequently and in different magnitudes than changes in general
interest rate levels.

As a result of the static gap report's failure to address the dynamic changes in
the balance sheet composition or prevailing interest rates, the Company enhances
its asset/liability management by using a simulation model. Such model creates
pro forma net interest income scenarios under various interest rate assumptions
("shocks"). Model results from June 30, 1996, indicated similar results to
those indicated by the static gap model. A decline in net interest income of
5.4 percent is expected if interest rates rise 100 basis points. Conversely, a
100 basis point decline in market rates would cause a 5.3 percent increase in
net interest income.

Inflation impacts financial institutions differently than it does commercial and
industrial companies that have significant investments in fixed assets and
inventories. Most of the Company's assets are monetary in nature and change
correspondingly with variations in the inflation rate. It is difficult to
precisely measure the impact of inflation on the Company, however management
believes that its exposure to inflation can be ameliorated through
asset/liability management.

LIQUIDITY:

Liquidity is defined as a company's ability to generate cash at a reasonable
cost in order to satisfy commitments to borrowers as well as to meet the demands
of depositors and debtholders. Principal sources of liquidity are found in core
deposits and loan and investment payments and prepayments. Management considers
the Company's available for sale portfolio as a secondary source of liquidity.
As a final source of liquidity, the Company has the ability to exercise existing
credit arrangements. As specified in the Company's asset/liability management
policy, such borrowings will only be used on a contingency basis. The reliance
on these borrowings to fund temporary deficiencies is limited to a maximum of
five consecutive business days before management is required to take appropriate
action to remedy the shortfall through normal operations.

Management took significant steps in 1995 toward improving the Company's
liquidity position through the investment portfolio reconstitution. Such
improvement was evidenced by the ratio of temporary investments to volatile
liabilities and the ratio of volatile liabilities less temporary investments to
total assets less temporary investments. At June 30, 1996, such ratios were
153.5 percent and negative 0.40 percent, respectively, compared to 42.3 percent
and 5.0 percent at June 30, 1995.

The consolidated statements of cash flows present the change in cash and cash
equivalents from operating, investing and financing activities. Cash and cash
equivalents, consisting of cash and due from banks and federal funds sold,
declined $4.6 million in the first six months of 1996. Net cash provided by
operating activities totaled $2,322 primarily due to the Company's net income of
$2,002.

Net cash used in investing activities was the major component of the net
decrease in cash and cash equivalents and amounted to $4,892 at June 30, 1996.
Such decrease was primarily a result of investment purchases of $14,038 as
management chose to invest funds not utilized in lending to purchase securities
with short average lives as a means to meet future loan demand. Partially
offsetting this decline were repayments on investment securities totaling $5,877
and repayments on term federal funds extended to other banking institutions.

Net cash used in financing activities aggregated $2,047 for the first six months
of 1996. The primary cause of such reduction was a decrease of $1,634 in
deposits for the first half of the year as the Company's improved liquidity
position led to management's choice to be less aggressive in deposit pricing.

CAPITAL ADEQUACY:

The Company's stockholders' equity had a slight improvement as net income of
$2,002 for the first half of the year less dividends of $249 was offset by a
$915 change in the net unrealized holding adjustment. The Company reported a
net unrealized gain of $780 at December 31, 1995, and a net unrealized loss of
$135 at June 30, 1996. Such adjustment was well below the depreciation
experienced in past years as a direct result of the risk mitigation accomplished
by the 1995 portfolio restructuring. The second quarter dividend of $132 or
$.06 per share represented a 12.8 percent increase over the dividend declared in
the first quarter of 1996. Cash dividends declared during the first six months
of 1996 were $249 or $.11 per share. Comparatively, the Company declared no
dividends during the first six months of 1995 as a result of the supervisory
action of the Federal Reserve Bank of Philadelphia ("FRB"). Such action was
terminated by the FRB on February 16, 1996. Cash dividends as a percentage of
net income for the six months ended June 30, 1996, was 12.4 percent. Presently,
the Board of Directors intends to pay dividends in the future. However, these
decisions are based on operating results, financial and economic decisions,
capital needs, growth objectives, appropriate dividend restrictions related to
the Company and its subsidiary and other relevant factors.

