UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file Number: 000-19028

CCFNB BANCORP, INC.

(Name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.25 per share

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or section 15(d) of the Act. Yes o No þ

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 past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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 filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter, $59,747,543 as of June 30, 2010.

As of March 8, 2011, the Registrant had outstanding 2,225,931 shares of its common stock, par value $1.25 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement prepared in connection with its annual meeting of Shareholders to be held May 10, 2011, are incorporated by reference into parts III and IV of this report.

 

 

CCFNB BANCORP, INC.
FORM 10-K

INDEX

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			10
Item 1B. Unresolved Staff Comments			14
Item 2. Properties			14
Item 3. Legal Proceedings			14
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6. Selected Financial Data			16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			30
Item 8. Financial Statements and Supplementary Data			31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			65
Item 9A Controls and Procedures			65
Item 9B. Other Information			67
PART III
Item 10. Directors, Executive Officers and Corporate Governance			67
Item 11. Executive Compensation			67
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			67
Item 13. Certain Relationships and Related Transactions, and Director Independence			67
Item 14. Principal Accounting Fees and Services			67
PART IV
Item 15. Exhibits, Financial Statements Schedules			68
SIGNATURES			69
INDEX TO EXHIBITS			70

PART I

Item 1. Business

General

     We are a registered financial holding company, bank holding company, and Pennsylvania business corporation, and are headquartered in Bloomsburg, Pennsylvania. We have one wholly-owned bank subsidiary which is First Columbia Bank & Trust Co. (the “Bank”). A substantial part of our business consists of the management and supervision of the Bank. Our principal source of income is dividends paid by the Bank. At December 31, 2010, we had approximately:

	•		$614 million in total assets;
	•		$340 million in gross loans;
	•		$474 million in deposits; and
	•		$68 million in stockholders’ equity.

     The Bank is a state-chartered bank whose deposits are insured by the Deposit Insurance Fund of the FDIC. The Bank is a full-service commercial bank providing a range of services and products, including time and demand deposit accounts, consumer, commercial and mortgage loans to individuals and small to medium-sized businesses in its Northcentral Pennsylvania market area. The Bank also operates a full-service trust department. Third-party brokerage services are also resident in the Bank’s office in Lightstreet, Pennsylvania. At December 31, 2010, the Bank had fourteen branch banking offices which are located in the Pennsylvania counties of Columbia, Luzerne, and Northumberland.

     We consider our branch banking offices to be a single operating segment, because these branches have similar:

	•		economic characteristics,
	•		products and services,
	•		operating processes,
	•		delivery systems,
	•		customer bases, and
	•		regulatory oversight.

     We have not operated any other reportable operating segments in the 3-year period ended December 31, 2010. We have combined financial information for our third-party brokerage operation with our financial information because this operation does not meet the quantitative threshold for a reporting operating segment.

     We hold a 50 percent interest in a local insurance agency. The name of this agency is Neighborhood Group, Inc. and trades under the fictitious name of Neighborhood Advisors (insurance agency). Through this joint venture, we sell insurance products and services. We account for this local insurance agency using the equity method of accounting.

     As of December 31, 2010, we had 185 employees on a full-time equivalent basis. The Corporation and the Bank are not parties to any collective bargaining agreement and employee relations are considered to be good.

     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 Corporations’ wholly-owned subsidiary, Columbia County Farmers National Bank merged with and into the Bank. The transaction was accounted for in accordance with FASB ASC 805, Business Combinations (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. The aggregate value of the Corporation’s common stock issued and cash paid in the merger was $26,316,000. Assets and liabilities of CFC were 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.

Regulation and Supervision

     The Corporation is a financial holding company, and is registered as such with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a registered bank holding company and financial holding company, the Corporation is subject to regulation under the Bank Holding Company Act of 1956 and to inspection, examination, and supervision by the Federal Reserve Board.

     The operations of the Bank are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, and to banks whose deposits are insured by the Federal Deposit Insurance Corporation. The Bank’s operation also is subject to regulations of the Pennsylvania Department of Banking, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).

     Several of the more significant regulatory provisions applicable to banks and financial holding companies to which the Corporation and the Bank are subject are discussed below. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Corporation and the Bank.

Financial and Bank Holding Company Activities

     As a financial holding company, the Corporation may engage in, and acquire companies engaged in, activities that are considered “financial in nature”, as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking. If any banking subsidiary of the Corporation ceases to be “well capitalized” or “well managed” under applicable regulatory standards, the Federal Reserve Board may, among other things, place limitations on the Corporation’s ability to conduct the broader financial activities permissible for financial holding companies or, if the deficiencies persist, require the Corporation to divest the banking subsidiary. In addition, if any banking subsidiary of the Corporation receives a Community Reinvestment Act rating of less than satisfactory, the Corporation would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. The Corporation may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, as long as it gives the Federal Reserve Board after-the-fact notice of the new activities.

Interstate Banking and Branching

     As a bank holding company, the Corporation is required to obtain prior Federal Reserve Board approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank, or savings association. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (the “Riegle-Neal Act”), subject to certain concentration limits and other requirements, bank holding companies such as the Corporation may acquire banks and bank holding companies located in any state. The Riegle-Neal Act also permits banks to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states. Previously, the ability of banks to acquire or establish branch offices in another state was contingent on the host state having adopted legislation “opting in” to those provisions of the Riegle-Neal Act. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), banks now may acquire or establish branches in another state to the same extent as a bank chartered in that state would be permitted to establish branches.

Control Acquisitions

     The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction.

     Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Corporation, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.

Liability for Banking Subsidiaries

     Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to their support. This support may be required at times when the bank holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default”.

Capital Requirements

     Information concerning the Corporation and the Bank with respect to capital requirements is incorporated by reference from Note 17, “Regulatory Matters”, of the “Notes to Consolidated Financial Statements” included under Item 8 of this report, and from the “Capital Resources” section of the “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations”, included under Item 7 of this report.

FDICIA

     The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions — well capitalized, adequately

capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized — and requires federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2010, the Bank was considered well capitalized based on the guidelines implemented by the bank’s regulatory agencies.

Dividend Restrictions

     The Corporation’s funding for cash distributions to its shareholders is derived principally from dividends received from the Bank. Various federal and state laws limit the amount of dividends the Bank can pay to the Corporation without regulatory approval. In addition, federal bank regulatory agencies have authority to prohibit the Bank from engaging in an unsafe or unsound practice in conducting its business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute an unsafe or unsound practice. The ability of the Bank to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. The Federal Reserve Board in 2009 notified all bank holding companies that dividends should be eliminated, deferred or significantly reduced if the bank holding company’s net income for the past four quarters, net of dividends paid during that period, is not sufficient to fully fund the dividends; the bank holding company’s prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall, current and prospective financial conditions; or the bank holding company will not meet, or is in danger of meeting, its minimum regulatory capital adequacy ratios. Additional information concerning the Corporation and the Bank with respect to dividends is incorporated by reference from Note 17, “Regulatory Matters”, of the “Notes to Consolidated Financial Statements” included under Item 8 of this report, and the “Capital Resources” section of “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations”, included under Item 7 of this report.

Deposit or Preference Statute

     In the “liquidation or other resolution” of an institution by any receiver, U.S. federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over the general unsecured claims against that institution, including federal funds and letters of credit.

Other Federal Laws and Regulations

     The Corporation’s operations are subject to additional federal laws and regulations applicable to financial institutions, including, without limitation:

	•		Privacy provisions of the Gramm-Leach-Bliley Act and related regulations, which require us to maintain privacy policies intended to safeguard customer financial information, to disclose the policies to our customers and to allow customers to “opt out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions;
	•		Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
	•		Consumer protection rules for the sale of insurance products by depository institutions, adopted pursuant to the requirements of the Gramm-Leach-Bliley Act; and
	•		USA Patriot Act, which requires financial institutions to take certain actions to help prevent, detect and prosecute international money laundering and the financing of terrorism.

