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: 0-19028

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		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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, $48,195,601 as of June 30, 2009.

As of March 9, 2010, the Registrant had outstanding 2,241,250 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 11, 2010, 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			12
Item 1B. Unresolved Staff Comments			13
Item 2. Properties			14
Item 3. Legal Proceedings			15
Item 4. Submission of Matters to a Vote of Security Holders			15
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			15
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			31
Item 8. Financial Statements and Supplementary Data			32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			64
Item 9A(T)Controls and Procedures			64
Item 9B. Other Information			66
PART III
Item 10. Directors, Executive Officers and Corporate Governance			66
Item 11. Executive Compensation			66
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			66
Item 13. Certain Relationships and Related Transactions, and Director Independence			66
Item 14. Principal Accounting Fees and Services			67
PART IV
Item 15. Exhibits, Financial Statements Schedules			67
SIGNATURES			68
INDEX TO EXHIBITS			69

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, 2009, we had approximately:

	•		$602 million in total assets;
	•		$330 million in gross loans;
	•		$462 million in deposits; and
	•		$65 million in stockholders’ equity.

     The Bank is a state-chartered bank whose deposits are insured by the Bank 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, 2009, the Bank had 13 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, 2009. We have combined financial information for our third-party brokerage operation with our financial information, because this company 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, 2009, we had 180 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 Corporation acquired 100% of the outstanding shares of CFC for a total purchase price of $26,316,000. The transaction was accounted for in accordance with 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. 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. The fair values of acquired assets and liabilities, including identified intangible assets, were finalized as quickly as possible following the acquisition. The CFC purchase price allocation is complete.

Supervision and Regulation

     The following discussion sets forth the material elements of the regulatory framework applicable to us and the Bank and provides certain specific information. This regulatory framework is primarily intended for the protection of investors in our common stock, depositors at the Bank and the Bank Insurance Fund that insures bank deposits. To the extent that the following information describes statutory and regulatory provisions, it is qualified by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to us or the Bank may have a material effect on our business.

Intercompany Transactions

     Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and Regulation W of the Federal Reserve Board, limit borrowings by us from the Bank and also limit various other transactions between us and the Bank. For example, Section 23A of the Federal Reserve Act limits to no more than ten percent of its total capital the aggregate outstanding amount of the Bank’s loans and other “covered transactions” with any particular non-bank affiliate (including a financial subsidiary) and limits to no more than 20 percent of its total capital the aggregate outstanding amount of the Bank’s covered transactions with all of its affiliates (including financial subsidiaries). At December 31, 2009, approximately $5.6 million was available for loans to us from the Bank. Section 23A of the Federal Reserve Act also generally requires that the Bank’s loans to its non-bank affiliates (including financial subsidiaries) be secured, and Section 23B of the Federal Reserve Act generally requires that the Bank’s transactions with its non-bank affiliates (including financial subsidiaries) be on arm’s-length terms. Also, we, the Bank, and any financial subsidiary are prohibited from engaging in certain “tie-in” arrangements in connection with extensions of credit or provision of property or services.

Supervisory Agencies

     As a Pennsylvania-chartered bank, the Bank is subject to primary supervision, regulation, and examination by the Pennsylvania Department of Banking and secondary regulation by the FDIC. The Bank is subject to extensive statutes and regulations that significantly affect its business and activities. The Bank must file reports with its regulators concerning its activities and financial condition and obtain regulatory approval to enter into certain transactions. The Bank is also subject to periodic examinations by its regulators to ascertain compliance with various regulatory requirements. Other applicable statutes and regulations relate to insurance of deposits, allowable investments, loans, leases, acceptance of deposits, trust activities, mergers, consolidations, payment of dividends, capital requirements, reserves against deposits, establishment of branches and certain other facilities, limitations on loans to one borrower and loans to affiliated persons, activities of subsidiaries and other aspects of the business of banks. Recent federal legislation has instructed federal agencies to adopt standards or guidelines governing banks’ internal controls, information systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation and benefits, asset quality, earnings and stock valuation, and other matters. The federal banking agencies have great flexibility in implementing standards on asset quality, earnings, and stock valuation. Regulatory authorities have broad flexibility to initiate proceedings designed to prohibit banks from engaging in unsafe and unsound banking practices.

     We and the Bank are also affected by various other governmental requirements and regulations, general economic conditions, and the fiscal and monetary policies of the federal government and the Federal Reserve Board. The monetary policies of the Federal Reserve Board influence to a significant extent the overall growth of loans, leases, investments, deposits, interest rates charged on loans, and interest rates paid on deposits. The nature and impact of future changes in monetary policies are often not predictable.