The following table sets forth the risk-adjusted core and total capital
calculations at June 30, 1996 and December 31, 1995:

RISK-ADJUSTED CAPITAL
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
____________________________________________________________________________________________________________
<S> <C> <C>
Tier I capital....................................................................... $ 26,733 $ 24,845
Tier II capital...................................................................... 2,402 2,203
________ ________
Total capital...................................................................... $ 29,135 $ 27,048
======== ========

Risk-adjusted assets................................................................. $185,200 $170,089
Risk-adjusted off-balance sheet items................................................ 5,277 4,489
Adjusted average assets for Leverage ratio........................................... $344,604 $357,410

Tier I capital as a percentage of risk-adjusted assets and off-balance sheet items... 14.0% 14.2%

Total of Tier I and Tier II capital as a percentage of risk-adjusted assets and off-
balance sheet items................................................................. 15.3 15.5

Tier I capital as a percentage of total average assets less goodwill................. 7.8% 7.0%
</TABLE>

The Company exceeded all relevant regulatory capital measurements at June 30,
1996, and was considered "well capitalized." Regulatory agencies define
institutions not under a written directive to maintain certain capital levels as
"well capitalized" if they exceed the following: Tier I risk-based ratio of 6.0
percent, Total risk-based ratio of 10.0 percent and Leverage ratio, defined as
Tier I capital to total average assets less goodwill, of 5.0 percent. The
Company reported an improvement in its capital level during the second quarter
as indicated by an increase in its Leverage ratio from 7.5 percent at March 31,
1996, to 7.8 percent at June 30, 1996.

REVIEW OF FINANCIAL PERFORMANCE:

The Company's net income surpassed $1.0 million for the second consecutive
quarter resulting in year-to-date earnings of $2,002 or $0.91 per share. The
returns on average total assets and stockholders' equity were 1.16 percent and
14.49 percent, respectively, for the first half of 1996. The favorable earnings
are attributable to increases in the net interest margin and noninterest income
and reductions in noninterest expenses. For the three and six months ended June
30, 1995, the Company reported net losses of $258 and $1,026, respectively.
Such losses resulted from the realization of net losses of $1,885 on the sale of
available for sale securities in conjunction with the investment portfolio's
reconstitution.

NET INTEREST INCOME:

The Company derives its largest source of operating income from net interest
income. Net interest income is defined as the amount by which interest and fees
on loans and other investments exceeds interest expense incurred on deposits and
other funding sources used to support such assets. Net interest margin is the
percentage of net interest income on a tax- equivalent basis to average earning
assets. Changes in volumes and rates of earning assets and liabilities, in
response to changes in general market rates, are the primary factors affecting
net interest income. Additional factors influencing the level of net interest
income include the composition of earning assets and interest-bearing
liabilities and the level of nonperforming assets.

Net interest income on a tax-equivalent basis rose 5.3 percent from $6,101 for
the six months ended June 30, 1995, to $6,424 for the same period of 1996. Such
increase came almost entirely due to the Company's improved net interest margin.
For the first six months of 1996, the Company's net interest margin was 3.87
percent as compared to 3.46 percent for the comparable period of 1995. Such
improvement resulted from the increase in the earning assets yield combined with
the decrease in the cost of funds. Earning assets yield increased from 7.75
percent to 7.97 percent while the cost of funds declined from 4.84 percent to
4.72 percent, resulting in a positive rate variance of $315. The improved loan
yields accounted for the majority of the positive rate variance as they
increased from 8.77 percent for the first six months of 1995 to 8.91 percent for
the same period of 1996. The cost of funds decline resulted from the Company's
less aggressive deposit product pricing in light of the improved liquidity
position.

For the quarter ended June 30, 1996, net interest income on a tax-equivalent
basis increased $240 compared to the same period of 1995. This positive
variance resulted from circumstances similar to those given for the six month
period. An improved net interest margin resulting from the increased earning
assets yield coupled with the decline in the cost of funds provided the
foundation for the improvement over the comparable three month periods of June
30, 1996, and June 30, 1995, respectively. The Company's net interest margin
may tighten during the final half of 1996 as a result of higher costs of
attracting funds to support the increased loan demand and the general rise in
interest rates.

