CCFNB Bancorp 10Q 2009 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2009.


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to .

No. 0-19028
(Commission file number)

CCFNB BANCORP, INC.

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		23-2254643
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

232 East Street, Bloomsburg, PA		17815
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:(570) 784-4400

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 requirings for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero		Accelerated filero		Non-accelerated filero (Do not check if a smaller reporting company)		Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Yeso Noþ

On July 31, 2009, there were 2,251,265 shares of the Registrant’s Common stock outstanding, par value $1.25.

CCFNB Bancorp, Inc. and Subsidiary
Index to Quarterly Report on Form 10-Q


	Page
	Number
Part I Financial Information
Item1. Financial Statements

Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008		3

Consolidated Statements of Income (unaudited) for the Three and Six Months ended June 30, 2009 and 2008		4

Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the Six Months ended June 30, 2009 and 2008		5

Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2009 and 2008		6

Notes to Consolidated Financial Statements (unaudited)		7

Report of Independent Registered Public Accounting Firm		17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		28

Part II Other Information		28

Item 1. Legal Proceedings		28
Item 1A. Risk Factors		28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3. Defaults Upon Senior Securities		29
Item 4. Submission of Matters to a Vote of Security Holders		29
Item 5. Other Information		29
Item 6. Exhibits		29
Signatures		30
Exhibits

PART I Financial Information

Item 1. Financial Statements

CCFNB Bancorp, Inc.

Consolidated Balance Sheets


	(Unaudited)
	June 30,			December 31,
(In Thousands)	2009			2008
ASSETS
Cash and due from banks	$	7,451		$	10,173
Interest-bearing deposits in other banks		169			149
Federal funds sold		1,005			5,163

Total cash and cash equivalents		8,625			15,485

Investment securities, available for sale, at fair value		198,031			196,580
Loans,net of unearned income		328,169			320,068
Less: Allowance for loan losses		3,762			3,758

Loans, net		324,407			316,310
Premises and equipment, net		11,871			12,609
Accrued interest receivable		2,076			2,388
Cash surrender value of bank-owned life insurance		11,212			10,943
Investment in limited partnerships		766			845
Intangible Assets:
Core deposit		3,076			3,411
Goodwill		7,937			7,937
Other assets		2,298			1,811

TOTAL ASSETS	$	570,299		$	568,319


LIABILITIES
Interest-bearing deposits	$	391,850		$	381,849
Noninterest-bearing deposits		49,978			52,460

Total deposits		441,828			434,309

Short-term borrowings		45,382			55,462
Long-term borrowings		12,130			9,133
Junior subordinate debentures		4,640			4,640
Accrued interest payable		931			1,075
Other liabilities		2,489			2,925

TOTAL LIABILITIES		507,400			507,544


STOCKHOLDERS’ EQUITY
Common stock, par value $1.25 per share; authorized 5,000,000 shares; issued 2,261,765 shares in 2009 and 2,253,080 shares in 2008		2,827			2,816
Surplus		27,332			27,173
Retained earnings		31,176			29,164
Accumulated other comprehensive income		1,715			1,622
Treasury stock, at cost; 7,000 shares in 2009 and 0 shares in 2008		(151	)		—

TOTAL STOCKHOLDERS’ EQUITY		62,899			60,775

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	570,299		$	568,319

See accompanying notes to unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

Consolidated Statements of Income
(Unaudited)


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(In Thousands, Except Per Share Data)	2009			2008		2009			2008
INTEREST AND DIVIDEND INCOME
Interest and fees on loans:
Taxable	$	4,671		$	2,496	$	9,404		$	5,079
Tax-exempt		204			154		407			298
Interest and dividends on investment securities:
Taxable		2,015			645		4,227			1,253
Tax-exempt		105			39		192			84
Dividend and other interest income		11			24		37			49
Federal funds sold		1			44		6			108
Deposits in other banks		1			7		1			20

TOTAL INTEREST AND DIVIDEND INCOME		7,008			3,409		14,274			6,891


INTEREST EXPENSE
Deposits		1,920			990		3,933			2,026
Short-term borrowings		78			130		159			358
Long-term borrowings		150			138		287			292
Junior subordinate debentures		34			—		76			—

TOTAL INTEREST EXPENSE		2,182			1,258		4,455			2,676


NET INTEREST INCOME		4,826			2,151		9,819			4,215

PROVISION FOR LOAN LOSSES		160			—		220			—

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,666			2,151		9,599			4,215


NON-INTEREST INCOME
Service charges and fees		426			241		824			480
Gain on sale of loans		250			59		346			106
Earnings on bank-owned life insurance		114			68		217			133
Brokerage		51			54		107			92
Trust		160			36		312			74
Investment security losses		(61	)		—		(61	)		—
Other		421			79		782			152

TOTAL NON-INTEREST INCOME		1,361			537		2,527			1,037


NON-INTEREST EXPENSE
Salaries		1,543			716		3,144			1,419
Employee benefits		400			225		834			470
Occupancy		254			118		561			256
Furniture and equipment		302			107		625			222
State shares tax		129			78		272			163
Professional fees		108			66		275			132
Director’s fees		70			51		141			97
FDIC assessments		366			5		438			10
Other		932			319		1,782			615

TOTAL NON-INTEREST EXPENSE		4,104			1,685		8,072			3,384


INCOME BEFORE INCOME TAX PROVISION		1,923			1,003		4,054			1,868
INCOME TAX PROVISION		372			256		960			470

NET INCOME	$	1,551		$	747	$	3,094		$	1,398


EARNINGS PER SHARE	$	0.68		$	0.61	$	1.37		$	1.14

CASH DIVIDENDS PER SHARE	$	0.24		$	0.21	$	0.48		$	0.42

WEIGHTED AVERAGE SHARES OUTSTANDING		2,256,348			1,224,552		2,255,202			1,224,552

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)


													Accumulated
	Common												Other						Total
	Stock									Retained			Comprehensive			Treasury			Stockholders’
(In Thousands Except Per Share Data)	Shares			Amount			Surplus			Earnngs			Income (Loss)			Stock			Equity
Balance, December 31, 2007		1,226,536		$	1,533		$	2,271		$	27,679		$	144		$	—		$	31,627
Comprehensive Income:
Net income											1,398									1,398
Change in net unrealized gain (loss) on investment securities available-for-sale, net of reclassification adjustment and tax effects														(361	)					(361	)

Total comprehensive income																				1,037
Common stock issuance under dividend reinvestment and stock purchase plans		5,247			7			121												128
Recognition of employee stock purchase plan expense								2												2
Purchase of treasury stock (12,000 shares)																	(304	)		(304	)
Retirement of treasury stock		(12,000	)		(15	)		(289	)								304			—
Cash dividends, ($0.42 per share)											(514	)								(514	)

Balance, June 30, 2008		1,219,783		$	1,525		$	2,105		$	28,563		$	(217	)	$	—		$	31,976


Balance, December 31, 2008		2,253,080		$	2,816		$	27,173		$	29,164		$	1,622		$	—		$	60,775
Comprehensive Income:
Net income											3,094									3,094
Change in net unrealized gain on investment securities available-for-sale, net of reclassification adjustment and tax effects														93						93

Total comprehensive income																				3,187

Common stock issuance under dividend reinvestment and stock purchase plans		8,685			11			157												168
Recognition of employee stock purchase plan expense								2												2
Purchase of treasury stock (7,000 shares)																	(151	)		(151	)
Cash dividends, ($0.48 per share)											(1,082	)								(1,082	)


Balance, June 30, 2009		2,261,765		$	2,827		$	27,332		$	31,176		$	1,715		$	(151	)	$	62,899

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

Consolidated Statements of Cash Flows
(Unaudited)


	For The Six Months Ended June 30,
(In Thousands)	2009			2008
OPERATING ACTIVITIES
Net Income	$	3,094		$	1,398
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		220			—
Depreciation and amortization of premises and equipment		507			188
Impairment loss on securities		61			—
Amortization and accretion on investment securities		189			20
Gain on sale of premises and equipment		(183	)		—
Loss on sale of other real estate owned		81			—
Deferred income taxes benefit (provision)		178			(62	)
Gain on sale of loans		(346	)		(106	)
Proceeds from sale of mortgage loans		10,116			6,182
Originations of mortgage loans held for resale		(11,326	)		(5,921	)
Amortization of intangibles and invesment in limited partnerships		414			—
Decrease in accrued interest receivable		312			61
Increases in cash surrender value of bank-owned life insurance		(269	)		(157	)
Decrease in accrued interest payable		(144	)		(230	)
Other, net		(1,159	)		(753	)