Sarbanes-Oxley Act of 2002

     On July 30, 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies, such as the Corporation, with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the chief executive officer and chief financial officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions became effective over a period of time and are subject to rulemaking by the SEC.

FDIC Insurance and Assessments

     The Bank’s deposits are insured to applicable limits by the FDIC. Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000 to $250,000 and unlimited deposit insurance has been extended to non-interest-bearing transaction accounts until December 31, 2012. Prior to the Dodd-Frank Act, the FDIC had established a Temporary Liquidity Guarantee Program under which, for the payment of an additional assessment by insured banks that did not opt out, the FDIC fully guaranteed all non-interest-bearing transaction accounts until December 31, 2010 (the “Transaction Account Guarantee Program”) and all senior unsecured debt of insured depository institutions or their qualified holding companies issued between October 14, 2008 and October 31, 2009, with the FDIC’s guarantee expiring by December 31, 2012 (the “Debt Guarantee Program”). The Company and the Bank opted out of the Debt Guarantee Program. The Bank did not opt out of the Transaction Account Guarantee Program.

     The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on regulatory capital ratios and other supervisory factors. The Bank is currently in Risk Category 1, the lowest risk category.

     Starting in 2009, the FDIC significantly raised the assessment rate in order to restore the reserve ratio of the Deposit Insurance Fund to the statutory minimum of 1.15%. For the quarter beginning January 1, 2009, the FDIC raised the base annual assessment rate for institutions in Risk Category 1 to between 12 and 14 basis points. For the quarter beginning April 1, 2009 the FDIC set the base annual assessment rate for institutions in Risk Category 1 to between 12 and 16 basis points. An institution’s assessment rate could be lowered by as much as five basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions, based on the ratio of certain amounts of Tier 1 capital to adjusted assets. The assessment rate may be adjusted for Risk Category 1 institutions that have a high level of brokered deposits and have experienced higher levels of asset growth (other than through acquisitions).

     The FDIC imposed a special assessment equal to five basis points of assets less Tier 1 capital as of June 30, 2009, payable on September 30, 2009, and reserved the right to impose additional special assessments. Instead of imposing additional special assessments during 2009, the FDIC required all insured depository institutions to prepay their estimated risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012 on December 30, 2009. For purposes of estimating the future assessments, each institution’s base assessment rate in effect on September 30, 2009 was used, increased by three basis points beginning in 2011, and the assessment base was increased at a 5% annual growth rate. The prepaid assessment will be applied against actual quarterly assessments until exhausted. Any funds remaining after June 30, 2013 will be returned to the institution. This prepaid assessment does not preclude the FDIC from changing assessment rates or from further revising the risk-based assessment system.

     The Dodd-Frank Act requires the FDIC to take such steps as necessary to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020. In setting the assessments, the FDIC is required to off set the effect of the higher reserve ratio against insured depository institutions with total consolidated assets of less than 10 billion. The Dodd-Frank Act also broadens the base for FDIC insurance assessments so that assessments will be based on the average consolidated total assets less average tangible equity capital of a financial institution rather than on its insured deposits. The FDIC has adopted a new restoration plan to increase the reserve ratio to 1.15% by September 30, 2020 with additional rulemaking scheduled for 2011 regarding the method to be used to achieve a 1.35% reserve ratio by 2020 and offset the effect on institutions with assets less than $10 billion in assets. Pursuant to the new restoration plan, the FDIC will forgo the 3 basis point increase in assessments scheduled to take effect on January 1, 2011. The FDIC has proposed new assessment regulations that would redefine the assessment base as average consolidated assets less average tangible equity. The proposed regulations would use the current assessment rate schedule with modifications to the unsecured debt and brokered deposit adjustments and the elimination of the secured liability adjustment.

     In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment rates, which are determined quarterly, averaged .0108% of insured deposits on an annualized basis in fiscal year 2010. These assessments will continue until the FICO bonds mature in 2017.

Government Actions and Legislation

     The Emergency Economic Stabilization Act of 2008 (the “EES Act”), effective October 2008, allocated up to $700 billion towards purchasing and insuring assets held by financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to authority granted under the EES Act, the U.S. Treasury announced the Capital Purchase Program whereby the U.S. Treasury agreed to purchase senior preferred shares from qualifying U.S. financial institutions. Participating institutions must agree to certain limitations on executive compensation, repurchases of junior preferred or common stock and increases in common stock dividend payments. The Corporation, after considerate analysis, chose not to participate in the Capital Purchase Program.

     The government has also implemented the Homeowner Affordability and Stability Plan (“HASP”), a $75 billion federal program intended to support recovery in the housing market and ensure that eligible homeowners are able to continue to fulfill their mortgage obligations. HASP includes the following initiatives: (i) a refinance option for homeowners that are current in their mortgage payments and whose mortgages are owned by Fannie Mae or Freddie Mac; (ii) a homeowner stability initiative to prevent foreclosures and help eligible borrowers stay in their homes by offering loan modifications that reduce mortgage payments to more

sustainable levels; and (iii) an increase in U.S. Treasury funding to Fannie Mae and Freddie Mac to allow them to lower mortgage rates. HASP also offers monetary incentives to mortgage holders for certain modifications of at-risk loans and would establish an insurance fund designed to reduce foreclosures.

Dodd-Frank Wall Street Reform and Consumer Protection Act

     On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act is intended to effect a fundamental restructuring of federal banking regulation. Among other things, the Dodd-Frank Act creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act additionally creates a new independent federal regulator to administer federal consumer protection laws. The Dodd-Frank Act is expected to have a significant impact on our business operations as its provisions take effect. Among the provisions that may affect us are the following:

     Holding Company Capital Requirements. The Dodd-Frank Act requires the Federal Reserve Board to apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by a bank holding company with less than $15 billion in assets. The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.

     Corporate Governance. The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter (“Say-On-Pay”) and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. Pursuant to recently adopted SEC regulations, “smaller reporting companies,” such as the Corporation, are not required to comply with the Say-On-Pay voting requirements until the first annual shareholders meeting occurring on or after January 21, 2013. The new legislation also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. The Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

     Prohibition Against Charter Conversions of Troubled Institutions. Effective one year after enactment, the Dodd-Frank Act prohibits a depository institution from converting from a state to federal charter or vice versa while it is the subject of a cease and desist order or other formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the enforcement action and that agency does not object within 30 days. The notice must include a plan to address the significant supervisory matter. The converting institution must also file a copy of the conversion application with its current federal regulator which must notify the resulting federal regulator of any ongoing supervisory or investigative proceedings that are likely to result in an enforcement action and provide access to all supervisory and investigative information relating hereto.

     Limits on Derivatives. Effective 18 months after enactment, the Dodd-Frank Act prohibits state-chartered banks from engaging in derivatives transactions unless the loans to one borrower limits of the state in which the bank is chartered takes into consideration credit exposure to derivatives transactions. For this purpose, a derivatives transaction includes any contract, agreement, swap, warrant, note or option that is based in whole or in part on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices or other assets.

     Transactions with Affiliates and Insiders. Effective one year from the date of enactment, the Dodd-Frank Act expands the definition of affiliate for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a depository institution or its affiliates. The Dodd-Frank Act will apply section 23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to derivative transactions, repurchase agreements and securities lending and borrowing transactions that create credit exposure to an affiliate or an insider. Any such transactions with affiliates must be fully secured. The current exemption from Section 23A for transactions with financial subsidiaries will be eliminated. The Dodd-Frank Act will additionally prohibit an insured depository institution from purchasing an asset from or selling an asset to an insider unless the transaction is on market terms and, if representing more than 10% of capital, is approved in advance by the disinterested directors.