Management analyzes interest income and interest expense by segregating volume
and rate components of earning assets and interest-bearing liabilities. The
following table demonstrates the impact changes in the interest rates earned and
paid on assets and liabilities, along with changes in the volume of earning
assets and interest-bearing liabilities, have on net interest income. Earning
asset averages include nonaccrual loans. Investment averages include available
for sale securities at amortized cost. Investment securities and loans are
adjusted to a tax- equivalent basis using a 34.0 percent statutory tax rate.
The net change attributable to the combined impact of rate and volume is
allocated proportionately to the change due to rate and the change due to
volume:

NET INTEREST INCOME CHANGES DUE TO RATE AND VOLUME
<TABLE>
<CAPTION>

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 VS. 1995 1996 VS. 1995
INCREASE (DECREASE) INCREASE (DECREASE)
ATTRIBUTABLE TO ATTRIBUTABLE TO
_____________________ ________________________
TOTAL TOTAL
CHANGE RATE VOLUME CHANGE RATE VOLUME
______ ____ ______ _______ _____ _______
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans:
Taxable............................. $ 363 $ 26 $ 337 $ 867 $ 184 $ 683
Tax-exempt.......................... (36) 412 (448) (33) 216 (249)
Investments:
Taxable............................. (945) (58) (887) (1,999) (79) (1,920)
Tax-exempt.......................... 287 (260) 547 566 (61) 627
Interest-bearing deposits with banks.. (2) (2) (1) 2 (3)
Federal funds sold.................... 44 (18) 62 166 (3) 169
_____ _____ _____ _______ _____ ________
Total interest income............. (289) 102 (391) (434) 259 (693)
_____ _____ _____ _______ _____ ________

Interest expense:
Money market accounts................. (80) (23) (57) (146) (78) (68)
NOW accounts.......................... 6 4 2 8 2 6
Savings accounts...................... (68) (18) (50) (197) (99) (98)
Time deposits less than $100.......... 51 (38) 89 364 85 279
Time deposits $100 or more............ (65) (3) (62) (52) 47 (99)
Short-term borrowings................. (343) (343) (677) (677)
Long-term debt........................ (30) (3) (27) (57) (13) (44)
_____ _____ _____ _______ _____ ________
Total interest expense............ (529) (81) (448) (757) (56) (701)
_____ _____ _____ _______ _____ ________
Net interest income............... $ 240 $ 183 $ 57 $ 323 $ 315 $ 8
===== ===== ===== ======= ===== ========
</TABLE>

The following table sets forth a summary of net interest income for major
categories of earning assets and interest-bearing liabilities:

SUMMARY OF NET INTEREST INCOME
<TABLE>
<CAPTION>

JUNE 30, 1996 JUNE 30, 1995
_____________________________ ____________________________
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
_________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans:
Taxable..................................... $209,122 $ 9,262 8.91% $191,815 $ 8,395 8.83%
Tax-exempt.................................. 3,469 162 9.39 5,593 195 7.03
Investments:
Taxable..................................... 78,458 2,116 5.42 135,993 4,115 6.10
Tax-exempt.................................. 35,029 1,474 8.46 20,726 908 8.83
Interest-bearing deposits with banks.......... 115 5 8.74 154 6 7.86
Federal funds sold............................ 7,244 197 5.47 1,092 31 5.72
________ ______ ________ _______
Total earning assets...................... 333,437 13,216 7.97% 355,373 13,650 7.75%
Less: allowance for loan losses.............. 3,969 3,756
Other assets.................................. 16,731 12,358
________ ________
Total assets.............................. $346,199 $363,975
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts......................... $ 18,209 258 2.85% $ 22,443 404 3.63%
NOW accounts.................................. 15,813 156 1.98 15,259 148 1.96
Savings accounts.............................. 67,205 984 2.94 73,775 1,181 3.23
Time deposits less than $100.................. 157,351 4,491 5.74 147,804 4,127 5.63
Time deposits $100 or more.................... 27,943 837 6.02 30,368 889 5.90
Short-term borrowings......................... 20,009 677 6.82
Long-term debt................................ 3,047 66 4.36 5,049 123 4.91
________ _______ ________ _______
Total interest-bearing liabilities........ 289,568 6,792 4.72% 314,707 7,549 4.84%
Noninterest-bearing deposits.................. 26,042 23,286
Other liabilities............................. 2,815 585
Stockholders' equity.......................... 27,774 25,397
________ _______ ________ _______
Total liabilities and stockholders' equity $346,199 6,792 $363,975 7,549
======== _______ ======== _______
Net interest/income spread................ $ 6,424 3.25% $ 6,101 2.91%
======= =======
Net interest margin....................... 3.87% 3.46%
Tax equivalent adjustments:
Loans......................................... $ 55 $ 66
Investments................................... 501 309
_______ _______
Total adjustments......................... $ 556 $ 375
======= =======
</TABLE>