Net cash provided by operating activities		1,745			620

INVESTING ACTIVITIES
Investment securities available for sale:
Purchases		(54,929	)		(29,536	)
Proceeds from sales, maturities and redemptions		54,186			25,377
Proceeds from redemption of regulatory stock		—			120
Purchase of regulatory stock		(817	)		(64	)
Net (increase) decrease in loans		(7,173	)		64
Proceeds from sale of premises and equipment		1,294			—
Proceeds from sale of other real estate owned		343			—
Acquisition of premises and equipment		(880	)		(18	)

Net cash used for investing activities		(7,976	)		(4,057	)

FINANCING ACTIVITIES
Net increase in deposits		7,519			4,283
Net decrease in short-term borrowings		(10,080	)		(538	)
Proceeds from long-term borrowings		3,000
Repayment of long-term borrowings		(3	)		(2,003	)
Acquisition of treasury stock		(151	)		(304	)
Proceeds from issuance of common stock		168			128
Cash dividends paid		(1,082	)		(514	)

Net cash (used for) provided by financing activities		(629	)		1,052

NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,860	)		(2,385	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		15,485			13,401

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	8,625		$	11,016


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid	$	4,599		$	2,717
Income taxes paid		871			622
Loans transferred to other real estate owned		412			—

See accompanying notes to the unaudited consolidated financial statements.

CCFNB BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of CCFNB Bancorp, Inc. (the “Corporation”) are in accordance with the accounting principles generally accepted in the United States of America and conform to common practices within the banking industry. The more significant policies follow:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of CCFNB Bancorp, Inc. and its wholly-owned subsidiary, First Columbia Bank & Trust Co. (the “Bank"). Columbia Financial Corporation (“CFC”), the former parent company of the Bank was acquired by CCFNB Bancorp, Inc. on July 18, 2008 and Columbia County Farmers National Bank (“CCFNB”) merged with and into the Bank on July 18, 2008. All significant inter-company balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS

The Corporation is a financial holding company that provides full-banking services, including trust services, through the Bank, to individuals and corporate customers. The Bank has thirteen offices covering an area of approximately 752 square miles in Northcentral Pennsylvania. The Corporation and Bank are subject to the regulation of the Pennsylvania Department of Banking, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank of Philadelphia.

Procuring deposits and making loans are the major lines of business. The deposits are mainly deposits of individuals and small businesses and include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, individual retirement accounts, and certificates of deposit. The Bank also offers non-insured “Repo sweep” accounts. Lending products include commercial, consumer, and mortgage loans. The trust services, trading under the name of B.B.C.T.,Co. include administration of various estates, pension plans, self-directed IRA’s and other services. A third-party brokerage arrangement is also resident in the Lightstreet branch. This investment center offers a full line of stocks, bonds and other non-insured financial services.

SEGMENT REPORTING

The Bank acts as an independent community financial services provider, and offers traditional banking and related financial services to individual, business and government customers. Through its branch, internet banking, telephone and automated teller machine network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of other financial services. The Bank also performs personal, corporate, pension and fiduciary services through its B.B.C.T., Co. as well as offering diverse investment products through its investment center.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, trust and investment center operations of the Corporation. As such, discrete financial information is not available and segment reporting would not be meaningful.

USE OF ESTIMATES

The preparation of these consolidated financial statements in conformity with accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

INVESTMENT SECURITIES

The Corporation classifies its investment securities as either “held-to-maturity” or “available-for-sale” at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the ability and positive intent to hold the securities to maturity. Investment securities held-to-maturity are carried at cost adjusted for amortization of premiums and accretion of discounts to maturity.

Debt securities not classified as held-to-maturity and equity securities included in the available-for-sale category, are carried at fair value, and the amount of any unrealized gain or loss net of the effect of deferred income taxes is reported as other comprehensive income in the Consolidated Statement of Changes in Stockholders’ Equity. Management’s decision to sell available-for-sale securities is based on changes in economic conditions controlling the sources and uses of funds, terms, availability of and yield of alternative investments, interest rate risk, and the need for liquidity.

The cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, is included in interest income

from investments. Realized gains and losses are included in net investment securities gains. The cost of investment securities sold, redeemed or matured is based on the specific identification method.

LOANS

Loans are stated at their outstanding principal balances, net of deferred fees or costs, unearned income, and the allowance for loan losses. Interest on loans is accrued on the principal amount outstanding, primarily on an actual day basis. Non-refundable loan fees and certain direct costs are deferred and amortized over the life of the loans using the interest method. The amortization is reflected as an interest yield adjustment, and the deferred portion of the net fees and costs is reflected as a part of the loan balance.

Real estate mortgage loans held for resale are carried at the lower of cost or market on an aggregate basis. A portion of these loans are sold with limited recourse by the Corporation.

Past Due Loans — Generally, a loan is considered past due when a payment is in arrears for a period of 10 or 15 days, depending on the type of loan. Delinquent notices are issued at this point and related collection efforts will commence and continue until final resolution. Past due loans are continually evaluated with determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

Non-Accrual Loans — Generally, a loan is classified as non-accrual, with the accrual of interest on such a loan discontinued when the contractual payment of principal or interest has become 90-days past due or management has serious doubts about further collectability of principal or interest, even though the loan currently is performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well-secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. Certain non-accrual loans may continue to perform wherein payments are still being received with those payments generally applied to principal. Non-accrual loans remain under constant scrutiny and if performance continues, interest income may be recorded on a cash basis based on management’s judgment as to collectability of principal.

�� Impaired Loans — A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Under current accounting standards, the allowance for loan losses related to impaired loans is based on discounted cash flows using the loan’s effective interest rate or the fair value of the collateral for certain collateral dependent loans. The recognition of interest income on impaired loans is the same as for non-accrual loans discussed above.

Allowance for Loan Losses — The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level established by management to be adequate to absorb estimated potential loan losses. Management’s periodic evaluation of the adequacy of the allowance for loan losses is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

In addition, an allowance is provided for possible credit losses on off-balance sheet credit exposures. The allowance is estimated by management and is classified in other liabilities.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation computed principally on the straight-line method over the estimated useful lives of the assets. Maintenance and minor repairs are charged to operations as incurred. The cost and accumulated depreciation of the premises and equipment retired or sold are eliminated from the property accounts at the time of retirement or sale, and the resulting gain or loss is reflected in current operations.

MORTGAGE SERVICING RIGHTS

The Bank originates and sells real estate loans to investors in the secondary mortgage market. After the sale, the Bank retains the right to service these loans. When originated mortgage loans are sold and servicing is retained, a servicing asset is capitalized based on relative fair value at the date of sale. Servicing assets are amortized as an offset to other fees in proportion to, and over the period of, estimated net servicing income. The unamortized cost is included in other assets in the accompanying consolidated balance sheets. The servicing rights are periodically evaluated for impairment based on their relative fair value.

JUNIOR SUBORDINATE DEBENTURES

During 2006, CFC issued $4,640,000 in junior debentures due December 15, 2036 to Columbia Financial Statutory Trust I (Trust). On July 18, 2008, the Corporation became the successor to CFC and to this Trust, respectively. The Corporation owns all of the $140,000 in common equity of the Trust and the debentures are the sole asset of the Trust. The Trust, a wholly-owned unconsolidated subsidiary of the Corporation, issued $4,500,000 of floating-rate trust capital securities in a non-public offering in reliance on Section 4 (2) of the Securities Act of 1933. The floating-rate capital securities provide for quarterly distributions at a variable annual coupon rate, reset quarterly, based on the 3-month LIBOR plus 1.75%. The coupon rate was 2.38% at June 30, 2009 and 3.75% at December 31, 2008. The securities are callable by the Corporation, subject to any required regulatory approval, at par,

after five years. The Corporation unconditionally guarantees the trust capital securities. The terms of the junior subordinated debentures and the common equity of the trust mirror the terms of the trust capital securities issued by the Trust.