     We are subject to the jurisdiction of the SEC for matters relating to the offering and sale of our securities. We are also subject to the SEC’s rules and regulations relating to periodic reporting, insider trader reports and proxy solicitation materials. Our common stock is not listed for quotation of prices on The NASDAQ Stock Market or any other nationally-recognized stock exchange. However, daily bid and asked price quotations are maintained on the interdealer electronic bulletin board system.

Support of the Bank

     Under current Federal Reserve Board policy, we are expected to act as a source of financial and managerial strength to the Bank by standing ready to use available resources to provide adequate capital funds to the Bank during periods of financial adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting the Bank. The

support expected by the Federal Reserve Board may be required at times when we may not have the resources or inclination to provide it.

     If a default occurred with respect to the Bank, any capital loans to the Bank from us would be subordinate in right of payment to payment of the Bank depositors and certain of its other obligations.

Liability of Commonly Controlled Banks

     The Bank can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with:

	•		the default of a commonly controlled FDIC-insured depository institution or
	•		any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.

     “Default” generally is defined as the appointment of a conservator or receiver, and “in danger of default” generally is defined as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.

Depositor Preference Statute

     In the “liquidation or other resolution” of the Bank by any receiver, federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the Bank are afforded a priority over the general unsecured claims against the Bank, including federal funds and letters of credit.

Allowance For Loan Losses

     Commercial loans and commercial real estate loans comprised 52.8 percent of our total consolidated loans as of December 31, 2009. 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, 2009, our deposits totaled $462 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 49.5 percent of total deposits at December 31, 2009 and 48.0 percent of total deposits at December 31, 2008.

     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.

Capital Requirements

     We are subject to risk-based capital requirements and guidelines imposed by the Federal Reserve Board. For this purpose, a bank holding company’s consolidated assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to those assets or commitments. In addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent assets. A bank’s or bank holding company’s capital, in turn, includes the following tiers:

	•		core (“Tier 1”) capital, which includes common equity, non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets, and certain other assets; and
	•		supplementary (“Tier 2”) capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt and allowances for loan and lease losses, subject to certain limitations, less certain required deductions.

     We, like other bank holding companies, are required to maintain Tier 1 and “Total Capital” (the sum of Tier 1 and Tier 2 capital, less certain deductions) equal to at least four percent and eight percent of our total risk-weighted assets (including certain off-balance sheet items, such as unused lending commitments and standby letters of credit), respectively. At December 31, 2009, we met both requirements, with Tier 1 and Total Capital equal to 16.4 percent and 17.6 percent of total risk-weighted assets.

     The Federal Reserve Board has adopted rules to incorporate market and interest rate risk components into their risk-based capital standards. Under these market-risk requirements, capital will be allocated to support the amount of market risk related to a financial institution’s ongoing trading activities.

     The Federal Reserve Board also requires bank holding companies to maintain a minimum “Leverage Ratio” (Tier 1 capital to adjusted total assets) of three percent if the bank holding company has the highest regulatory rating and meets certain other requirements, or of three percent plus an additional cushion of at least one to two percentage points if the bank holding company does not meet these requirements. At December 31, 2009, our leverage ratio was 9.8 percent.

     The Federal Reserve Board may set capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, bank holding companies experiencing or anticipating significant growth may be

expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a “Tangible Tier 1 Leverage Ratio” (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities, or when a bank holding company faces unusual or abnormal risk. The Federal Reserve Board has not advised us of any specific minimum leverage ratio applicable to us.

     Failure to meet capital requirements could subject the Bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. The Federal Deposit Insurance Corporation Improvements Act of 1991 (“FDICIA”), among other things, identifies five capital categories for insured banks – 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 banks that do not meet minimum capital requirements based on these categories. The FDICIA imposed progressively more restrictive constraints on operations, management, and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits, on “pass-through” insurance coverage for certain of its accounts, and on certain other aspects of its operations. FDICIA generally prohibits a bank from paying any dividend or making any capital distribution or paying any management fee to its holding company if the bank would thereafter be undercapitalized. An undercapitalized bank is subject to regulatory monitoring and may be required to divest itself of or liquidate subsidiaries. Holding companies of such institutions may be required to divest themselves of such institutions or divest themselves of or liquidate other affiliates. 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 five percent of the bank’s assets at the time it became undercapitalized or the amount needed to comply with the plan. Critically undercapitalized institutions are prohibited from making payments of principal and interest on subordinated debt and are generally subject to the mandatory appointment of a conservator or receiver.