Note: Average balance was calculated using average daily balances and
includes nonaccrual loans. Available for sale securities,
included in investment securities, are stated at amortized cost with
the related average unrealized holding gain of $437 at June 30, 1996,
and an average unrealized holding loss of $5,018 at June 30, 1995,
included in other assets. Tax equivalent adjustment was calculated
using the prevailing statutory rate of 34.0 percent.

PROVISION FOR LOAN LOSSES:

The Company's provision for loan losses was $150 for the six months ended June
30, 1996, a decrease of $135 compared to the same period of 1995. Such
reduction was a result of management's assessment of the adequacy of the
Company's allowance for loan losses account. The provision was constant at $75
for the comparable second quarters of 1996 and 1995. Although the Company
experienced a lower level of nonperforming assets at June 30, 1996, as compared
to the same period last year, management believes the standard monthly charge to
operations is justified as a result of the increased loan demand.

NONINTEREST INCOME:

Noninterest income totaled $681 for the six months ended June 30, 1996, an
increase of $1,952 as compared to the same period last year. The significant
increase is due to the Company incurring $1,885 of losses on the disposition of
available for sale securities in 1995. Such losses were a result of completing
the initial phase of the investment portfolio reconstitution plan accomplished
during the second and third quarters of 1995. Service charges, fees and
commissions increased $94 or 15.3 percent from $614 for the first half of 1995
to $708 for the same period of 1996. An adjustment in general service charges
on deposit accounts effective April 1, 1996, was the primary reason for such
increase. The Company's service charge structure, last adjusted in 1993,
continues to provide customers with exceptional value as it is below or equal to
rates charged for comparable services offered by competitors. The net
investment securities losses of $27 for the six months ended June 30, 1996,
resulted from the disposition of three variable rate collaterized mortgage
obligations with a carrying value of $897. The investment committee decided to
dispose of such investments after reassessing their appropriateness with respect
to their structure, composition and characteristics in line with future
investment goals. For the quarter ended June 30, 1996, noninterest income
totaled $345 as compared to a loss of $1,599 for the same period last year.
Such increase can be explained from reasons similar to those stated for the
year-to-date results.

NONINTEREST EXPENSE:

Noninterest expense totaled $3,845 for the six months ended June 30, 1996, a
reduction of $605 or 13.6 percent as compared to the same period last year. The
net overhead to average assets ratio for the first half of 1996 decreased to 1.8
percent in comparison to 2.1 percent for the corresponding period of 1995. Such
level is below the 2.7 percent overhead ratio experienced by the Company's peer
group. Productivity is also measured by the operating efficiency ratio. Such
ratio is defined as noninterest expense, excluding other real estate expense, as
a percentage of net interest income and noninterest income less nonrecurring
gains and losses. The Company's operating efficiency ratio for the first six
months of 1996 was 57.9 percent compared to 66.0 percent for the same period of
1995 as a result of the improved level of noninterest expense.