INTANGIBLE ASSETS — GOODWILL

Goodwill represents the excess for the purchase price over the fair market value of net assets acquired. The Corporation has recorded net goodwill of $7,937,000 at June 30, 2009 and December 31, 2008 related to the 2008 acquisition of Columbia Financial Corporation and it’s subsidiary, First Columbia Bank & Trust Co. In accordance with current accounting standards, goodwill is not amortized, but evaluated at least annually for impairment. Any impairment of goodwill results in a charge to income. The Corporation periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired.

INTANGIBLE ASSETS — CORE DEPOSIT

The Corporation has an amortizable intangible asset related to the deposit premium paid for the acquisition of Columbia Financial Corporation’s subsidiary, First Columbia Bank & Trust Co. This intangible asset is being amortized on a sum of the years digits method over 10 years and has a carrying value of $3,076,000 and $3,411,000, net of accumulated amortization of $614,000 and $279,000, as of June 30, 2009 and December 31, 2008, respectively. The recoverability of the carrying value is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense. Amortization of the core deposit intangible amounted to $335,000 and $0 for the six months ended June 30, 2009 and 2008, respectively.

The estimated amortization expense of the core deposit intangible over its remaining life is as follows:


For the Year Ended:
Remainder of 2009	$	308,000
2010		576,000
2011		509,000
2012		442,000
2013		374,000
Thereafter		867,000

Total	$	3,076,000

OTHER REAL ESTATE OWNED

Real estate properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value on the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell and is included in other assets. Revenues derived from and costs to maintain the assets and subsequent gains and losses on sales are included in other non-interest income and expense. The amount of other real estate owned was $361,000 and $373,000 as of June 30, 2009 and December 31, 2008, respectively and is included in other assets in the accompanying consolidated balance sheets.

BANK OWNED LIFE INSURANCE

The Corporation invests in Bank Owned Life Insurance (BOLI). Purchase of BOLI provides life insurance coverage on certain present and retired employees and directors with the Corporation being owner and primary beneficiary of the policies.

INVESTMENTS IN LIMITED PARTNERSHIPS

The Corporation is a limited partner in three partnerships at June 30, 2009 that provide low income elderly housing in the Corporation’s geographic market area. The investments are accounted for under the effective yield method under the Emerging Issues Task Force (EITF) 94-1 “Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects”. Under the effective yield method, the Corporation recognizes tax credits as they are allocated and amortizes the initial cost of the investment to provide a constant effective yield over the period that the tax credits are allocated to the Corporation. Under this method, the tax credits allocated, net of any amortization of the investment in the limited partnerships, are recognized in the consolidated statements of income as a component of income tax expense. The amount of tax credits allocated to the Corporation were $93,000 and the amortization of the investments in limited partnerships was $79,000 and $0 for the six months ended June 30, 2009 and 2008, respectively. The carrying value of the Corporation’s investments in limited partnerships was $766,000 and $845,000 as of June 30, 2009 and December 31, 2008, respectively.

INVESTMENT IN INSURANCE AGENCY

The Corporation owns a 50 percent interest in a local insurance agency, a corporation organized under the laws of the Commonwealth of Pennsylvania. The income or loss from this investment is accounted for under the equity method of accounting. The carrying value of this investment as of June 30, 2009 and December 31, 2008 was $226,000 and $218,000, respectively, and is included in other assets in the accompanying consolidated balance sheets.

INCOME TAXES

The provision for income taxes is based on the results of operations, adjusted primarily for tax-exempt income. Certain items of income and expense are reported in different periods for financial reporting and tax return purposes. Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statement and income tax basis of assets and liabilities measured by using the enacted tax rates and laws expected to be in effect when the timing differences are expected to reverse. Deferred tax expense or benefit is based on the difference between deferred tax asset or liability from period to period.

PER SHARE DATA

Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding at the end of each period. Diluted earnings per share is calculated by increasing the denominator for the assumed conversion of all potentially dilutive securities. The Corporation does not have any securities which have or will have a dilutive effect, so accordingly, basic and diluted per share data are the same.

CASH FLOW INFORMATION

For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and due from banks, interest-bearing deposits in other banks and federal funds sold. The Corporation considers cash classified as interest-bearing deposits with other banks as a cash equivalent because they are represented by cash accounts essentially on a demand basis. Federal funds are also included as a cash equivalent because they are generally purchased and sold for one-day periods.

TRUST ASSETS AND INCOME

Property held by the Corporation in a fiduciary or agency capacity for its customers is not included in the accompanying consolidated financial statements because such items are not assets of the Corporation and the Bank. Trust Department income is generally recognized on a cash basis and is not materially different than if it was reported on an accrual basis.

ACCUMULATED OTHER COMPREHENSIVE INCOME

The Corporation is required to present accumulated other comprehensive income in a full set of general-purpose financial statements for all periods presented. Accumulated other comprehensive income is comprised of unrealized holding gains on the available for sale investment securities portfolio. The Corporation has elected to report the effects of other comprehensive income as part of the Consolidated Statement of Changes in Stockholders’ Equity.

ADVERTISING COSTS

It is the Corporation’s policy to expense advertising costs in the period in which they are incurred Advertising expense for the six months ended June 30, 2009 and 2008 was approximately $83,000 and $39,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2008, the FASB issued Staff Position No. SFAS 140-4 and FIN 46(R)-8 (FSP 140-4),“Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”.FSP 140-4 amends FASB Statement No. 140 to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46 to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities.

Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (“QSPE”) that holds a variable interest in the QSPE but was not the transferor (non-transferor) of financial assets into the QSPE; and (b) a servicer of a QSPE that holds a significant interest in the QSP but was not the transferor (non-transferor) of financial assets to the QSPE. The Corporation does not have involvement with any variable interest entities.

In January 2009, the FASB ratified EITF 99-20-1,“Amendments to the Impairment Guidance of EITFIssue99-20”. EITF 99-20-I amends the impairment guidance in EITF 99-20 to achieve more consistent determination of whether an other-than-temporary impairment has occurred. EITF 99-20-1 was effective December 31, 2008. The change in the impairment guidance with the issuance of FSP EITF 990-20I was effective December 31, 2008. The change in the impairment guidance with the issuance of FSP EITF 99-20-I was effective December 31, 2008. The change in the impairment guidance with the issuance of FSP EITF 99-20-I did not result in any material impact on the Corporation’s consolidated financial condition, results of operation or liquidity.

In December 2007, the Financial Accounting Standards Board (FASB) issued State of Financial Accounting Standards SFAS 141(R), “Business Combinations”. SFAS 141(R) will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Corporation will account for business combinations under this Statement include: the acquisition date will be the date the acquirer obtains control; all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date; assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts

recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year; acquisition-related restructuring costs that do not meet the criteria in SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”, will be expensed as incurred; transaction costs will be expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree will not be permitted to be recognized by the acquirer. Additionally, SFAS 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward.

The Corporation will be required to prospectively apply SFAS 141(R) to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. The Corporation will adopt SFAS 141(R) for any business combinations occurring at or subsequent to January 1, 2009.

In December 2007, the FASB issued Statement of Financial Accounting Standards SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51”. SFAS 160 establishes new accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 will require entities to classify noncontrolling interests as a component of stockholders’ equity and will require subsequent changes in ownership interest in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS 160 will require entities to recognize a gain or loss upon the loss of control of a subsidiary and to remeasure any ownership interest retained at fair value on that date. This statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which are required to be applied retrospectively. Early adoption is not permitted. The adoption of this standard is not expected to have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”, was issued in September 2006 and is effective for fiscal years beginning after December 15, 2007 with earlier application permitted. EITF 06-4 requires that, for split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods, an employer should recognize a liability for future benefits in accordance with SFAS No. 106. EITF 06-4 requires that recognition of the effects of adoption should be either by (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. The Corporation adopted this standard as of January 1, 2007 through a cumulative-effect adjustment to beginning retained earnings. This adjustment represented a decrease of $12,000 to retained earnings.