     Debit Card Interchange Fees. Effective July 21, 2011, the Dodd-Frank Act requires that the amount of any interchange fee charged by a debit card issuer with respect to a debit card transaction must be reasonable and proportional to the cost incurred by the issuer. Within nine months of enactment, the Federal Reserve Board is required to establish standards for reasonable and proportional fees which may take into account the costs of preventing fraud. The restrictions on interchange fees, however, do not apply to banks that, together with their affiliates, have assets of less than $10 billion.

     Interest on Business Accounts. Effective July 21, 2011, the Dodd-Frank Act repealed the federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts. Our interest expense will increase and our net interest margin will decrease if we begin to offer interest on demand deposits to attract additional customers or maintain current customers.

     Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent federal agency called the Consumer Financial Protection Bureau (“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the consumer financial privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB will have examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Future Legislation

     Changes to the laws and regulations to which the Corporation and the Bank are subject can affect the operating environment of both the Corporation and the Bank in substantial and unpredictable ways. The Corporation cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of the Corporation. This is also true of federal legislation particularly given the current volatile environment.

The Bank

     The Bank’s legal headquarters are located at 232 East Street, Bloomsburg, Columbia County, Pennsylvania 17815. The Bank is a locally managed community bank that seeks to provide personal attention and professional financial assistance to its customers. The Bank serves the needs of individuals and small to medium-sized businesses. The Bank’s business philosophy includes offering direct access to its President and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently-applied credit policies.

     The Bank solicits small and medium-sized businesses located primarily within the Bank’s market area that typically borrow in the $25,000 to $2.0 million range. In the event that certain loan requests may exceed the Bank’s lending limit to any one customer, the Bank seeks to arrange such loans on a participation basis with other financial institutions.

Marketing Area

     The Bank’s primary market area encompasses Columbia County, a 484 square mile area located in Northcentral Pennsylvania with a population of approximately 64,151 based on 2000 census data. The Town of Bloomsburg is Columbia County’s largest municipality and its center of industry and commerce. Bloomsburg has a population of approximately 12,375 based on 2000 census data, and is the county seat. Berwick, located on the eastern boundary of the Columbia County, is the second largest municipality, with a 2000 census data population of approximately 10,774. The Bank currently serves its market area through fourteen branch offices located in Bloomsburg, Benton, Berwick, Buckhorn, Catawissa, Elysburg, Hazelton, Lightstreet, Millville, Orangeville and Scott Township.

     The Bank competes with other depository institutions in Columbia, Luzerne, and Northumberland Counties. The Bank’s major competitors are: First Keystone Community Bank, PNC Bank, FNB Bank and M & T Bank, as well as several credit unions. The Bank’s extended market area includes the adjacent Pennsylvania counties of Lycoming, Montour, Schuylkill and Sullivan.

Allowance for Loan Losses

     Commercial loans and commercial real estate loans comprised 48.7 percent of our total consolidated loans as of December 31, 2010. Commercial loans are typically larger than residential real estate loans and consumer loans. Because our loan portfolio contains a significant number of commercial loans and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a loss of earnings from these loans and an increase in the provision for loan losses and loan charge-offs.

     We maintain an allowance for loan losses to absorb any loan losses based on, among other things, our historical experience, an evaluation of economic conditions, and regular reviews of any delinquencies and loan portfolio quality. We cannot assure you that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. Additions to the allowance for loan losses would result in a decrease in our net income and, possibly, our capital.

     In evaluating our allowance for loan losses, we divide our loans into the following categories:

	•		commercial, financial, and agricultural
	•		real estate mortgages,

	•		consumer, and
	•		unallocated.

     We evaluate some loans as a group and some individually. We use the following criteria in choosing loans to be evaluated individually:

	•		by risk profile, and
	•		by past due status.

     After our evaluation of these loans, we allocate portions of our allowance for loan losses to categories of loans based upon the following considerations:

	•		historical trends,
	•		economic conditions, and
	•		any known deterioration.

     We use a self-correcting mechanism to reduce differences between estimated and actual losses. We will, on an annual basis, weigh our loss experience among the various categories and reallocate the allowance for loan losses.

     For a more in-depth presentation of our allowance for loan losses and the components of this allowance, please refer to Item 7 of this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations at “Provision for Loan Losses,” “Allowance for Loan Losses,” and “Non-performing Loans,” as well as Note 4, Item 8 to this report.

Sources of Funds

General. Our primary source of funds is the cash flow provided by our investing activities, including principal and interest payments on loans and mortgage-backed and other securities. Our other sources of funds are provided by operating activities (primarily net income) and financing activities, including borrowings and deposits.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. We currently offer savings accounts, NOW accounts, money market accounts, demand deposit accounts and certificates of deposit. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, pricing of deposits and competition. Our deposits are primarily obtained from areas surrounding our banking offices. We rely primarily on marketing, new products, service and long-standing relationships with customers to attract and retain these deposits. At December 31, 2010, our deposits totaled $474 million.

     When we determine the levels of our deposit rates, consideration is given to local competition, yields of U.S. Treasury securities and the rates charged for other sources of funds. We have maintained a high level of core deposits, which has contributed to our low cost of funds. Core deposits include savings, money market, NOW and demand deposit accounts, which, in the aggregate, represented 51.0 percent of total deposits at December 31, 2010 and 49.5 percent of total deposits at December 31, 2009.

     We are not dependent for deposits nor exposed by loan concentrations to a single customer, or to a small group of customers of which the loss of any one or more would have a materially adverse effect on our financial condition.

     For a further discussion of our deposits, please refer to Item 7 of this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations at “Deposits,” as well as Note 7, Item 8 to this report.

Available Information

     We file reports, proxy, statements and other information electronically with the SEC through the Electronic Data Gathering Analysis and Retrieval (EDGAR) filing system. You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 450 5^th Street, N.W., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s website address is http://www.sec.gov. Our website address is http://www.firstcolumbiabank.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC may be obtained without charge by writing to CCFNB Bancorp, Inc., 232 East Street, Bloomsburg, PA 17815; Attn: Mr. Jeffrey T. Arnold, CFO and Treasurer.

Item 1A. Risk Factors

Adverse changes in the economic conditions in our market area could materially and negatively affect our business.

     Substantially all of our business is with consumers and small to mid-sized companies located within Columbia, Lycoming, Luzerne, Montour, and Northumberland Counties, Pennsylvania. Our business is directly impacted by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions, whether caused by national or local concerns, in particular an economic slowdown in northcentral Pennsylvania, could result in the following consequences, any of which could materially harm our business:

	•		customers’ credit quality may deteriorate;
	•		loan delinquencies may increase;
	•		problem assets and foreclosures may increase;
	•		demand for our products and services may decrease;
	•		competition for low cost or non-interest bearing deposits may increase; and
	•		collateral securing loans may decline in value.

Competitive pressures from financial services companies and other companies offering banking services could negatively impact our business.

     We conduct banking operations primarily in northcentral Pennsylvania. Increased competition in the Bank’s market may result in reduced loans and deposits, high customer turnover, and lower net interest rate margins. Ultimately, the Bank may not be able to compete successfully against current and future competitors. Many competitors in the Bank’s market area, including regional banks, other community-focused depository institutions and credit unions, offer the same banking services as the Bank offers. The Bank also faces competition from many other types of financial institutions, including without limitation, finance companies, brokerage firms, insurance companies, mortgage banks and other financial intermediaries. These competitors often have greater resources affording them the competitive advantage of maintaining numerous retail locations and ATMs and conducting extensive promotional and advertising campaigns. Moreover, our credit union competitors pay no corporate taxes and can, therefore, more aggressively price many products and services.

Changes in interest rates could reduce our income and cash flows.

     The Bank’s income and cash flows and the value of its assets and liabilities depend to a great extent on the difference between the income earned on interest-earning assets such as loans and investment securities, and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans and investment securities and the amounts paid on deposits. If the rates of interest the Bank pays on its deposits and other borrowings increases more than the rates of interest the Bank earns on its loans and other investments, the Bank’s net interest income, and therefore our earnings, could be adversely affected. The Bank’s earnings could also be adversely affected if the rates on its loans or other investments fall more quickly or rise slower than those on its deposits and other borrowings.