Salaries and benefits represented 50.5 percent of noninterest expenses for the
first six months of 1996 and amounted to $1,943, a $278 or 12.5 percent decrease
compared to the same period of 1995. The majority of such difference was
attributable to the Company's Board of Directors exercising its termination
option of the President and Chief Executive Officer's written employment
agreement in the second quarter of 1995. The cost of exercising such option
approximated $204.

Net occupancy and equipment expenses aggregated $641 for the first half of 1996,
representing a $33 or 5.4 percent increase over the same period 1995. The
increase was primarily attributable to increased costs associated with the
maintenance of equipment used in normal bank operations.

Other expenses amounted to $1,261 for the first six months of 1996, a $360 or
22.2 percent decrease compared to the same period of 1995. The largest
influence on such decrease was a reduction in Federal Deposit Insurance
Corporation ("FDIC") premiums paid by the Company. Under the new rate structure
approved by the FDIC Board of Directors's on November 14, 1995, and put into
effect January 1, 1996, the Company will pay the $2 annual minimum for FDIC
insurance based upon its current risk characteristics. Such rating accounted
for a $313 decline in FDIC insurance to $47 for the first six months of 1996
compared to $360 for the same period of 1995. The Company also experienced a
significant decline in legal and consulting expenses for the six months ended
June 30, 1996, compared to the same period of 1995 as a result of the removal of
FRB supervisory action in the first quarter of 1996. Such expenses declined
$110 from $194 for the first half of 1995 to $84 for the same period of 1996.

For the quarter ended June 30, 1996, the Company experienced a decline in
noninterest expenses of $455 in comparison to the same period of 1995. Such
decline resulted from reasons similar to those stated for the year to date
decreases.

The following table sets forth the major components of noninterest expenses for
the three months and six months ended June 30, 1996 and 1995:

NONINTEREST EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Salaries and employee benefits expense:
Salaries and payroll taxes..................... $ 823 $1,029 $1,629 $1,841
Employee benefits.............................. 158 190 314 380
______ ______ ______ ______
Salaries and employee benefits expense....... 981 1,219 1,943 2,221
______ ______ ______ ______

Net occupancy and equipment expense:
Net occupancy expense.......................... 155 170 321 348
Equipment expense.............................. 159 126 320 260
______ ______ ______ ______
Net occupancy and equipment expense.......... 314 296 641 608
______ ______ ______ ______

Other noninterest expenses:
Marketing expense.............................. 46 63 119 105
Other taxes.................................... 56 51 112 105
Stationery and supplies........................ 75 86 125 119
Contractual services........................... 244 316 461 497
Insurance including FDIC assessment............ 31 189 67 392
Other.......................................... 211 193 377 403
______ ______ ______ ______
Other noninterest expenses................... 663 898 1,261 1,621
______ ______ ______ ______
Total noninterest expense.................. $1,958 $2,413 $3,845 $4,450
====== ====== ====== ======
</TABLE>

INCOME TAXES:

The Company's effective tax rates for the three and six months ended June 30,
1996, were 21.5 percent and 21.6 percent, respectively. The peer group's
effective tax rate for the first half of 1996 was 23.4 percent. The favorable
tax rate as compared to the peer group is a result of the Company earning higher
amounts of tax-exempt revenue. In addition, the lower tax rate reflects the
impact of recognizing tax credits on the Company's limited partnership interest
in a residential housing program for elderly and low-to moderate-income
households. The Company recognized $36 of investment tax credits during the
first half of 1996.

The Company reported tax benefits of $253 and $22 for the three and six months
ended June 30, 1995. Such benefits were a direct result of realizing losses on
investment dispositions of $1,885 during the second quarter of 1995.

COMM BANCORP, INC.
OTHER INFORMATION_______________________________________________________________

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
NONE

ITEM 2. CHANGES IN SECURITIES
NONE

ITEM 3. DEFAULTS OF SENIOR SECURITIES
NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on June 7, 1996,
for which proxies were solicited pursuant to Section 14 under the
Securities Exchange Act of 1934, the following matters were voted upon
by stockholders.

1. To fix the number of directors to be elected at nine (9);

2. To elect nine (9) directors to serve for a one-year term and
until their successors are duly elected and qualified;

3. To ratify the selection of Kronick Kalada Berdy & Co. of
Kingston, Pennsylvania, Certified Public Accountants, as the
independent auditors for the Company for the year ending December
31, 1996.