In June 2007, the FASB ratified the consensus reached in EITF 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”. EITF 06-11 applies to entities that have share-based payment arrangements that entitle employees to receive dividends or dividend equivalents on equity-classified nonvested shares when those dividends or dividend equivalents are charged to retained earnings and result in an income tax deduction. Entities that have share-based payment arrangements that fall within the scope of EITF 06-11 will be required to increase capital surplus for any realized income tax benefit associated with dividends or dividend equivalents paid to employees for equity classified nonvested equity awards. Any increase recorded to capital surplus is required to be included in an entity’s pool of excess tax benefits that are available to absorb potential future tax deficiencies on share-based payment awards. The Corporation adopted EITF 06-11 on January 1, 2008 for dividends declared on share-based payment awards subsequent to this date. The impact of adoption did not have a material impact on consolidated financial condition, results of operations, or liquidity.

In April 2007, the FASB issued FSP 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts”. FSP 39-1 permits entities to offset fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting agreement. FSP 39-1 clarifies that the fair value amounts recognized for the right to reclaim cash collateral, or the obligation to return cash collateral, arising from the same master netting arrangement, should also be offset against the fair value of the related derivative instruments.

Effective January 1, 2008, the Corporation adopted a net presentation for derivative positions and related collateral entered into under master netting agreements pursuant to the guidance in FIN 39 and FSP 39-1. The adoption of this guidance would result in balance sheet reclassifications of certain cash collateral-based short-term investments against the related derivative liabilities and certain deposit liability balances against the related fair values of derivative assets. The effects of these reclassifications will fluctuate based on the fair values of derivative contracts but overall would not have a material impact on either total assets or total liabilities. The adoption of these standards did not have an impact on the Corporations consolidated financial condition, results of operations or liquidity.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”. The statement allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period. The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings. The election is irrevocable. The Corporation has chosen not to elect to measure any specific group of financial assets or liabilities pursuant to SFAS 159.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans” which requires the Corporation to recognize the funded status of a benefit plan as either assets or liabilities in the consolidated balance sheet and to recognize as a component of other comprehensive income, net of tax, the unrecognized actuarial gains or losses, prior service costs and transition obligations that arise during the period. The adoption of SFAS 158 for the year ended December 31, 2008 did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

In September 2006, the FASB issued Statement of Financial Accounting Standards SFAS 157, “Fair Value Measurements”, which upon adoption will replace various definitions of fair value in existing accounting literature with a single definition, will establish a framework for measuring fair value, and will require additional disclosures about fair value measurements. The statement clarifies that fair value is the price that would be received to sell an asset or the price paid to transfer a liability in the most advantageous market available to the entity and emphasizes that fair value is a market-based measurement and should be based on the assumptions market participants would use. The statement also creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation. This hierarchy is the basis for the disclosure requirements, with fair value estimates based on the least reliable inputs requiring more extensive disclosures about the valuation method used and the gains and losses associated with those estimates. SFAS 157 is required to be applied whenever another financial accounting standard requires or permits an asset or liability to be measured at fair value. The statement does not expand the use of fair value to any new circumstances. The Corporation has applied the new guidance beginning January 1, 2008, and such application did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

In July 2006, the FASB issued FASB Staff Position FSP 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction”. This FSP amends SFAS 13, “Accounting for Leases”, to require a lessor in a leveraged lease transaction to recalculate the leveraged lease for the effects of a change or projected change in the timing of cash flows relating to income taxes that are generated by the leveraged lease. The guidance in FSP 13-2 was adopted by the Corporation on January 1, 2007. The application of this FSP did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

In June 2006, the FASB issued Interpretation No. 48 FIN 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of SFAS 109, “Accounting for Income Taxes”. FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. FIN 48 also revises disclosure requirements to include an annual tabular roll-forward of unrecognized tax benefits. The provisions of this interpretation were adopted by the Corporation on January 1, 2007. The adoption of FIN 48 did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

In March 2006, the FASB issued Statement of Financial Accounting Standards SFAS 156, “Accounting for Servicing of Financial Assets”, an amendment of SFAS 140. This standard requires entities to separately recognize a servicing asset or liability whenever it undertakes an obligation to service financial assets and also requires all separately recognized servicing assets or liabilities to be initially measured at fair value. Additionally, this standard permits entities to choose among two alternatives, the amortization method or fair value measurement method, for the subsequent measurement of each class of separately recognized servicing assets and liabilities. Under the amortization method, an entity shall amortize the value of servicing assets or liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or liabilities for impairment or increased obligation based on fair value at each reporting date. Under the fair value measurement method, an entity shall measure servicing assets or liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur.

Effective January 1, 2006, the Corporation adopted this statement by electing amortization method as its measurement method for residential real estate mortgage servicing rights (MSRs).

In February 2006, the FASB issued Statement of Financial Accounting Standards SFAS 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, and

SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS 155 requires entities to evaluate and identify whether interests in securitized financial assets are freestanding derivatives, hybrid financial instruments that contain an embedded derivative requiring bifurcation, or hybrid financial instruments that contain embedded derivatives that do not require bifurcation. SFAS 155 also permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement was effective for all financial instruments acquired or issued by the Corporation on or after January 1, 2007 and the adoption of SFAS 155 did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

RECLASSIFICATIONS

Certain amounts in the consolidated financial statements of the prior years have been reclassified to conform with presentations used in the 2009 consolidated financial statements. Such reclassifications had no effect on the Corporation’s consolidated financial condition or net income.

2. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the six months ended June 30, 2009 and 2008 were as follows:


(In Thousands)	2009			2008
Balance, beginning of year	$	3,758		$	1,437
Provision charged to operations		220			—
Allowance acquired		—			—
Loans charged off		(233	)		(19	)
Recoveries		17			18

Balance, June 30,	$	3,762		$	1,436

As of June 30, 2009, the total recorded investment in loans that are considered to be impaired as defined by SFAS No. 114 was $4,809,000. These impaired loans had a related allowance for loan losses of $452,000. No additional charge to operations was required to provide for the impaired loans since the total allowance for loan losses is estimated by management to be adequate to provide for the loan loss allowance required by SFAS No. 114 along with any other potential losses.

3. SHORT-TERM BORROWINGS

Securities sold under agreements to repurchase and Federal Home Loan Bank advances generally represented overnight or less than 30-day borrowings. U.S. Treasury tax and loan notes for collections made by the Bank were payable on demand.

4. LONG-TERM BORROWINGS

Long-term borrowings consist of advances due to the FHLB — Pittsburgh.

5. DEFERRED COMPENSATION PLANS

The Bank has entered into certain non-qualified deferred compensation agreements with certain present and retired executive officers and directors. Expenses related to these non-qualified deferred compensation plans amounted to $88,000 and $77,000 for the six month periods ended June 30, 2009 and 2008, respectively.

On May 26, 2009, the Bank entered into a Supplemental Executive Retirement Benefit Agreement with the Chief Lending Officer. A copy of the agreement is attached to From 8-K filed by the Corporation on May 28, 2009. There were no other substantial changes in other plans as disclosed in the 2008 Annual Report.

6. ACQUISITION

On July 18, 2008, the Corporation completed its acquisition of Columbia Financial Corporation(“CFC”). Under the terms of the Agreement and Plan of Reorganization dated as of November 29, 2007, CFC merged with and into the Corporation; and the Corporation’s wholly-owned subsidiary, Columbia County Farmers National Bank merged with and into the Bank. The Corporation acquired 100% of the outstanding shares of CFC for a total purchase price of $26,316,000. The transaction was accounted for in accordance with SFAS No. 141, “Business Combinations”. In connection therewith, the Corporation issued approximately 1,030,286 shares of its common stock and paid cash of approximately $3,000 in lieu of the issuance of fractional shares in exchange for all of the issued and outstanding shares of CFC common stock. Assets and liabilities of CFC are recorded at estimated fair values as of the acquisition date and the results of the acquired entity operations are included in income from that date. The fair values of acquired assets and liabilities, including identified intangible assets, are finalized as quickly as possible following the acquisition. The CFC purchase price allocation is substantially complete; however, its valuations may be subject to revision as additional information becomes available. Purchase accounting adjustments determinable within twelve months of acquisition date result in adjustments to goodwill.

The following table shows the excess purchase price of the carrying value of net assets acquired, purchase price allocation and resulting goodwill recorded for this acquisition. Changes to the carrying amount of goodwill, premises and equipment and junior subordinate debentures, since the merger date, reflect additional information obtained about the fair value of the assets acquired and liabilities assumed.