Significant increases in interest rates may affect customer loan demand and payment habits.

     Significant increases in market interest rates, or the perception that an increase may occur, could adversely impact the Bank’s ability to generate new loans. An increase in market interest rates may also adversely impact the ability of adjustable rate borrowers to meet repayment obligations, thereby causing nonperforming loans and loan charge-offs to increase in these mortgage products.

If the Bank’s loan growth exceeds that of its deposit growth, then the Bank may be required to obtain higher cost sources of funds.

     Our growth strategy depends upon generating an increasing level of loans at the Bank while maintaining a low level of loan losses for the Bank. As the Bank’s loans grow, it is necessary for the Bank’s deposits to grow at a comparable pace in order to avoid the need for the Bank to obtain other sources of loan funds at higher costs. If the Bank’s loan growth exceeds the deposit growth, the Bank may have to obtain other sources of funds at higher costs which could adversely affect our earnings.

If the Bank’s allowance for loan losses is not adequate to cover actual loan losses, its earnings may decline.

     The Bank maintains an allowance for loan losses to provide for loan defaults and other classified loans due to unfavorable characteristics. The Bank’s allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. The Bank’s allowance for loan losses is based on prior experience, as well as an evaluation of risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, changes in borrowers’ creditworthiness, and the value of collateral securing

loans and leases that may be beyond the Bank’s control, and these losses may exceed our current estimates. The FDIC and Pennsylvania Department of Banking review the Bank’s loans and allowance for loan losses and may require the Bank to increase its allowance. While we believe that the Bank’s allowance for loan losses is adequate to cover current losses, we cannot assure that the Bank will not further increase the allowance for loan losses or that the regulators will not require the Bank to increase the allowance. Either of these occurrences could adversely affect our earnings.

Adverse changes in the market value of securities and investments that we manage for others may negatively impact the growth level of the Bank’s non-interest income.

     The Bank provides a broad range of trust and investment management services for estates, trusts, agency accounts, and individual and employer sponsored retirement plans. The market value of the securities and investments managed by the Bank may decline due to factors outside the Bank’s control. Any such adverse changes in the market value of the securities and investments could negatively impact the growth of the non-interest income generated from providing these services.

The Bank’s branch locations may be negatively affected by changes in demographics.

     We and the Bank have strategically selected locations for bank branches based upon regional demographics. Any changes in regional demographics may impact the Bank’s ability to reach or maintain profitability at its branch locations. Changes in regional demographics may also affect the perceived benefits of certain branch locations and management may be required to reduce the number of locations of its branches.

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

     We are subject to extensive regulation and supervision under federal and state laws and regulations. The requirements and limitations imposed by such laws and regulations limit the manner in which we conduct our business, undertake new investments and activities and obtain financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders. Financial institution regulation has been the subject of significant legislation including, without limitations, the Dodd-Frank Wall Street Reform Consumer Protection Act, and may be the subject of further significant legislation in the future, none of which is within our control. These programs and proposals subject us and other financial institution to additional restrictions, oversight and costs that may have an adverse impact on our business, financial condition, results of operations or the price of our common stock. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied or enforced. We cannot predict the substance or impact of pending or future legislation, regulation or the application thereof. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner.

Training and technology costs, as well as product development and operating costs, may exceed our expectations and negatively impact our profitability.

     The financial services industry is constantly undergoing technological changes in the types of products and services provided to customers to enhance customer convenience. Our future success will depend upon our ability to address the changing technological needs of our customers. We have invested a substantial amount of resources to update our technology and train the management team. This investment in technology and training seeks to increase efficiency in the management team’s performance and improve accessibility to customers. We are also investing in the improvement of operating systems and the development of new marketing initiatives. The costs of implementing the technology, training, product development, and marketing costs may exceed our expectations and negatively impact our results of operations and profitability.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

     If we fail to maintain an effective system of internal controls; fail to correct any issues in the design or operating effectiveness of internal controls over financial reporting; or fail to prevent fraud, our shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

The loss of one or more of our key personnel may materially and adversely affect our prospects.

     We depend on the services of our President and Chief Executive Officer, Lance O. Diehl, and a number of other key management personnel. The loss of Mr. Diehl’s services or that of other key personnel could materially and adversely affect our results of operations and financial condition. Our success also depends, in part, on our ability to attract and retain additional qualified management personnel. Competition for such personnel is strong in the banking industry and we may not be successful in attracting or retaining such personnel due to our geographic location and prevailing salary levels in our market area.

Increases in FDIC insurance premiums may have a material adverse effect of our results of operations.

     During 2008, 2009 and 2010, higher levels of bank failures have dramatically increased resolution costs of the Federal Deposit Insurance Corporation, or the FDIC, and depleted the deposit insurance fund. In addition, the FDIC and the U.S. Congress have taken action to increase federal deposit insurance coverage, placing additional stress on the deposit insurance fund.

     In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, the FDIC increased assessment rates of insured institutions uniformly by seven cents for every $100 of deposits beginning with the first quarter of 2009, with additional changes beginning April 1, 2009, which require riskier institutions to pay a larger share of premiums by factoring the rate adjustments based on secured liabilities and unsecured debt levels.

     To further support the rebuilding of the deposit insurance fund, the FDIC imposed a special assessment on each insured institution, equal to five basis points of the institution’s total assets minus Tier 1 capital as of September 30, 2009. For the Bank, this represented an aggregate charge of approximately $260,000. In lieu of imposing an additional special assessment, the FDIC required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $2.0 million. The FDIC has indicated that future special assessments are possible, although it has not determined the magnitude or timing of any future assessments.

     We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums. Our expenses for the years ended December 31, 2010 and 2009 have been adversely affected by these increased premiums and any additional special assessments may further adversely affect our results of operations.

We are a holding company dependent for liquidity on payments from First Columbia Bank & Trust Co., our major subsidiary, which are subject to restrictions.

     We are a financial holding company and depend on dividends, distributions and other payments from First Columbia Bank & Trust Co., our major subsidiary to fund dividend payments and to fund all payments on obligations. The Bank is subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from it to us. Restrictions or regulatory action of that kind could impede access to funds that we need to make payments on our obligations, dividend payments or stock repurchases. In addition, our right to participate in a distribution of assets upon our subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

Our commercial real estate lending may expose us to a greater risk of loss and hurt our earnings and profitability.

     Our business strategy includes making loans secured by commercial real estate. These types of loans generally have higher risk-adjusted returns and shorter maturities than traditional one-to-four family residential mortgage loans. At December 31, 2010, our loans secured by commercial real estate properties totaled approximately $96 million, which represented 28.1% of total loans. Loans secured by commercial real estate properties are generally for larger amounts and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on loans secured by these properties are often dependent on the income produced by the underlying properties which, in turn, depends on the successful operation and management of the properties. Accordingly, repayment of these loans is subject to adverse conditions in the real estate market of the local economy. In addition, many economists believe that deterioration in income producing commercial real estate is likely to worsen as vacancy rates continue to rise and absorption rates of existing square footage continue to decline. Because of the current general economic slowdown, these loans represent higher risk, could result in an increase in our total net-charge offs and could require us to increase our allowance for loan losses, which could have a material adverse effect on our financial condition and results of operations. While we seek to minimize these risks in a variety of ways, there can be no assurance that these measures will protect against credit-reacted losses.

We are required to make a number of judgments in applying accounting policies and different estimates and assumptions in the application of these policies could result in a decrease in capital and/or other material changes to our reports of financial condition and results of operations. Also, changes in accounting standards can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.

     Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses and reserve for unfunded lending commitments and the fair value of certain financial instruments (securities, derivatives, and privately held investments). While we have identified those accounting policies that are considered critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could result in a decrease to net income and, possibly, capital and may have a material adverse effect on our financial condition and results of operations.

     Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.

Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.