Brokered Deposits

     Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless it (1) is well capitalized, or (2) is adequately capitalized and receives a waiver from the FDIC. In addition, these regulations prohibit any bank that is not well capitalized from paying an interest rate on brokered deposits in excess of three-quarters of one percentage point over certain prevailing market rates. As of December 31, 2009, the Bank held no brokered deposits.

Dividend Restrictions

     We are a legal entity separate and distinct from the Bank. In general, under Pennsylvania law, we cannot pay a cash dividend if such payment would render us insolvent. Our revenues consist primarily of dividends paid by the Bank. The Pennsylvania Banking Code of 1965 limits the amount of dividends the Bank can pay to us without regulatory approval. The Bank may declare and pay dividends to us if:

	•		the Bank’s surplus is at least equal to its paid-in capital, and
	•		the payment of the dividend would not reduce the Bank’s surplus below the required level.

     At December 31, 2009, approximately $18,517,000 was available for payment of dividends to us from the Bank.

     In addition, federal bank regulatory authorities have authority to prohibit the Bank from engaging in an unsafe or unsound practice in conducting its business. Depending upon the financial condition of the bank in question, the payment of dividends could be deemed to constitute an unsafe or unsound practice. The ability of the Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines. Accordingly, in 2010, without prior federal regulatory approval, the Corporation may declare dividends to Shareholders in the amount of the net income available to shareholders for the past four quarters, net of dividends paid during that period. As of December 31, 2009, the amount available for payment of dividends, without prior federal regulatory approval, was $3,559,000.

Deposit Insurance

     The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer deposits through the DIF up to prescribed limits for each depositor. Pursuant to the EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 per depositor. The EESA, as amended by the Helping Families Save Their Homes Act of 2009, provides that the basic deposit insurance limit will return to $100,000 after December 31, 2013. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. Pursuant to the Federal Deposit Insurance Reform Act of 2005, the FDIC is authorized to set the

reserve ratio for the DIF annually at between 1.15% and 1.50% of estimated insured deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis.

     The FDIC made several adjustments to the assessment rate during 2009 including a special assessment permitted under statutory authority granted in 2008. The assessment schedule published as of April 1, 2009 and effective for assessments on and after September 30, 2009 provides for assessment ranges, based upon risk assessment of each insured depository institution, of between 7 and 77.5 cents per $100 of domestic deposits. The Bank is currently in Risk Category 1, the lowest risk category, which provides for a base assessment range of 7 to 24 cents per $100 of domestic deposits. The special assessment was applicable to all insured depository institutions and totaled 5 basis points of each institution’s total assets less tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits.

     On November 21, 2008, the FDIC adopted a final rule relating to the Temporary Liquidity Guaranty Program, or TLG, Program. Under the TLG Program, the FDIC will (1) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009 and (2) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdrawal, or NOW, accounts paying 0.5% or less interest per annum and Interest on Lawyers Trust Accounts, or IOLTA, held at participating FDIC-insured institutions through June 30, 2010. On March 17, 2009, the FDIC extended the debt guarantee program through October 31, 2009. The Bank elected to participate in the deposit insurance coverage guarantee program. The Bank has not elected to participate in the unsecured debt guarantee program because more cost-effective liquidity sources are available to us. Coverage under the TLG Program was available for the first 30 days without charge. The fee assessment for deposit insurance coverage is 10 basis points per annum on amounts in covered accounts exceeding $250,000.

     All FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation, or FICO, an agency of the Federal government established to recapitalize the predecessor to the DIF. The FICO assessment rates, which are determined quarterly, averaged 0.01% of insured deposits in fiscal 2009. These assessments will continue until the FICO bonds mature in 2017.

     On November 17, 2009, the FDIC imposed a prepayment requirement on most insured depository organizations, requiring that the organizations prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 and for each calendar quarter for calendar years 2010, 2011 and 2012. The FDIC has stated that the prepayment requirement was imposed in response to a negative balance in the DIF.

     The Bank made its prepayment on December 31, 2009 in the total amount of $2.0 million. The actual assessments becoming due from the Bank on the last day of each calendar quarter will be applied against the prepaid amount until the prepayment amount is exhausted. If the prepayment amount is not exhausted before June 30, 2013 any remaining balance will be returned to the Bank. The prepayment amount does not bear interest.