(In Thousands)
Purchase price	$	26,316
Carrying value of net assets acquired		(17,855	)

Excess of purchase price over carrying value of net assets acquired		8,461

Purchase accounting adjustments:
Loans		30
Premises and equipment		853
Deposits		1,235
Severance and related costs		840
Deferred taxes		208

Subtotal		11,627
Core deposit intangibles		(3,690	)

Goodwill	$	7,937

The following table summarized the estimated fair value of net assets acquired:


(In Thousands)
Assets
Cash and cash equivalents	$	5,157
Interest-bearing deposits in other banks		129
Federal funds sold		517
Investment securities		138,257
Loans, net of allowance for loan losses		160,724
Premises and equipment		6,492
Accrued interest receivable		1,534
Bank-owned life insurance		3,462
Investment in limited partnerships		919
Goodwill and other intangibles		11,627
Other assets		564

Total assets	$	329,382


Liabilities
Deposits	$	264,692
Borrowings		31,883
Junior subordinate debentures		4,640
Accrued interest payable		764
Other liabilities		1,087

Total liabilities	$	303,066


Fair value of net assets acquired	$	26,316

7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Corporation 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, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the

amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation does not engage in trading activities with respect to any of its financial instruments with off-balance sheet risk.

The Corporation may require collateral or other security to support financial instruments with off-balance sheet credit risk. The contract or notional amounts at June 30, 2009 and December 31, 2008 were as follows:


(In Thousands)	2009		2008
Financial instruments whose contract amounts represents credit risk:
Commitments to extend credit	$	77,783	$	68,412
Standby letters of credit		2,907		3,064
Dealer floor plans		988		1,129
Loans held for sale		1,628		72

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment and income-producing commercial properties.

Standby letters of credit and commercial letters of credit are conditional commitments issued by the Corporation to guarantee payment to a third party when a customer either fails to repay an obligation or fails to perform some non-financial obligation. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation holds collateral supporting those commitments for which collateral is deemed necessary.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations, as it does for on-balance sheet instruments.

The Corporation granted commercial, consumer and residential loans to customers primarily within Pennsylvania. Of the total loan portfolio at June 30, 2009, 83.0% was for real estate loans. It was the opinion of management that this high concentration did not pose an adverse credit risk. Further, it is management’s opinion that the remainder of the loan portfolio was balanced and diversified to the extent necessary to avoid any significant concentration of credit.

8. FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Corporation adopted SFAS No. 157, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value. SFAS No. 157 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by SFAS No.157 hierarchy are as follows:


Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:		Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observables as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments of which can be directly observed.

Level III:		Assets and liabilities that have little or no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into determination of fair value require significant management judgment or estimation.

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of June 30, 2009 by level within the fair value hierarchy. As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	June 30, 2009
(In Thousands)	Level I		Level II		Level III		Total
Assets:
Investment Securities, available-for-sale	$	1,714	$	196,317	$	—	$	198,031

At June 30, 2009, investments measured at fair value on a recurring basis and the valuation methods used are as follows:


(In Thousands)	Level I		Level II		Level III		Total
Available for sale securities
Obligation of US Government Agencies
Mortgage-backed	$	—	$	138,414	$	—	$	138,414
Other		—		42,051		—		42,051
Obligations of state and political subdivisions		—		12,868		—		12,868
Equity securities		1,714		—		—		1,714
Restricted equity securities		—		2,984		—		2,984

	$	1,714	$	196,317	$	—	$	198,031

The estimated fair values of equity securities classified as Level I are derived from quoted market prices in active markets; these assets consists mainly of stocks held in other banks. The estimated fair values of all debt securities classified as Level II are obtained from nationally-recognized third-party pricing agencies. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Corporation (observable inputs), and are therefore classified as Level II within the fair value hierarchy.

NOTE 9 — MANAGEMENT’S ASSERTIONS AND COMMENTS REQUIRED TO BE PROVIDED WITH FORM 10Q FILING

In management’s opinion, the consolidated interim financial statements reflect fair presentation of the consolidated financial position of the Corporation, and the results of their operations and their cash flows for the interim periods presented. Further, the consolidated interim financial statements are unaudited, however they reflect all adjustments, which are in the opinion of management, necessary to present fairly the consolidated financial condition and consolidated results of operations and cash flows for the interim periods presented and that all such adjustments to the consolidated financial statements are of a normal recurring nature.

These consolidated interim financial statements have been prepared in accordance with requirements of Form 10Q and therefore do not include all disclosures normally required by accounting principles generally accepted in the United States of America applicable to financial institutions as included with consolidated financial statements included in the Corporation’s annual Form 10K filing. The reader of these consolidated interim financial statements may wish to refer to the Corporation’s annual report or Form 10K for the period ended December 31, 2008 filed with the Securities and Exchange Commission.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of CCFNB Bancorp, Inc.:

We have reviewed the accompanying consolidated balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of June 30, 2009, and the related consolidated statements of income for the three and six month periods ended June 30, 2009 and 2008 and changes in stockholders’ equity and cash flows for the six-month periods ended June 30, 2009 and 2008. These consolidated interim financial statements are the responsibility of the management of CCFNB Bancorp, Inc. and Subsidiary.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of December 31, 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 10, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ J. H. Williams & Co., LLP

J.H. Williams & Co., LLP
Kingston, Pennsylvania
August 11, 2009


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

Certain statements in this section and elsewhere in this Quarterly Report on Form 10-Q, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of us may include “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect our current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to:

•

Our business and financial results are affected by business and economic conditions, both generally and specifically in the Northcentral Pennsylvania market in which we operate. In particular, our business and financial results may be impacted by:

•

Changes in interest rates and valuations in the debt, equity and other financial markets.

•

Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products.

•

Actions by the Federal Reserve Board and other government agencies, including those that impact money supply and market interest rates.

•

Changes in our customers’ and suppliers’ performance in general and their creditworthiness in particular.

•

Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors.

•

Changes resulting from the newly enacted Emergency Economic Stabilization Act of 2008.

•

A continuation of recent turbulence in significant segments of the United States and global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities and indirectly by affecting our customers and suppliers and the economy generally.

•

Our business and financial performance could be impacted as the financial industry restructures in the current environment by changes in the competitive landscape.

•

Given current economic and financial market conditions, our forward-looking financial statements are subject to the risk that these conditions will be substantially different than we are currently expecting. These statements are based on our current expectations that interest rates will remain low through 2009 with continued wide market credit spreads and our view that national economic trends currently point to a continuation of severe recessionary conditions through 2009 followed by a subdued recovery.

•

Legal and regulatory developments could have an impact on our ability to operate our business or our financial condition or results of operations or our competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (a) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (b) increased litigation risk from recent regulatory and other governmental developments; (c) the results of the regulatory examination process, and regulators’ future use of supervisory and enforcement tools; (d) legislative and regulatory reforms, including changes to laws and regulations involving tax, pension, education and mortgage lending, the protection of confidential customer information, and other aspects of the financial institution industry; and (e) changes in accounting policies and principles.

•

Our business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through the effective use of third-party insurance and capital management techniques.

•

Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands.

•

Our ability to implement our business initiatives and strategies could affect our financial performance over the next several years.

•

Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues.

•

Our business and operating results can also be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and capital and other financial markets generally or on us or on our customers and suppliers.

The words “believe,” “expect,” “anticipate,” “project” and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of us. Any such statement speaks only as of the date the statement was made. We undertake no obligation to update or revise any forward looking statements.

The following discussion and analysis should be read in conjunction with the detailed information and consolidated financial statements, including notes thereto, included elsewhere in this Annual Report. Our consolidated financial condition and results of operations are essentially those of our subsidiary, the Bank. Therefore, the analysis that follows is directed to the performance of the Bank.

RESULTS OF OPERATIONS

NET INTEREST INCOME

2009 vs. 2008

Tax-equivalent net interest income increased $5.7 million to $10.0 million for the six months ended June 30, 2009. Reported tax-equivalent interest income increased $7.5 million to $14.5 million for the six months ended June 30, 2009. The increase primarily resulted from the acquisition of Columbia Financial Corporation (“CFC”) as described in Note 6 of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. The acquisition of CFC contributed to an increase in net loans in the amount of $160.7 million, an increase in investment securities in the amount of $138.3 million, an increase in federal funds sold in the amount of $517,000, and an increase in interest-bearing deposits in other banks of $129,000. Reported interest expense increased $1.8 million or 66.5 percent to $4.5 million. The acquisition of CFC contributed an increase in deposits in the amount of $264.7 million, an increase in other borrowings of $31.9 million, and an increase of $4.6 million in junior subordinate debentures.