     In assessing the impairment of investment securities, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuers, and the intent and ability to retain its investment in the issuer for a period of time sufficient to allow for an anticipated recovery in fair value in the near term. Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in circumstances were the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period during which such impairment is identified. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The impact of each of these impairment matters could have a material adverse effect on our business, result of operations and financial condition.

If we want to, or are compelled to, raise additional capital in the future, that capital may not be available when it is needed and on terms favorable to current shareholders.

     Federal banking regulators requires us and our banking subsidiary to maintain adequate levels of capital to support our operations. These capital levels are determined and dictated by law, regulation and banking regulatory agencies. In addition, capital levels are also determined by our management and board of directors based on capital levels that they believe are necessary to support our business operations. At December 31, 2010, all three capital ratios for us and our banking subsidiary were above “well capitalized” levels under current bank regulatory guidelines. To be “well capitalized,” banking companies generally must maintain a Tier 1 leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at least 6% and a Total risk-based capital ratio of at least 10%. However, our regulators may require us or our banking subsidiary to operate with higher capital levels. For example, regulators recently have required some banks to attain a Tier 1 leverage ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 10%, and a Total risk-based capital ratio of at least 12%.

     Our ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital on terms and time frames acceptable to us and to raise additional capital at all. If we cannot raise additional capital in sufficient amounts when needed, our ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect our operations, financial conditions and results of operations. Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services industry as a whole as evidenced by recent turmoil in the domestic and worldwide credit markets. If we raise capital through the issuance of additional shares of our common stock or other securities, we would likely dilute the ownership interests of current investors and could dilute the per share book value or earnings per share of our common stock. Furthermore, a capital raise through issuance of additional shares may have an adverse impact on our stock price.

The soundness of other financial institutions could adversely affect us.

     Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems, losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions . We could experience increases in deposits and assets as a result of other banks’ difficulties or failure, which would increase the capital we need to support such growth.

A substantial decline in the value of our Federal Home Loan Bank of Pittsburgh common stock may adversely affect our financial condition.

     We own common stock of the Federal Home Loan Bank of Pittsburgh, or the FHLB, in order to qualify for membership in the Federal Home Loan Bank system, which enables us to borrow funds under the Federal Home Loan Bank advance program. The carrying value and fair market value of our FHLB common stock was approximately $2.9 million as of December 31, 2010.

     Published reports indicate that certain member banks of the Federal Home Loan Bank system may be subject to asset quality risks that could result in materially lower regulatory capital levels. In December 2008, the FHLB had notified its member banks that it had suspended dividend payments and the repurchase of capital stock until further notice is provided. In an extreme situation, it is possible that the capitalization of the Federal Home Loan Bank, including the FHLB, could be substantially diminished or reduced to zero. Consequently, given that there is no market for our FHLB common stock, we believe that there is a risk that our investment could be deemed other-than-temporarily impaired at some time in the future. If this occurs, it may adversely affect our results of operations, and financial condition. If the FHLB were to cease operations, or if we were required to write-off our investment in the FHLB, our business, financial condition, liquidity, capital and results of operations may be materially adversely affected.

An interruption or breach in security with respect to our information system, or our outsourced service providers, could adversely impact our reputation and have an adverse impact on our financial condition and results of operations.

     We rely on software, communication, and other information exchange on a variety of computing platforms and networks and over the Internet. Despite numerous safeguards, we cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures. We rely on the services of a variety of vendors to meet our data processing and communication needs. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and we could be exposed to claims from customers. Any of these results could have a material adverse effect on our financial condition, results of operations or liquidity.

Item 1B. Unresolved Staff Comments

     Not applicable.

Item 2. Properties

     Our executive offices are at 232 East Street, Bloomsburg, Pennsylvania. The Bank’s legal or registered office is also at 232 East Street, Bloomsburg, Pennsylvania.

     We own all of the banking centers except 2 branch facilities and 2 ATM facilities, which we lease. See Footnote 14 at Item 8 for lease details. During 2010 we sold a former branch bank building located at Red Rock Road, Benton. The remaining banking centers are described as follows:

		Approximate				Own or
Location		Square Footage				Lease		Use
Market Street, Benton, PA			8,512			Own		Banking Services
1919 W. Front Street, Berwick, PA			2,440			Own		Banking Services
Market Street, Berwick, PA			3,547			Own		Banking Services
1 Hospital Drive, Bloomsburg			120			Lease		ATM Facility
17 E. Main Street, Bloomsburg			100			Lease		ATM Facility
232 East Street, Bloomsburg			16,213			Own		Main Office and Bancorp Headquarters
Market Street, Bloomsburg			1,335			Lease		Banking Services
Buckhorn, PA			693			Lease		Banking Services (In Wal-Mart Supercenter)
Buckhorn, PA			3,804			Own		Banking Services
Catawissa, PA			1,558			Own		Banking Services
Catawissa, PA			1,300			Own		Residential
Elysburg, PA			2,851			Own		Banking Services
Millville, PA			2,553			Own		Banking Services
Orangeville, PA			3,444			Own		Banking Services
1199 Lightstreet Road, Scott Township, PA			16,384			Own		Banking Services, Financial Planning, IT and Deposit Operations
2691 Columbia Blvd, Scott Township, PA			3,680			Own		Banking Services
992 Central Road, Scott Township, PA			12,813			Own		Operations Center
West Hazleton, PA			3,015			Own		Banking Services

     We consider our facilities to be suitable and adequate for our current and immediate future purposes.

Item 3. Legal Proceedings

     We and the Bank are not party to any legal proceedings that could have a material effect upon our financial condition or income. In addition, we and the Bank are not parties to any legal proceedings under federal and state environmental laws.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     We had 955 stockholders of record not including individual participants in security position listings and 2,225,931 shares of common stock, par value of $1.25 per share, the only authorized class of common stock, outstanding as of March 1, 2011. Quotations

for our common stock appear under the symbol “CCFN” on the OTC Bulletin Board. These quotations represent inter-dealer prices and do not include retail mark up, markdown or commission. They may not necessarily represent actual transactions. The high and low closing sale prices and dividends per share of our common stock for the four quarters of 2010 and 2009 are summarized in the following table.

2010:		High ($)				Low ($)				Dividends Declared ($)
First quarter			27.78				24.95				.29
Second quarter			27.99				25.70				.29
Third quarter			28.22				25.70				.30
Fourth quarter			30.00				27.72				.30

2009:		High ($)				Low ($)				Dividends Declared ($)
First quarter			19.00				14.00				.24
Second quarter			22.50				18.35				.24
Third quarter			24.00				20.90				.27
Fourth quarter			28.00				23.50				.28

     We have paid cash dividends since organization of the Corporation in 1983. It is our present intention to continue the dividend payment policy, although the payment of future dividends must necessarily depend upon earnings, financial position, restrictions under applicable law and other factors relevant at the time the Board of Directors considers any declaration of dividends. Our ability to pay dividends is subject to certain legal restrictions described in Note 17, “Regulatory Matters” of the “Notes to Consolidated Financial Statements” included under Item 8 of this report, and from the “Capital Resources” section of the “Management’s Discussion and Analysis of Consolidated Financial Conditions and Results of Operations,” included under Item 7 of this report.