TARP Capital Purchase Program

     On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the “EESA”). Pursuant to the EESA, the United States Treasury has the authority to, among other things, invest in financial institutions and purchase mortgages, mortgage-backed securities and certain other financial instruments from financial institutions, in an aggregate amount up to $700 billion, for the purpose of stabilizing and providing liquidity to the United States financial markets. On October 14, 2008, the United States Treasury announced a plan, referred to as the Capital Purchase Program, or the CPP, to invest up to $250 billion of this $700 billion amount in certain eligible United States banks, thrifts and their holding companies in the form of non-voting, senior preferred stock initially paying quarterly dividends at a 5% annual rate. In the event the United States Treasury makes any such senior preferred investment in any company it will also receive 10-year warrants to acquire common shares of the company having an aggregate market price of 15% of the amount of the senior preferred investment.

     After a review of the conditions and restrictions with respect to the TARP Capital Purchase Program, our Board of Directors decided not to participate in the CPP.

Interstate Banking and Branching

     Bank holding companies (including bank holding companies that also are financial holding companies) are required to obtain the prior approval of the Federal Reserve Board before acquiring more than five percent of any class of voting stock of any non-affiliated bank. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking and Branching Act”), a bank holding company may acquire banks located in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating

for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, after the proposed acquisition, controls no more than 10.0 percent of the total amount of deposits of insured depository institutions in the United States and no more than 30.0 percent or such lesser or greater amount set by state law of such deposits in that state.

     Subject to certain restrictions, the Interstate Banking and Branching Act also authorizes banks to merge across state lines to create interstate banks. The ability of banks to acquire branch offices through purchases or openings of other branches is contingent, however, on the host state having adopted legislation “opting in” to those provisions of Riegle-Neal. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation “opting out” of that provision of Riegle-Neal. Pennsylvania has opted in to all of these provisions upon the condition that another host state has similar or reciprocal requirements. As of the date of this report, we are not contemplating any interstate acquisitions of a bank or a branch office.

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 ten percent 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 we, 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 percent (five percent in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, such as we, or otherwise obtaining control or a “controlling influence” over that bank holding company.

Permitted Non-Banking Activities

     The Federal Reserve Board permits us or our subsidiaries to engage in nonbanking activities that are so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board requires us to serve as a source of financial and managerial strength to the Bank and not to conduct our operations in an unsafe or unsound manner. Whenever the Federal Reserve Board believes an activity that we perform or our control of a nonbank subsidiary, other than a nonbank subsidiary of the Bank, constitutes a serious risk to the financial safety, soundness or stability of the Bank and is inconsistent with sound banking principles or the purposes of the federal banking laws, the Federal Reserve Board may require us to terminate that activity or to terminate control of that subsidiary.

Community Reinvestment Act

     The Community Reinvestment Act of 1977, as amended (“CRA”), and the regulations promulgated to implement the CRA, are designed to create a system for bank regulatory agencies to evaluate a depository institution’s record in meeting the credit needs of its community. The Bank received a “satisfactory” rating in its last CRA examination which occurred in 2004.

Financial Services Modernization

     We must comply with the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) in the conduct of our operations. The GLB Act eliminates the restrictions placed on the activities of banks and bank holding companies and creates two new structures, financial holding companies and financial subsidiaries. We and the Bank are now allowed to provide a wider array of financial services and products that were reserved only for insurance companies and securities firms. In addition, we can now affiliate with an insurance company and a securities firm. We have elected to become a financial holding company. A financial holding company has authority to engage in activities referred to as “financial activities” that are not permitted to bank holding companies. A financial holding company may also affiliate with companies that are engaged in financial activities. A “financial activity” is an activity that does not pose a safety and soundness risk and is financial in nature, incidental to an activity that is financial in nature, or complimentary to a financial activity.

Privacy

     Title V of the GLB Act creates a minimum federal standard of privacy by limiting the instances which we and the Bank may disclose nonpublic personal information about a consumer of our products or services to nonaffiliated third parties. The GLB Act distinguishes “consumers” from “customers” for purposes of the notice requirements imposed by this Act. We are required to give a “consumer” a privacy notice only if we intend to disclose nonpublic personal information about the consumer to a nonaffiliated third party. However, by contrast, we are required to give a “customer” a notice of our privacy policy at the time of the establishment of a customer relationship and then annually, thereafter during the continuation of the customer relationship.

Terrorist Activities

     The Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury has, and will, send us and our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, the Bank must freeze such account, file a suspicious activity report and notify the Federal Bureau of Investigation. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications.

The USA PATRIOT Act

     The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001 was enacted by Congress as a result of the terrorist attack on the World Trade Center on September 11, 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers.