All nominees of the Board of Directors were elected. The number of
votes cast for or opposed to each of the nominees for election to the
Board of Directors were as follows:

Nominee For Against
______________________ _________ ________
David L. Baker 1,649,674 6,260
Donald R. Edwards, Sr. 1,651,654 6,260
William F. Farber, Sr. 1,643,884 6,260
Judd B. Fitze 1,653,154 6,260
John P. Kameen 1,652,454 5,820
William B. Lopatofsky 1,653,154 5,820
J. Robert McDonnell 1,653,154 5,820
Joseph P. Moore, Jr. 1,649,704 6,060
Eric Stephens 1,653,154 6,020

COMM BANCORP, INC.
OTHER INFORMATION (CONTINUED)___________________________________________________

Matter numbers one and three were approved by stockholders at the
meeting. The votes cast on each of those matters were as follows:

Matter For Against
__________ _________ __________
1 1,672,873 56,217
3 1,722,670 6,420

ITEM 5. OTHER INFORMATION
NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) Reports on Form 8-K during the quarter

April 1, 1996 - The following events were reported:

Item 5. - An amendment to the Amended Articles of Incorporation
became effective April 1, 1996, in order to increase the
aggregate number of shares that Comm Bancorp, Inc. has the
authority to issue to twelve million (12,000,000) shares of
common stock with a par value of thirty-three cents ($0.33) per
share, and thereby effectuating a three-for-one (3 for 1) stock
split.

Item 7.(c) - Form of Press Release that Comm Bancorp, Inc. has
effectuated a three-for-one (3 for 1) stock split as of April 1,
1996.

May 14, 1996 - The following event was reported:

Item 7.(c) - (3)(i) Articles of incorporation of the Company, as
amended as of March 31, 1996.

June 13, 1996 - The following events were reported:

Item 5. - Comm Bancorp, Inc. will begin trading on the Nasdaq
National Stock Market on June 17, 1996. See Form of Press
Release attached hereto as an exhibit.

Item 7.(c) - Form of Press Release that Comm Bancorp, Inc.
announced it will begin trading on the Nasdaq National Stock
Market on June 17, 1996.

COMM BANCORP, INC.
FORM 10-Q

SIGNATURE PAGE
______________

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.

Registrant, Comm Bancorp, Inc.

Date August 1, 1996 /s/ David L. Baker
______________ _________________________________________
David L. Baker
Chief Executive Officer

Date August 1, 1996 /s/ Scott A. Seasock
______________ _________________________________________
Scott A. Seasock
Chief Financial Officer

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED INCOME STATEMENTS AND CONSOLIDATED BALANCE SHEETS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,247
<INT-BEARING-DEPOSITS> 47
<FED-FUNDS-SOLD> 8,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,922
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 210,920
<ALLOWANCE> 4,056
<TOTAL-ASSETS> 350,115
<DEPOSITS> 315,465
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,870
<LONG-TERM> 3,047
0
0
<COMMON> 726
<OTHER-SE> 28,007
<TOTAL-LIABILITIES-AND-EQUITY> 350,115
<INTEREST-LOAN> 9,369
<INTEREST-INVEST> 3,089
<INTEREST-OTHER> 202
<INTEREST-TOTAL> 12,660
<INTEREST-DEPOSIT> 6,726
<INTEREST-EXPENSE> 6,792
<INTEREST-INCOME-NET> 5,868
<LOAN-LOSSES> 150
<SECURITIES-GAINS> (27)
<EXPENSE-OTHER> 3,845
<INCOME-PRETAX> 2,554
<INCOME-PRE-EXTRAORDINARY> 2,554
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,002
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 7.97
<LOANS-NON> 1,130
<LOANS-PAST> 1,671
<LOANS-TROUBLED> 243
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,903
<CHARGE-OFFS> 50
<RECOVERIES> 53
<ALLOWANCE-CLOSE> 4,056
<ALLOWANCE-DOMESTIC> 4,056
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>