     Following is a schedule of the shares of the Corporation’s common stock purchased by the Corporation during the fourth quarter of 2010:

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

Purchased

Plans or Programs (1)

Under the Plans or Programs

Month #1 (October 1 - October 31, 2010)

5,000

$

28.80

5,000

139,000

Month #2 (November 1 - November 30, 2010)

—

—

—

139,000

Month #3 (December 1 - December 31, 2010)

—

—

—

139,000

Item 6. Selected Financial Data

     During the year ended December 31, 2008, we completed the acquisition of Columbia Financial Corporation which had a material affect on the comparability of the information listed below. Details of the merger are included in footnote 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

CCFNB BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL SUMMARY

						For the Year Ending December 31,
(In Thousands except per share data)		2010				2009				2008				2007				2006
INCOME STATEMENT DATA:
Total interest income		$	26,776			$	28,420			$	21,357			$	14,483			$	13,202
Total interest expense			6,683				8,614				7,504				6,185				5,301
Net interest income			20,093				19,806				13,853				8,298				7,901
Provision for possible loan losses			1,555				1,025				750				30				175
Non interest income			6,123				5,065				3,043				2,305				1,900
Non interest expenses			16,031				15,914				12,172				7,038				6,437
Federal income taxes			2,326				2,055				896				888				777
Net income		$	6,304			$	5,877			$	3,078			$	2,647			$	2,412
PER SHARE DATA:
Earnings per share (1)		$	2.82			$	2.61			$	1.82			$	2.15			$	1.93
Cash dividends declared per share		$	1.18			$	1.03			$	0.90			$	0.82			$	0.78
Book value per share		$	30.48			$	28.95			$	26.94			$	25.79			$	24.36
Average annual shares outstanding			2,232,239				2,253,087				1,688,498				1,233,339				1,249,844
BALANCE SHEET DATA:
Total assets		$	614,299			$	602,489			$	568,319			$	245,324			$	241,920
Total loans			340,453				330,489				320,068				161,460				160,641
Total securities			210,185				223,250				196,580				57,686				53,486
Total deposits			473,792				462,288				434,309				170,938				169,285
FHLB advances-long-term			6,123				15,128				9,133				11,137				11,297
Total stockholders’ equity			67,854				65,086				60,775				31,627				30,249
PERFORMANCE RATIOS:
Return on average assets			1.03	%			1.01	%			0.77	%			1.07	%			1.02	%
Return on average stockholders’ equity			9.35	%			9.25	%			6.91	%			8.54	%			7.97	%
Net interest margin (2)			3.68	%			3.80	%			3.90	%			3.74	%			3.74	%
Total non-interest expense as a percentage of average assets			2.62	%			2.73	%			3.06	%			2.83	%			2.72	%
ASSET QUALITY RATIOS:
Allowance for possible loan losses as a percentage of total loans			1.41	%			1.27	%			1.17	%			0.89	%			0.91	%
Allowance for possible loan losses as a percentage of non-performing loans (3)			115.75	%			89.87	%			83.29	%			102.64	%			686.79	%
Non-performing loans as a percentage of total loans (3)			1.22	%			1.42	%			1.43	%			0.09	%			0.13	%
Non-performing assets as a percentage of total assets (3)			0.68	%			0.78	%			0.86	%			0.57	%			0.09	%
Net charge-offs as a percentage of average net loans (4)			-0.28	%			-0.18	%			-0.05	%			-0.03	%			-0.17	%
LIQUIDITY AND CAPITAL RATIOS:
Average equity to average assets			11.04	%			10.90	%			11.19	%			12.48	%			12.79	%
Tier 1 capital to risk-weighted assets (5)			17.25	%			16.38	%			15.37	%			18.10	%			19.25	%
Leverage ratios (5) (6)			10.00	%			9.82	%			9.27	%			12.71	%			12.71	%
Total capital to risk-weighted assets (5)			18.50	%			17.62	%			16.48	%			18.93	%			20.29	%
Dividend Payout Ratio			41.72	%			39.44	%			51.75	%			38.16	%			40.38	%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

     Certain statements in this section and elsewhere in this Annual Report on Form 10-K, 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.
	•		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 Dodd-Frank Wall Street Reform and Consumer Protection Act.
	•		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 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 throughout most of 2011 with consistent credit spreads and our view that national economic trends currently point to improving economic conditions into 2011 and a subdued recovery.
	•		Legal and regulatory developments could have an impact on our ability to operate our businesses 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

2010 vs. 2009

     Tax-equivalent net interest income increased $342,000 thousand or 1.7 percent to $20.8 million for the year ended December 31, 2010. Net interest margin decreased to 3.68 percent at December 31, 2010 from 3.80 percent at December 31, 2009. The decrease in margin resulted primarily from the yield on interest-bearing liabilities decreasing 47 basis points to 1.39 percent while the yield on interest-earning assets decreased 54 basis points to 4.86 percent.

     The 54 basis point decrease to the yield from interest-earning assets was driven by decreases of 24 basis points to the loan yield and the 89 basis point decrease to the investment yield. Tax-equivalent net interest income from loans decreased to $20.1 million for the year ended December 31, 2010 as variable rate real estate loans re-priced to lower market rates and the overall average balance of residential mortgages continued to decline from customer refinancing. For the year ended December 31, 2010, tax-equivalent net interest income from investments decreased $1.6 million while the yield decreased 89 basis points. The primary cause of the yield decrease was the 2010 reinvestment, at lower rates, of called U.S. Agency securities.

     The 47 basis point decrease on interest-bearing liabilities resulted from decreases of 47 basis points to the deposit yield and the 43 basis point decrease to the borrowing yield. The total deposit yield decreased 47 basis points to 1.41 percent at December 31, 2010 while the yield on total borrowings decreased 43 basis points to 1.29 percent at December 31, 2010. Decreases of 75 basis points on the time deposits and 28 basis points on the money markets for the year ended December 31, 2010 were the primary reason for the yield decrease in total deposits. A decrease of 135 basis points on the long-term borrowings for the year ended December 31, 2010 was the primary reason for the yield decrease in the total borrowings as the short-term borrowing yield increased 5 basis points over the same period. The long-term borrowing had an average balance of $9.3 million and $12.5 million as of December 31, 2010 and 2009, respectively and reflects the 2010 maturity and repayment of $9.0 million in term FHLB borrowings. The yield decreases were driven by lower U.S. Treasury rates as well as local market competition.

2009 vs. 2008

     Tax-equivalent net interest income increased $6.1 million or 42.5 percent to $20.5 million for the year ended December 31, 2009.

     Reported tax-equivalent interest income increased $7.2 million or 33.0 percent to $29.1 million for the year ended December 31, 2009. The increase primarily resulted from the 2008 acquisition of Columbia Financial Corporation (“CFC”) as described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. The acquisition of CFC, completed July 18, 2008,contributed a 2008 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 $1.1 million or 14.8 percent to $8.6 million. The 2008 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 decreased to 3.80 percent at December 31, 2009 from 3.90 percent at December 31, 2008. The decrease in margin resulted primarily from the yield on interest-bearing liabilities decreasing 51 basis points to 1.86 percent while the yield on interest-earning assets decreased 54 basis points to 5.40 percent. The 54 basis point decrease to interest-earning assets was driven by related decreases of 49 basis points to the loan yield and the 40 basis point decrease to the investment yield. Tax-equivalent net interest income from loans increased to $20.2 million for the year ended December 31, 2009. Despite the increased income, an overall decrease in the yield resulted as variable rate real estate loans re-priced to market rates. For the year ended December 31, 2009, tax-equivalent net interest income from investments increased $2.9 million while the yield decreased 40 basis points. The primary cause of the yield decrease was the 2009 reinvestment, at lower rates, of called U.S. Agency securities. The 51 basis point decrease on interest-bearing liabilities resulted from related decreases of 44 basis points to the deposit yield and the 92 basis point decrease to the borrowing yield. The total deposit yield decreased 44 basis points to 1.88 percent at December 31, 2009 while the yield on total borrowings decreased 92 basis points to 1.72 percent at December 31, 2009. A decrease of 59 basis points on the time deposits for the year ended December 31, 2009 was the primary reason for the yield decrease in total deposits. Time deposits had an average balance of $228.0 million and $154.3 million as of December 31, 2009 and 2008, respectively. A decrease of 101 basis points on the short-term borrowings for the year ended December 31, 2009 was the primary reason for the yield decrease in the total borrowings as the long-term borrowing yield decreased 96 basis points over the same period. The short-term borrowing had an average balance of $48.8 million and $42.9 million as of December 31, 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 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 years 2010, 2009 and 2008.