Subprime and Predatory Lending

     The Federal Reserve Board has issued regulations which implement the Home Ownership and Equity Protection Act (“HOEPA”). This Act imposes additional disclosure requirements and certain substantive limitations on certain mortgage loans with rates or fees above specified levels. The regulations lower the rate levels that trigger the application of HOEPA and include additional fees in the calculation of the fee amount that triggers HOEPA. The loans that the Bank currently makes are generally below the rate and fee levels that trigger HOEPA.

     The Bank must also comply with a Pennsylvania law, Act 55 of 2001, the Mortgage Bankers and Brokers and Consumer Equity Protection Act. This Act addresses what is known as “predatory lending”, among other things, and is applicable to the Bank’s closed-end home equity mortgage loans, involving property located in Pennsylvania, in an amount less than $100 thousand made at a “high cost,” which is generally the rate and point triggers in the HOEPA. Those HOEPA triggers are:

	•		An annual percentage rate exceeding 8.00 percentage points above comparable term U.S. Treasury securities for first-lien mortgages and 10 percent for subordinate-lien mortgages; and/or
	•		Total points and fees payable by the consumer at or before closing that exceed the greater of 8.0 percent of the total loan amount or $583. The $583 is adjusted annually by the annual percentage change in the Consumer Price Index.

     On July 8, 2008, Pennsylvania Governor Rendell signed into law Acts 56, 57, 58, 59 and 60 of 2008 which pertain to the mortgage industry in Pennsylvania. Act 56 of 2008 combined two mortgage licensing laws that pertain to first and secondary lien residential mortgage lending into a single licensing law and requires individuals engaged in nonclerical mortgage activities to obtain separate individual “mortgage originator” licenses. Act 57 of 2008 amended the Pennsylvania Usury Law by increasing from $50,000 to $217,873 the applicability of the usury law to residential mortgage loans. Act 58 of 2008 authorizes the Department of Banking to require initial and renewal license applicants for lender and broker licenses to use a national electronic licensing system and to pay related processing fees. Act 59 of 2008 increased penalties for violation of the Real Estate Appraisers Certification Act and added three government officials to the State Board of Certified Real Estate Appraisers. Act 60 of 2008 amended the Pennsylvania Housing Finance Agency Law (PHFA) by requiring mortgage lenders, including First Columbia Bank & Trust Co., to periodically provide to PHFA a list of residential mortgage foreclosure notices issued during the most recent period and contained amendments to the rules for providing a mortgage borrower in default with a Notice of Intention to Foreclose.

Electronic Funds Transfers

     On November 17, 2009, the Federal reserve Board published a final rule amending Regulation E, which implements the Electronic Fund Transfer Act. The final rule limits the ability of financial institutions to access an overdraft fee for paying automated teller machine transactions and one-time debit card transactions that overdraw a customer’s account unless the customer affirmatively consents, or opts in, to the institution’s payment of overdrafts for these transactions.

Sales of Insurance

     Our federal banking regulatory agencies have issued consumer protection rules with respect to the retail sale of insurance products by us, the Bank, or a subsidiary or joint venture of us or the Bank. These rules generally cover practices, solicitations, advertising or offers of any insurance product by a depository institution or any person that performs such activities at an office of, or on behalf of, us or the Bank. Moreover, these rules include specific provisions relating to sales practices, disclosures and advertising, the physical separation of banking and nonbanking activities and domestic violence discrimination.

Corporate Governance

     The Sarbanes-Oxley Act of 2002 (“SOX”) has substantially changed the manner in which public companies govern themselves and how the accounting profession performs its statutorily required audit function. SOX makes structural changes in the way public companies make disclosures and strengthens the independence of auditors and audit committees. SOX requires direct responsibility of senior corporate management, namely the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), for establishing and maintaining an adequate internal control structure and procedures for financial reporting and disclosure by public companies.

     Under SOX, audit committees will be primarily responsible for the appointment, compensation and oversight of the work of their auditors. The independence of the members of the audit committee is assured by barring members who accept consulting fees from the company or are affiliated with the company other than in their capacity as members of the board of directors.

     SOX prohibits insider trades during pension fund blackout periods and requires prompt disclosure of insider transactions in company stock, which must be reported by the second business day following an insider transaction. Furthermore, SOX established a new federal crime of securities fraud with substantial penalties.

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 thirteen 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 National Bank, PNC 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.

Available Information

     We file reports, proxy, information 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 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.