Net interest margin increased to 3.84 percent at June 30, 2009 from 3.79 percent at June 30, 2008. The increase in margin resulted primarily from the yield on interest-bearing deposits decreasing 65 basis points to 2.01 percent at June 30, 2009 while the yield on total borrowings decreased 159 basis points to 1.81 percent at June 30, 2009. A decrease of 180 basis points on the short-term borrowings for the six months ended June 30, 2009 was the primary reason for the yield decrease in the total borrowings as the long-term borrowing yield decreased 11 basis point over the same period. The short-term borrowing had an average balance of $43.7 million and $28.6 million as of June 30, 2009 and 2008, respectively. The yield decreases were driven by the rate decreases enacted throughout 2008 by the Federal Open Market Committee (FOMC) as well as local market competition. The yield on interest-earning assets decreased 59 basis points to 5.55 percent for the six months ended June 30, 2009. The yield on total loans decreased 71 basis points to 6.18 percent for the six months ended June 30, 2009.

The following Average Balance Sheet and Rate Analysis table presents the average assets, actual income or expense and the average yield on assets, liabilities and stockholders’ equity for the six months ended June 30, 2009 and 2008.

AVERAGE BALANCE SHEET AND RATE ANALYSIS
SIX MONTHS ENDED JUNE 30,


	2009							2008
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
(In Thousands)	(1)							(1)
ASSETS:
Tax-exempt loans	$	19,643	$	546		5.61	%	$	13,183	$	399		6.10	%
All other loans		304,794		9,403		6.22	%		147,160		5,079		6.96	%

Total loans (2)(3)(4)		324,437		9,949		6.18	%		160,343		5,478		6.89	%


Taxable securities		182,479		4,264		4.67	%		56,475		1,301		4.61	%
Tax-exempt securitites (3)		9,126		258		5.65	%		3,607		113		6.27	%

Total securities		191,605		4,522		4.72	%		60,082		1,414		4.71	%


Federal funds sold		7,989		6		0.15	%		8,385		108		2.60	%
Interest-bearing deposits		667		1		0.30	%		1,450		20		2.78	%


Total interest-earning assets		524,698		14,478		5.55	%		230,260		7,020		6.14	%


Other assets		43,676							18,236


TOTAL ASSETS	$	568,374						$	248,496


LIABILITIES:
Savings	$	56,204		111		0.40	%	$	24,809		49		0.40	%
Now deposits		68,076		50		0.15	%		28,863		45		0.31	%
Money market deposits		44,900		249		1.12	%		7,356		24		0.66	%
Time deposits		225,833		3,523		3.15	%		92,719		1,908		4.15	%

Total deposits		395,013		3,933		2.01	%		153,747		2,026		2.66	%


Short-term borrowings		43,716		159		0.73	%		28,559		358		2.53	%
Long-term borrowings		10,043		287		5.76	%		10,034		292		5.87	%
Junior subordinate debentures		4,640		76		3.30	%		—		—		—

Total borrowings		58,399		522		1.80	%		38,593		650		3.40	%


Total interest-bearing liabilities		453,412		4,455		1.98	%		192,340		2,676		2.81	%


Demand deposits		50,201							20,009
Other liabilities		2,554							4,340
Stockholders’ equity		62,207							31,807

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	568,374						$	248,496

Interest rate spread (6)						3.57	%						3.33	%

Net interest income/margin (5)			$	10,023		3.84	%			$	4,344		3.79	%


(1)		Average volume information was compared using daily (or monthly) averages for interest-earning and bearing accounts.

		Certain balance sheet items utilized quarter-end balances for averages.

(2)		Interest on loans includes fee income.

(3)		Tax exempt interest revenue is shown on a tax-equivalent basis using a statutory federal income tax rate of 34 percent for 2009 and 2008.

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

(5)		Net interest margin is computed by dividing annualized net interest income by total interest earning assets.

(6)		Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

Reconcilement of Taxable Equivalent Net Interest Income
For the Six Months Ended June 30,


(In Thousands)	2009		2008
Total interest income	$	14,274	$	6,891
Total interest expense		4,455		2,676


Net interest income		9,819		4,215
Tax equivalent adjustment		204		129


Net interest income (fully taxable equivalent)	$	10,023	$	4,344

Rate/Volume Analysis

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the balance sheet as it pertains to net interest income, the table below reflects these changes for 2009 versus 2008:


	Six Months Ended June 30,
	2009 vs 2008
	Increase (Decrease)
	Due to
(In Thousands)	Volume			Rate			Net
Interest income:
Loans, tax-exempt	$	180		$	(33	)	$	147
Loans		4,864			(539	)		4,325
Taxable investment securities		2,944			19			2,963
Tax-exempt investment securities		156			(11	)		145
Federal funds sold		—			(102	)		(102	)
Interest bearing deposits		(1	)		(18	)		(19	)

Total interest-earning assets		8,143			(684	)		7,459


Interest expense:
Savings		62			—			62
NOW deposits		29			(24	)		5
Money market deposits		208			17			225
Time deposits		2,077			(462	)		1,615
Short-term borrowings		55			(254	)		(199	)
Long-term borrowings, FHLB		—			(5	)		(5	)
Junior subordinate debentures		77			—			77

Total interest-bearing liabilities		2,508			(728	)		1,780

Change in net interest income	$	5,635		$	44		$	5,679

PROVISION FOR LOAN LOSSES

2009 vs. 2008

The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, evaluate potential charge-offs and recoveries, and assess the general conditions in the markets served. Management remains committed to an aggressive and thorough program of problem loan identification and resolution. Periodically, an independent loan review is performed for the Bank. The allowance for loan losses is evaluated quarterly and is calculated by applying historic loss factors to the various outstanding loans types while excluding loans for which a specific allowance has already been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments, historical loan loss experience, industry standards and trends with respect to nonperforming loans, and its core knowledge and experience with specific loan segments.

Although management believes that it uses the best information available to make such determinations and that the allowance for loan losses is adequate at June 30, 2009, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy or employment and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in interest income. Also, as part of the examination process, bank regulatory agencies periodically review the Bank’s loan loss allowance. The bank regulators could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

The provision for loan losses amounted to $220,000 and $0 for the six months ended June 30, 2009 and 2008, respectively. Management concluded the increase of the provision was appropriate considering the gross loan growth experience of $8,101,000, increases in nonperforming assets, and the general downturn in the national economy. Utilizing the resources noted above, management concluded that the allowance for loan losses remains at a level adequate to provide for probable losses inherent in the loan portfolio.

NON-INTEREST INCOME

2009 vs. 2008

Total non-interest income increased $1.5 million or 143.7 percent to $2.5 million for the six months ended June 30, 2009. The increase primarily resulted from the acquisition of CFC as described in Note 6 of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. The service charges and fees increased $344,000 or 71.7 percent to $824,000 for the six months ended June 30, 2009. Gain on sale of loans increased $240,000 or 226.4 percent from $106,000 in 2008 to $346,000 in 2009. Brokerage income increased $15,000 or 16.3 percent from $92,000 in 2008 to $107,000 in 2009. Trust income increased $238,000 or 321.6 percent from $74,000 in 2008 to $312,000 in 2009. Other income increased $630,000 from $152,000 in 2008 to $782,000 in 2009 primarily as a result of $183,000 in gains recorded on the sale of property and equipment as well as increased ATM transaction revenue and related surcharges.