AVERAGE BALANCE SHEET AND RATE ANALYSIS
YEARS ENDED DECEMBER 31,

		2010												2009												2008
(In Thousands)		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
ASSETS:			(1	)											(1	)											(1	)
Tax-exempt loans		$	22,900			$	1,460				6.38	%		$	19,627			$	1,254				6.39	%		$	16,156			$	1,070				6.62	%
All other loans			316,511				18,662				5.90	%			307,450				18,925				6.16	%			218,915				14,587				6.66	%
Total loans (2)(3)(4)			339,411				20,122				5.93	%			327,077				20,179				6.17	%			235,071				15,657				6.66	%
Taxable securities			196,615				6,710				3.41	%			189,202				8,220				4.34	%			118,012				5,633				4.77	%
Tax-exempt securitites (3)			10,640				602				5.66	%			11,550				650				5.63	%			6,765				385				5.69	%
Total securities			207,255				7,312				3.53	%			200,752				8,870				4.42	%			124,777				6,018				4.82	%
Federal funds sold			1,536				2				0.13	%			7,639				10				0.13	%			6,990				155				2.22	%
Interest-bearing deposits			17,623				42				0.24	%			2,877				8				0.28	%			873				22				2.52	%
Total interest-earning assets			565,825				27,478				4.86	%			538,345				29,067				5.40	%			367,711				21,852				5.94	%
Other assets			45,161												44,460												30,117
TOTAL ASSETS		$	610,986											$	582,805											$	397,828
LIABILITIES:
Savings		$	63,223				237				0.37	%		$	56,493				225				0.40	%		$	39,223				156				0.40	%
Now deposits			71,374				99				0.14	%			68,650				100				0.15	%			47,534				129				0.27	%
Money market deposits			42,460				319				0.75	%			43,906				452				1.03	%			21,119				350				1.66	%
Time deposits			234,812				5,154				2.19	%			228,005				6,701				2.94	%			154,334				5,447				3.53	%
Total deposits			411,869				5,809				1.41	%			397,054				7,478				1.88	%			262,210				6,082				2.32	%
Short-term borrowings			53,691				427				0.80	%			48,826				368				0.75	%			42,912				754				1.76	%
Long-term borrowings			9,252				349				3.77	%			12,492				640				5.12	%			9,413				572				6.08	%
Junior subordinate debentures			4,640				98				2.11	%			4,640				128				2.76	%			1,605				96				5.98	%
Total borrowings			67,583				874				1.29	%			65,958				1,136				1.72	%			53,930				1,422				2.64	%
Total interest-bearing liabilities			479,452				6,683				1.39	%			463,012				8,614				1.86	%			316,140				7,504				2.37	%
Demand deposits			59,013												51,908												34,403
Other liabilities			5,096												4,359												2,761
Stockholders’ equity			67,425												63,526												44,524
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	610,986											$	582,805											$	397,828
Interest rate spread (6)											3.47	%											3.54	%											3.57	%
Net interest income/margin (5)						$	20,795				3.68	%						$	20,453				3.80	%						$	14,348				3.90	%

Reconcilement of Taxable Equivalent Net Interest Income

		For the Years Ended December 31,
(In Thousands)		2010				2009				2008
Total interest income		$	26,776			$	28,420			$	21,357
Total interest expense			6,683				8,614				7,504
Net interest income			20,093				19,806				13,853
Tax equivalent adjustment			702				647				495
Net interest income
(fully taxable equivalent)		$	20,795			$	20,453			$	14,348

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 2010 versus 2009, and 2009 versus 2008:

		Year Ended December 31,
		2010 vs 2009												2009 vs 2008
		Increase (Decrease)												Increase (Decrease)
		Due to												Due to
(In Thousands)		Volume				Rate				Net				Volume				Rate				Net
Interest income:
Loans, tax-exempt		$	209			$	(4	)		$	205			$	223			$	(39	)		$	184
Loans			613				(875	)			(262	)			5,346				(1,008	)			4,338
Taxable investment securities			311				(1,821	)			(1,510	)			3,133				(546	)			2,587
Tax-exempt investment securities			(51	)			3				(48	)			269				(4	)			265
Federal funds sold			(8	)			—				(8	)			13				(158	)			(145	)
Interest bearing deposits			35				(1	)			34				19				(33	)			(14	)
Total interest-earning assets			1,109				(2,698	)			(1,589	)			9,003				(1,788	)			7,215
Interest expense:
Savings			26				(14	)			12				69				—				69
NOW deposits			4				(5	)			(1	)			44				(73	)			(29	)
Money market deposits			(16	)			(117	)			(133	)			272				(170	)			102
Time deposits			195				(1,742	)			(1,547	)			2,278				(1,024	)			1,254
Short-term borrowings			41				18				59				93				(479	)			(386	)
Long-term borrowings, FHLB			(2,588	)			2,297				(291	)			168				(100	)			68
Junior subordinate debentures			—				(30	)			(30	)			84				(52	)			32
Total interest-bearing liabilities			(2,338	)			407				(1,931	)			3,008				(1,898	)			1,110
Change in net interest income		$	3,447			$	(3,105	)		$	342			$	5,995			$	110			$	6,105

PROVISION FOR LOAN LOSSES

2010 vs. 2009

     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. Annually, 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 December 31, 2010, 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 $1,555,000 and $1,025,000 for the years ended December 31, 2010 and 2009, respectively. Management concluded the increase of the provision was appropriate considering the gross loan growth experience of $10.0 million, minimal decreases in nonperforming assets, increased levels of commercial loans, and the sluggish recovery 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.

2009 vs. 2008

     The provision for loan losses increased from $1,025,000 in 2009 to $750,000 in 2008.

NON-INTEREST INCOME

2010 vs. 2009

     Total non-interest income increased $1.1 million or 20.9 percent to $6.1 million for the year ended December 31, 2010. The service charges and fees increased $74,000 or 4.3 percent to $1,778,000 for the year ended December 31, 2010. Gain on sale of loans increased $496,000 or 80.4 percent from $617,000 in 2009 to $1,113,000 in 2010 primarily due to increased volume of loans sold during 2010. Brokerage income increased $44,000 or 15.7 percent from $281,000 in 2009 to $325,000 in 2010. Income from Trust services increased $8,000 or 1.2 percent from $655,000 in 2009 to $663,000 in 2010. During 2010, we recorded an other than temporary impairment loss on the equity security portfolio in the amount of $42,000. During 2009, we recorded an other than temporary impairment loss on the equity security portfolio in the amount of $69,000 and a realized loss from the sale of equity securities in the amount of $316,000. Interchange fees increased $107,000 or 14.4 percent from $743,000 in 2009 to $850,000 in 2010 due to increased transactional volume. Other income decreased $13,000 from $1,005,000 in 2009 to $992,000 in 2010.

		For The Year Ended
		December 31, 2010								December 31, 2009								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Service charges and fees		$	1,778				29.0	%		$	1,704				33.6	%		$	74				4.3	%
Gain on sale of loans			1,113				18.2				617				12.2				496				80.4
Earnings on bank-owned life insurance			444				7.3				445				8.8				(1	)			(0.2	)
Brokerage			325				5.3				281				5.5				44				15.7
Trust			663				10.8				655				12.9				8				1.2
Investment security losses			(42	)			(0.7	)			(385	)			(7.6	)			343				(89.1	)
Interchange fees			850				13.9				743				14.7				107				14.4
Other			992				16.2				1,005				19.9				(13	)			(1.3	)
Total non-interest income		$	6,123				100.0	%		$	5,065				100.0	%		$	1,058				20.9	%

2009 vs. 2008

     Total non-interest income increased $2.0 million or 66.4 percent to $5.1 million for the year ended December 31, 2009. The increase primarily resulted from the 2008 acquisition of CFC as described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. The service charges and fees increased $423,000 or 33.0 percent to $1,704,000 for the year ended December 31, 2009. Gain on sale of loans increased $301,000 or 95.3 percent from $316,000 in 2008 to $617,000 in 2009. Brokerage income increased $63,000 or 28.9 percent from $218,000 in 2008 to $281,000 in 2009. Income from Trust services increased $221,000 or 50.9 percent from $434,000 in 2008 to $655,000 in 2009. During 2009, we recorded an other than temporary impairment loss on the equity security portfolio in the amount of $69,000 and a realized loss from the sale of equity securities in the amount of $316,000. Other income increased $563,000 from $442,000 in 2008 to $1,005,000 in 2009 primarily as a result of a 2009 gain on the sale of property and equipment in the amount of $129,000.