Changes in the regulatory environment may adversely affect the Bank’s business.

     The banking industry is highly regulated and the Bank is subject to extensive state and federal regulation, supervision, and legislation. The Bank is subject to regulation and supervision by the FDIC, the Pennsylvania Department of Banking, and indirectly, the Securities and Exchange Commission. These laws and regulations may change from time to time and may limit our ability to offer new products and services, obtain financing, attract deposits, and originate loans. Any changes to these laws and regulations may adversely affect loan demand, credit quality, consumer spending and saving habits, interest rate margins, FDIC assessments, and operating expenses. Therefore, our results of operations and financial condition may be materially negatively impacted by such changes.

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 expansion of bank branches, 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.

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 2009 we sold the 1016 West Front Street Berwick and the South Centre, PA former branch buildings. The remaining banking centers are described as follows:

		Approximate
Location		Square Footage				Own or Lease		Use
Red Rock Road, Benton, PA			2,814			Own		For Sale
Market Street, Benton, PA			4,672			Own		Banking Services
1919 W. Front Street, Berwick, PA			2,240			Own		Banking Services
Market Street, Berwick, PA						Own		Future expansion
1 Hospital Drive, Bloomsburg			120			Lease		ATM Facility
17 E. Main Street, Bloomsburg						Lease		ATM Facility
232 East Street, Bloomsburg			11,686			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			2,804			Own		Residential
Elysburg, PA			2,851			Own		Banking Services
Millville, PA			2,520			Own		Banking Services
Orangeville, PA			2,259			Own		Banking Services
1199 Lightstreet Road, Scott Township, PA			16,500			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			12,624			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 parties 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.

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

     During the fourth quarter of 2009, no matters were submitted to a vote of security holders through a solicitation of proxies or otherwise.

PART II

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

     We had 1,026 stockholders of record not including individual participants in security position listings and 2,241,250 shares of common stock, par value of $1.25 per share, the only authorized class of common stock, outstanding as of March 1, 2010. 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 2009 and 2008 are summarized in the following table.

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

2008:		High ($)		Low ($)		Dividends Declared ($)
First quarter		26.00		24.30		.21
Second quarter		25.45		23.70		.21
Third quarter		23.80		21.00		.24
Fourth quarter		22.00		18.50		.24

     We have paid cash dividends since 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, appropriate 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 Item 1 above under “Dividend Restrictions”.

     Following is a schedule of the shares of the Corporation’s common stock purchased by the Corporation during the fourth quarter of 2009:

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, 2009)

—

$

—

—

187,500

Month #2 (November 1 - November 30, 2009)

10,000

26.50

10,000

177,500

Month #3 (December 1 - December 31, 2009)

—

—

—

177,500

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)		2009				2008				2007				2006				2005
INCOME STATEMENT DATA:
Total interest income		$	28,420			$	21,357			$	14,483			$	13,202			$	11,442
Total interest expense			8,614				7,504				6,185				5,301				4,131
Net interest income			19,806				13,853				8,298				7,901				7,311
Provision for possible loan losses			1,025				750				30				175				90
Non interest income			5,065				3,043				2,305				1,900				1,713
Non interest expenses			15,914				12,172				7,038				6,437				6,077
Federal income taxes			2,055				896				888				777				631
Net income		$	5,877			$	3,078			$	2,647			$	2,412			$	2,226
PER SHARE DATA:
Earnings per share (1)		$	2.61			$	1.82			$	2.15			$	1.93			$	1.76
Cash dividends declared per share		$	1.03			$	0.90			$	0.82			$	0.78			$	0.74
Book value per share		$	28.95			$	26.94			$	25.79			$	24.36			$	23.06
Average annual shares outstanding			2,253,087				1,688,498				1,233,339				1,249,844				1,262,171
BALANCE SHEET DATA:
Total assets		$	602,489			$	568,319			$	245,324			$	241,920			$	231,218
Total loans			330,489				320,068				161,460				160,641				154,271
Total securities			223,250				196,580				57,686				53,486				53,919
Total deposits			462,288				434,309				170,938				169,285				164,847
FHLB advances-long-term			15,128				9,133				11,137				11,297				11,311
Total stockholders’ equity			65,086				60,775				31,627				30,249				29,012
PERFORMANCE RATIOS:
Return on average assets			1.01	%			0.77	%			1.07	%			1.02	%			0.97	%
Return on average stockholders’ equity			9.25	%			6.91	%			8.54	%			7.97	%			7.73	%
Net interest margin (2)			3.80	%			3.90	%			3.74	%			3.74	%			3.65	%
Total non-interest expense as a percentage of average assets			2.73	%			3.06	%			2.83	%			2.72	%			2.64	%
ASSET QUALITY RATIOS:
Allowance for possible loan losses as a percentage of loans, net			1.27	%			1.17	%			0.89	%			0.91	%			1.02	%
Allowance for possible loan losses as a percentage of non-performing loans (3)			89.87	%			83.29	%			102.64	%			686.79	%			185.54	%
Non-performing loans as a percentage of total loans, net (3)			1.42	%			1.43	%			0.09	%			0.13	%			0.85	%
Non-performing assets as a percentage of total assets (3)			0.78	%			0.86	%			0.57	%			0.09	%			0.36	%
Net charge-offs as a percentage of average net loans (4)			-0.18	%			-0.05	%			-0.03	%			-0.17	%			0.05	%
LIQUIDITY AND CAPITAL RATIOS:
Average equity to average assets			10.90	%			11.19	%			12.48	%			12.79	%			12.51	%
Tier 1 capital to risk-weighted assets (5)			16.38	%			15.37	%			18.10	%			19.25	%			19.24	%
Leverage ratios (5) (6)			9.82	%			9.27	%			12.71	%			12.71	%			12.74	%
Total capital to risk-weighted assets (5)			17.62	%			16.48	%			18.93	%			20.29	%			20.32	%
Dividend Payout Ratio			39.44	%			51.75	%			38.16	%			40.38	%			41.92	%