	For The Six Months Ended
	June 30, 2009						June 30, 2008					Change
(In Thousands)	Amount			% Total			Amount		% Total			Amount			%
Service charges and fees	$	824			32.6	%	$	480		46.3	%	$	344			71.7	%
Gain on sale of loans		346			13.7			106		10.2			240			226.4
Earnings on bank-owned life insurance		217			8.6			133		12.8			84			63.2
Brokerage and insurance		107			4.2			92		8.9			15			16.3
Trust		312			12.3			74		7.1			238			321.6
Investment security losses		(61	)		(2.4	)		—		—			(61	)		—
Other		782			31.0			152		14.7			630			414.5

Total non-interest income	$	2,527			100.0	%	$	1,037		100.0	%	$	1,490			143.7	%

NON-INTEREST EXPENSE

2009 vs. 2008

Total non-interest expense increased $4.7 million or 138.5% from $3.4 million in 2008 to $8.1 million in 2009. The increases primarily resulted from the acquisition of CFC as described in Note 6 of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. Salaries and employee benefits increased $2.1 million or 110.6 percent for the six months ended June 30, 2009. Professional fees increased $143,000 or 108.3 percent from $132,000 in 2008 to $275,000 in 2009. FDIC assessments increased $428,000 due to the imposition of a 5 basis point special assessment and an increase in the regular quarterly assessment rate. Other expenses, Occupancy, Furniture and Equipment, and Directors fees all experienced net increases as a result of the CFC acquisition.

One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. As of June 30, 2009 this percentage was 2.84 percent compared to 2.72 percent in 2008.


	For The Six Months Ended
	June 30, 2009					June 30, 2008					Change
(In Thousands)	Amount		% Total			Amount		% Total			Amount		%
Salaries	$	3,144		38.9	%	$	1,419		41.9	%	$	1,725		121.6	%
Employee benefits		834		10.3			470		13.9			364		77.4
Occupancy		561		6.9			256		7.6			305		119.1
Furniture and equipment		625		7.7			222		6.6			403		181.5
State shares tax		272		3.4			163		4.8			109		66.9
Professional fees		275		3.4			132		3.9			143		108.3
Directors fees		141		1.7			97		2.9			44		45.4
FDIC assessments		438		5.4			10		0.3			428		4,280.0
Other		1,782		22.3			615		18.1			1,167		189.8

Total non-interest expense	$	8,072		100.0	%	$	3,384		100.0	%	$	4,688		138.5	%

FINANCIAL CONDITION

Our consolidated assets at June 30, 2009 were $570.3 million which represented an increase of $2.0 million from $568.3 million at December 31, 2008.

Loans increased 2.5 percent from $320.1 million at December 31, 2008 to $328.2 million at June 30, 2009.

The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio increased during 2009 to 74.3 percent compared to 73.7 percent at December 31, 2008.

INVESTMENTS

All of our securities are available-for-sale and are carried at estimated fair value. Available-for-sale securities are reported on the consolidated balance sheet at fair value with an offsetting adjustment to deferred taxes. The possibility of material price volatility in a changing interest rate environment is offset by the availability to the bank of restructuring the portfolio for gap positioning at any time through the securities classified as available-for-sale. The impact of the fair value accounting was an unrealized gain, net of tax, on June 30, 2009 of $1,715,000 compared to an unrealized gain, net of tax, on December 31, 2008 of $1,622,000, which represents an unrealized gain, net of tax, of $93,000 for the six months ended June 30, 2009. The following table shows the amortized cost and estimated fair value of the investment securities as of the dates shown:


	June 30, 2009
			Estimated
	Amortized		Fair
(In Thousands)	Cost		Value
Obligation of U.S.Government Corporations and Agencies:
Mortgage-backed	$	135,337	$	138,414
Other		41,704		42,051
Obligations of state and political subdivisions		12,845		12,868

Total debt securities		189,886		193,333
Marketable equity securities		2,562		1,714
Restricted equity securities		2,984		2,984

Total investment securities AFS	$	195,432	$	198,031


	December 31, 2008
			Estimated
	Amortized		Fair
(In Thousands)	Cost		Value
Obligation of U.S.Government Corporations and Agencies:
Mortgage-backed	$	116,357	$	118,046
Other		63,031		64,080
Obligations of state and political subdivisions		9,944		9,994

Total debt securities		189,332		192,120
Marketable equity securities		2,623		2,293
Restricted equity securities		2,167		2,167

Total investment securities AFS	$	194,122	$	196,580

LOANS

The loan portfolio increased 2.5 percent from $320.1 million at December 31, 2008 to $328.2 million at June 30, 2009. The percentage distribution in the loan portfolio was 83.0 percent in real estate loans at $272.4 million; 8.6 percent in commercial loans at $28.4 million; 2.4 percent in consumer loans at $7.8 million; and 6.0 percent in tax exempt loans at $19.6 million.

The following table presents the breakdown of loans by type as of the date indicated:


							Change
(In Thousands)	June 30, 2009			December 31, 2008			Amount			%
Commercial, financial and agricultural	$	28,380		$	27,165		$	1,215			4.5	%
Tax-exempt		19,611			16,762			2,849			17.0
Real estate		266,467			262,539			3,928			1.5
Real estate construction		5,898			5,307			591			11.1
Installment loans to individuals		7,737			8,202			(465	)		(5.7	)
Add (deduct): Unearned discount		(20	)		(24	)		4			(16.7	)
Unamortized loan costs, net of fees		96			117			(21	)		(17.9	)

Gross loans	$	328,169		$	320,068		$	8,101			2.5	%

The following table presents the percentage distribution of loans by category as of the date indicated:


	June 30, 2009			December 31, 2008
Commercial, financial and agricultural		8.6	%		8.5	%
Tax-exempt		6.0			5.2
Real estate		81.2			82.1
Real estate construction		1.8			1.7
Installment loans to individuals		2.4			2.5

Gross loans		100.0	%		100.0	%

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses was $3.8 million at June 30, 2009, compared to $1.4 million at June 30, 2008. This allowance equaled 1.15 percent and .89 percent of total loans, net of unearned income, as of June 30, 2009 and 2008, respectively. An increase of $1.7 million resulted from the acquisition of CFC as described in Note 6 of the Notes to the Consolidated Financial Statements included in Item 1 of this Form 10-Q. The loan loss reserve is analyzed quarterly and reviewed by the Bank’s Board of Directors. The assessment of the loan policies and procedures during 2009 revealed no anticipated loss on any loans considered “significant”. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Semi-monthly loan meetings with the Bank’s Director Loan Committee reviewed new loans. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies. Allowance for loan losses was considered adequate based on delinquency trends and actual loans written as it relates to the loan portfolio.

The following table presents a summary of the Bank’s loan loss experience as of the dates indicated:


	For the Six Months Ended June 30,
(In Thousands)	2009			2008
Average Loans Outstanding during the period	$	324,437		$	160,343


Balance, beginning of year	$	3,758		$	1,437
Provision charged to operations		220			—
Allowance acquired		—			—

Loans charged off:
Commercial, financial, and agricultural		(220	)		—
Real estate mortgages		—			—
Installment loans to indiviuals		(13	)		(19	)

Recoveries:
Commercial, financial, and agricultural		—			—
Real estate mortgages		8			2
Installment loans to indiviuals		9			16


Balance, end of period	$	3,762		$	1,436


Net charge-offs to Average loans outstanding during the period		-0.07	%		0.00	%

NON-PERFORMING LOANS

As of June 30, 2009, loans 30-89 days past due totaled $3.0 million compared to $1.6 million at December 31, 2008. There were no 90-days past due loans that were not classified as non-accrual at June 30, 2009 or December 31, 2008. Non-accrual loans totaled $4.6 million at June 30, 2009 and $4.5 at December 31, 2008. Overall, past due and non-accrual loans increased $1.6 million to $7.6 million at June 30, 2009 from $6.1 million at December 31, 2008.

The following table presents past due and non-accrual loans by loan type and in summary as of the dates indicated:


(In Thousands)	June 30, 2009		December 31, 2008
Commercial, financial and agricultural
Days 30-89	$	484	$	61
Days 90 plus		—		—
Non-accrual		464		581
Real estate
Days 30-89		2,490		1,528
Days 90 plus		—		—
Non-accrual		4,092		3,780
Installment loans to individuals
Days 30-89		28		9
Days 90 plus		—		—
Non-accrual		71		92

	$	7,629	$	6,051


Days 30-89	$	3,002	$	1,598
Days 90 plus		—		—
Non-accrual		4,627		4,453

	$	7,629	$	6,051


Restructured loans still accruing	$	57	$	58


Other real estate owned	$	361	$	373

DEPOSITS

Total deposits increased by 1.7 percent from $434.3 million at December 31, 2008 to $441.8 million at June 30, 2009. Savings deposits increased 4.7 percent to $57.3 million at June 30, 2009 from $54.7 million at December 31, 2008. Money market deposits increased 19.4 percent to $44.3 million as of June 30, 2009 from $37.1 million as of December 31, 2008. Interest bearing NOW accounts increased 3.6 percent from $63.8 million at December 31, 2008 to $66.1 million at June 30, 2009.