		For The Year Ended
		December 31, 2009								December 31, 2008								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Service charges and fees		$	1,704				33.6	%		$	1,281				42.1	%		$	423				33.0	%
Gain on sale of loans			617				12.2				316				10.4				301				95.3
Earnings on bank-owned life insurance			445				8.8				366				12.0				79				21.6
Brokerage			281				5.5				218				7.2				63				28.9
Trust			655				12.9				434				14.3				221				50.9
Investment security losses			(385	)			(7.6	)			(431	)			(14.2	)			46				(10.7	)
Interchange fees			743				14.7				417				13.7				326				78.2
Other			1,005				19.9				442				14.5				563				127.4
Total non-interest income		$	5,065				100.0	%		$	3,043				100.0	%		$	2,022				66.4	%

NON-INTEREST EXPENSE

2010 vs. 2009

     Total non-interest expense increased $117 thousand or 0.7% from $15.9 million in 2009 to $16.0 million in 2010. Salaries and employee benefits increased $339 thousand or 4.3 percent for the year ended December 31, 2010 primarily as a result of increased health insurance premiums. FDIC assessments decreased $310 thousand from $920 thousand in 2009 to $610 thousand in 2010 due to the 2009 special assessment and a decrease in assessment rate.

     One standard to measure non-interest expense is to express non-interest expense as a percentage of average total assets. In 2010 this percentage was 2.62 percent compared to 2.73 percent in 2009.

		For The Years Ended
		December 31, 2010								December 31, 2009								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Salaries		$	6,447				40.2	%		$	6,314				39.7	%		$	133				2.1	%
Employee benefits			1,811				11.3				1,605				10.1				206				12.8
Occupancy			1,114				6.9				1,062				6.7				52				4.9
Furniture and equipment			1,330				8.3				1,272				8.0				58				4.6
State shares tax			561				3.5				529				3.3				32				6.0
Professional fees			595				3.7				587				3.7				8				1.4
Directors fees			274				1.7				284				1.8				(10	)			(3.5	)
FDIC assessments			610				3.8				920				5.8				(310	)			(33.7	)
Telecommunications			385				2.4				347				2.2				38				11.0
Amortization of core deposit intangible			576				3.6				643				4.0				(67	)			(10.4	)
Automated teller machine and interchange			560				3.5				509				3.2				51				10.0
Other			1,768				11.1				1,842				11.5				(74	)			(4.0	)
Total non-interest expense		$	16,031				100.0	%		$	15,914				100.0	%		$	117				0.7	%

2009 vs. 2008

     Total non-interest expense increased $3.7 million or 30.7% from $12.2 million in 2008 to $15.9 million in 2009. The increases primarily resulted from the 2008 acquisition of CFC as described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. Salaries and employee benefits increased $859 thousand or 12.2 percent for the year ended December 31, 2009. Other expenses, Occupancy, Furniture and Equipment, Professional fees, Directors fees, Telecommunications, and Amortization of core deposit intangible all experienced net increases as a result of the 2008 CFC acquisition. FDIC assessments increased $839 thousand from $81 thousand in 2008 to $920 thousand in 2009 due to the special assessment and an overall industry wide increase in assessment rates.

     One standard to measure non-interest expense is to express non-interest expense as a percentage of average total assets. In 2009 this percentage was 2.73 percent compared to 3.06 percent in 2008.

										For The Years Ended
		December 31, 2009								December 31, 2008								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Salaries		$	6,314				39.7	%		$	4,762				39.1	%		$	1,552				32.6	%
Employee benefits			1,605				10.1				2,298				18.9				(693	)			(30.2	)
Occupancy			1,062				6.7				760				6.2				302				39.7
Furniture and equipment			1,272				8.0				927				7.6				345				37.2
State shares tax			529				3.3				418				3.4				111				26.6
Professional fees			587				3.7				570				4.7				17				3.0
Directors fees			284				1.8				244				2.0				40				16.4
FDIC assessments			920				5.8				81				0.7				839				1,035.8
Telecommunications			347				2.2				215				1.8				132				61.4
Amortization of core deposit intangible			643				4.0				280				2.3				363				—
Automated teller machine and interchange			509				3.2				286				2.3				223				78.0
Other			1,842				11.5				1,331				11.0				511				38.4
Total non-interest expense		$	15,914				100.0	%		$	12,172				100.0	%		$	3,742				30.7	%

FINANCIAL CONDITION

     Our consolidated assets at December 31, 2010 were $614.3 million which represented an increase of $11.8 million or 2.0 percent from $602.5 million at December 31, 2009. The increase for 2009 from 2008 was 6.0 percent or $34.2 million.

     Capital increased 4.3 percent from $65.1 million in 2009 to $67.9 million in 2010, after an adjustment for the fair market value of securities which was a decrease in capital of $302 thousand for 2010 compared to an increase in capital of $4.3 million for 2009. Common stock and surplus increased a net $446 thousand resulting primarily from issuance of 16,081 shares of stock under our Employee Stock Purchase Plan and the Dividend Reinvestment Plan. During the year ended December 31, 2010, the Corporation purchased 38,500 shares under the announced stock buyback program. The treasury stock shares were purchased at a cost of $1,050,000.

     Total average assets increased 4.8 percent from $582.8 million at December 31, 2009 to $611.0 million at December 31, 2010. Average earning assets were $565.8 million in 2010 and $538.3 million in 2009.

     Loans increased 3.0 percent from $330.5 million at December 31, 2009 to $340.5 million at December 31, 2010.

     Interest bearing deposits increased 1.1 percent to $410.9 million at December 31, 2010 from $406.6 million at December 31, 2009. Noninterest-bearing deposits increased 12.8 percent from $55.7 million in 2009 to $62.9 million in 2010.

     The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio increased during 2010 to 71.9 percent compared to 71.5 percent during 2009.

     It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet is within manageable parameters. Constant monitoring using asset/liability reports and interest rate risk scenarios are in place along with quarterly asset/liability management meetings on the committee level by the Bank’s Board of Directors. Additionally, the Bank’s Asset/Liability Committee meets quarterly with an investment consultant.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

		For the Years Ended December 31,
(In Thousands)		2010				2009				2008
Federal Agency Obligations		$	58,903			$	68,339			$	64,080
Mortgage-backed Securities			132,515				138,856				118,046
Obligations of State amd Political Subdivisions			13,671				11,374				9,994
Marketable Equity Securities			2,084				1,697				2,293
Total		$	207,173			$	220,266			$	194,413

     All of our securities are available-for-sale and are carried at estimated fair value. The following table shows the maturities of investment securities, at amortized cost, at December 31, 2010 and the weighted average yields (for tax-exempt obligations on a fully taxable basis a 34 percent tax rate) of such:

										After One Year								After Five Year
		Within								But Within								But Within								After
		One Year								Five Years								Ten Years								Ten Years								Total
(In Thousands)		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
Federal Agency Obligations		$	1,347				3.69	%		$	45,233				1.93	%		$	23,851				3.60	%		$	117,623				3.62	%		$	188,054				3.21	%
Obligations of State and Political Subdivisions			994				3.66	%			1,975				5.99	%			5,130				5.15	%			5,526				5.97	%			13,625				5.48	%
		$	2,341							$	47,208							$	28,981							$	123,149								201,679
Marketable Equity Securities																																			2,130
Total Invesment Securities																																		$	203,809