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. In particular, our businesses and financial results may be impacted by:
	•		Changes in interest rates and valuations in the debt, equity and other financial markets.
	•		Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products.
	•		Actions by the Federal Reserve Board and other government agencies, including those that impact money supply and market interest rates.
	•		Changes in our customers’ and suppliers’ performance in general and their creditworthiness in particular.
	•		Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors.
	•		Changes resulting from the newly enacted Emergency Economic Stabilization Act of 2008.
	•		A continuation of recent turbulence in significant segments of the United States and global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities and indirectly by affecting our customers and suppliers and the economy generally.
	•		Our business and financial performance could be impacted as the financial industry restructures in the current environment by changes in the competitive landscape.
	•		Given current economic and financial market conditions, our forward-looking financial statements are subject to the risk that these conditions will be substantially different than we are currently expecting. These statements are based on our current expectations that interest rates will remain low throughout most of 2010 with consistent credit spreads and our view that national economic trends currently point to a continuation of recessionary conditions into 2010 followed by 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

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 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.

2008 vs. 2007

     Tax-equivalent net interest income increased $5.7 million or 65.7 percent to $14.3 million for the year ended December 31, 2008. Reported tax-equivalent interest income increased $7.0 million or 47.3 percent to $21.9 million for the year ended December 31, 2008. The increase primarily resulted from the 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 contributed an increase in net loans in the amount of $160.7 million, an increase in investment securities in the amount of $138.3 million, an increase in federal funds sold in the amount of $517,000, and an increase in interest-bearing deposits in other banks of $129,000. Reported interest expense increased $1.3 million or 21.3 percent to $7.5 million. The acquisition of CFC contributed an increase in deposits in the amount of $264.7 million, an increase in other borrowings of $31.9 million, and an increase of $4.6 million in junior subordinate debentures.

     Net interest margin increased to 3.90 percent at December 31, 2008 from 3.74 percent at December 31, 2007. The increase in margin resulted primarily from the yield on interest-bearing deposits decreasing 33 basis points to 2.32 percent at December 31, 2008 while the yield on total borrowings decreased 233 basis points to 2.64 percent at December 31, 2008. A decrease of 285 basis points on the short-term borrowings for the year ended December 31, 2008 was the primary reason for the yield decrease in the total borrowings as the long-term borrowing yield increased 9 basis points over the same period. The short-term borrowing had an average balance of $42.9 million and $31.6 million as of December 31, 2008 and 2007, respectively. The yield decreases were driven by the rate decreases enacted throughout 2008 by the Federal Open Market Committee (FOMC) as well as local market competition. The yield on interest-earning assets decreased 47 basis points to 5.94 percent for the year ended December 31, 2008. The yield on total loans decreased 42 basis points to 6.66 percent for the year ended December 31, 2008.

     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 2009, 2008 and 2007.