The actual balances and average rate paid on deposits are summarized as follows:


	June 30, 2009					December 31, 2008
			Average					Average			Change
(In Thousands)	Balance		Rate			Balance		Rate			Amount			%
Non-interest bearing	$	49,978		—	%	$	52,460		—	%	$	(2,482	)		(4.7	)%
Savings		57,303		0.40			54,717		0.40			2,586			4.7
Now deposits		66,062		0.15			63,776		0.27			2,286			3.6
Money market deposits		44,303		1.12			37,120		1.66			7,183			19.4
Time deposits		224,182		3.15			226,236		3.53			(2,054	)		—

Total deposits	$	441,828		1.78	%	$	434,309		2.07	%	$	7,519			1.7	%

BORROWED FUNDS

Short-term borrowings, including securities sold under agreements to repurchase and day-to-day FHLB — Pittsburgh borrowings decreased 18.2 percent from $55.5 million at December 31, 2008 to $45.4 million at June 30, 2009. Long-term borrowings increased $3.0 million from $9.1 million at December 31, 2008 to $12.1 million at June 30, 2009.


	June 30, 2009					December 31, 2008					Change
(In Thousands)	Amount		% Total			Amount		% Total			Amount			%
Short-term borrowings:
FHLB repurchase agreements	$	—		—	%	$	—		—	%	$	—			—	%
Short-term borrowings, FHLB		—		—			—		—			—			—
Securities sold under agreement to repurchase		45,382		73.0			55,462		80.1			(10,080	)		(18.2	)

Total short-term borrowings		45,382		73.0	%		55,462		80.1	%		(10,080	)		(18.2	)
Junior subordinate debentures		4,640		7.5			4,640		6.7			—			—
Long-term borrowings, FHLB		12,130		19.5			9,133		13.2			2,997			32.8

Total borrowed funds	$	62,152		100.0	%	$	69,235		100.0	%	$	(7,083	)		(10.2	)%

LIQUIDITY

Liquidity management is required to ensure that adequate funds will be available to meet anticipated and unanticipated deposit withdrawals, debt service payments, investment commitments, commercial and consumer loan demand, and ongoing operating expenses. Funding sources include principal repayments on loans, sale of assets, growth in core deposits, short and long-term borrowings, investment securities coming due, loan prepayments and repurchase agreements. Regular loan payments are a dependable source of funds, while the sale of investment securities, deposit growth and loan prepayments are significantly influenced by general economic conditions and the level of interest rates.

We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet present and future financial obligations and commitments on a timely basis.

CAPITAL RESOURCES

Capital continues to be a strength for the Bank. Capital is critical as it must provide growth, payment to shareholders, and absorption of unforeseen losses. The federal regulators provide standards that must be met.

As of June 30, 2009, the Bank was categorized as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios.

Our actual consolidated capital amounts and ratios as of June 30, 2009 and December 31, 2008 are in the following table:


	2009					2008
(In Thousands)	Amount		Ratio			Amount		Ratio
Total Capital (to Risk-weighted Assets)

Actual	$	58,024		17.8	%	$	55,851		16.5	%
For Capital Adequacy Purposes		26,083		8.0			27,112		8.0
To Be Well-Capitalized		32,604		10.0			33,890		10.0

Tier I Capital (to Risk-weighted Assets)

Actual	$	54,252		16.6	%	$	52,083		15.4	%
For Capital Adequacy Purposes		13,042		4.0			13,556		4.0
To Be Well-Capitalized		19,562		6.0			20,334		6.0

Tier I Capital (to Average Assets)

Actual	$	54,252		9.7	%	$	52,083		9.3	%
For Capital Adequacy Purposes		22,336		4.0			22,476		4.0
To Be Well-Capitalized		27,920		5.0			28,095		5.0

Our capital ratios are not materially different from those of the Bank.

INTEREST RATE RISK MANAGEMENT

Interest rate risk management involves managing the extent to which interest-sensitive assets and interest-sensitive liabilities are matched. Interest rate sensitivity is the relationship between market interest rates and earnings volatility due to the repricing characteristics of assets and liabilities. The Bank’s net interest income is affected by changes in the level of market interest rates. In order to maintain consistent earnings performance, the Bank seeks to manage, to the extent possible, the repricing characteristics of its assets and liabilities.

One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank’s Asset/Liability Committee (“ALCO”), which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk management is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.

The ratio between assets and liabilities repricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.

To manage the interest sensitivity position, an asset/liability model called “gap analysis” is used to monitor the difference in the volume of the Bank’s interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread.

At June 30, 2009, our cumulative gap positions and the potential earnings change resulting from a 200 basis point change in rates were within the internal risk management guidelines.

In addition to gap analysis, the Bank uses earnings simulation to assist in measuring and controlling interest rate risk. The Bank also simulates the impact on net interest income of plus and minus 100, 200 and 300 basis point rate shocks. The results of these theoretical rate shocks provide an additional tool to help manage the Bank’s interest rate risk.

It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet is within manageable parameters. Additionally, the Bank’s Asset/Liability Committee meets quarterly with an investment consultant.


Item 3.		Quantitative and Qualitative Disclosures about Market Risk

In the normal course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary. Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q.

No material changes in market risk occurred during the current period. A detailed discussion of market risk is provided in the Annual Report on Form 10-K for the period ended December 31, 2008.


Item 4.		Controls and Procedures

Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that our disclosure controls and procedures (as defined in Rules 13a — 15(e) and 15d — 15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Report, were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The CEO and CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal Quarter Ended June 30, 2009, as required by paragraph (d) Rules 13a — 15 and 15d — 15 under the Securities Exchange Act of 1934, as amended, and have concluded that there were no changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II Other Information


Item 1.		Legal Proceedings

Management and the Corporation’s legal counsel are not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Corporation. There are no proceedings pending other than the ordinary routine litigation incident to the business of the Corporation and its subsidiary, First Columbia Bank & Trust Co.. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation and the Bank by government authorities.


Item 1A.		Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1.A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. At June 30, 2009 the risk factors of the Corporation have not changed materially from those in our Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

Total

Average

Total Number of

Maximum Number (or

Number of

Price Paid

Shares (or Units)

Approximate Dollar Value)

Shares (or

per Share

Purchased as Part of

of Shares (or Units) that

Units)

(or Units)

Publicly Announced

May Yet Be Purchased

Period

Purchased

Plans or Programs (1)

Under the Plans or Programs

Month #1 (April 1 – April 30, 2009)

—

200,000

Month #2 (May 1 – May 31, 2009)

—

200,000

Month #3 (June 1 – June 30, 2009)

7,000

21.60

7,000

193,000


(1)		This program was announced in 2009 and represents the third buy-back program. The Board of Directors approved the purchase of 200,000 shares. There was no expiration date associated with this program.


Item 3.		Defaults Upon Senior Securities

Not applicable.


Item 4.		Submission of Matters to a Vote of Security Holders

CCFNB Bancorp, Inc.’s annual meeting of the stockholders was held on May 19, 2009. At the annual meeting, the following Class 3 Directors were elected to serve a three year term which will expire in 2012:

Edward L. Campbell
Robert W. Dillon
Frank D. Gehrig
Elwood R. Harding, Jr.
Mary Ann B. Naugle
Andrew B. Pruden


Item 5.		Other Information

None


Item 6.		Exhibits


31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report on Form 10-Q for the period ended June 30, 2009, to be signed on its behalf by the undersigned thereunto duly authorized.


	CCFNB BANCORP, INC. (Registrant)
	By /s/ Lance O. Diehl
			Lance O. Diehl
			President and CEO

	Date: August 11, 2009



	By /s/ Jeffrey T. Arnold
			Jeffrey T. Arnold, CPA, CIA
			Chief Financial Officer

	Date: August 11, 2009

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CCFNB Bancorp (CCFN) 10-Q2009 Q2 Quarterly report

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