AVERAGE BALANCE SHEET AND RATE ANALYSIS
YEARS ENDED DECEMBER 31,

		2009												2008												2007
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
(In Thousands)		(1)												(1)												(1)
ASSETS:
Tax-exempt loans		$	19,627			$	1,254				6.39	%		$	16,156			$	1,070				6.62	%		$	11,389			$	771				6.77	%
All other loans			307,450				18,925				6.16	%			218,915				14,587				6.66	%			148,959				10,585				7.11	%
Total loans (2)(3)(4)			327,077				20,179				6.17	%			235,071				15,657				6.66	%			160,348				11,356				7.08	%
Taxable securities			189,202				8,220				4.34	%			118,012				5,633				4.77	%			54,353				2,546				4.68	%
Tax-exempt securitites (3)			11,550				650				5.63	%			6,765				385				5.69	%			4,200				281				6.69	%
Total securities			200,752				8,870				4.42	%			124,777				6,018				4.82	%			58,553				2,827				4.83	%
Federal funds sold			7,639				10				0.13	%			6,990				155				2.22	%			10,013				512				5.11	%
Interest-bearing deposits			2,877				8				0.28	%			873				22				2.52	%			2,754				145				5.27	%
Total interest-earning assets			538,345				29,067				5.40	%			367,711				21,852				5.94	%			231,668				14,840				6.41	%
Other assets			44,460												30,117												16,808
TOTAL ASSETS		$	582,805											$	397,828											$	248,476
LIABILITIES:
Savings		$	56,493				225				0.40	%		$	39,223				156				0.40	%		$	24,602				98				0.40	%
Now deposits			68,650				100				0.15	%			47,534				129				0.27	%			29,321				91				0.31	%
Money market deposits			43,906				452				1.03	%			21,119				350				1.66	%			8,894				59				0.66	%
Time deposits			228,005				6,701				2.94	%			154,334				5,447				3.53	%			90,375				3,810				4.22	%
Total deposits			397,054				7,478				1.88	%			262,210				6,082				2.32	%			153,192				4,058				2.65	%
Short-term borrowings			48,826				368				0.75	%			42,912				754				1.76	%			31,582				1,457				4.61	%
Long-term borrowings			12,492				640				5.12	%			9,413				572				6.08	%			11,188				670				5.99	%
Junior subordinate debentures			4,640				128				2.76	%			1,605				96				5.98	%			—				—				—
Total borrowings			65,958				1,136				1.72	%			53,930				1,422				2.64	%			42,770				2,127				4.97	%
Total interest-bearing liabilities			463,012				8,614				1.86	%			316,140				7,504				2.37	%			195,962				6,185				3.16	%
Demand deposits			51,908												34,403												19,611
Other liabilities			4,359												2,761												1,900
Stockholders’ equity			63,526												44,524												31,003
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	582,805											$	397,828											$	248,476
Interest rate spread (6)											3.54	%											3.57	%											3.25	%
Net interest income/margin (5)						$	20,453				3.80	%						$	14,348				3.90	%						$	8,655				3.74	%

Reconcilement of Taxable Equivalent Net Interest Income
For the Years Ended December 31,

(In Thousands)		2009				2008				2007
Total interest income		$	28,420			$	21,357			$	14,483
Total interest expense			8,614				7,504				6,185
Net interest income			19,806				13,853				8,298
Tax equivalent adjustment			647				495				357
Net interest income (fully taxable equivalent)		$	20,453			$	14,348			$	8,655

Rate/Volume Analysis

     To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the balance sheet as it pertains to net interest income, the table below reflects these changes for 2009 versus 2008, and 2008 versus 2007:

		Year Ended December 31,
		2009 vs 2008												2008 vs 2007
		Increase (Decrease)												Increase (Decrease)
		Due to												Due to
(In Thousands)		Volume				Rate				Net				Volume				Rate				Net
Interest income:
Loans, tax-exempt		$	223			$	(39	)		$	184			$	316			$	(17	)		$	299
Loans			5,346				(1,008	)			4,338				4,614				(612	)			4,002
Taxable investment securities			3,133				(546	)			2,587				3,040				47				3,087
Tax-exempt investment securities			269				(4	)			265				151				(47	)			104
Federal funds sold			13				(158	)			(145	)			(255	)			(102	)			(357	)
Interest bearing deposits			19				(33	)			(14	)			124				(247	)			(123	)
Total interest-earning assets			9,003				(1,788	)			7,215				7,990				(978	)			7,012
Interest expense:
Savings			69				—				69				58				—				58
NOW deposits			44				(73	)			(29	)			51				(13	)			38
Money market deposits			272				(170	)			102				(1,325	)			1,615				290
Time deposits			2,278				(1,024	)			1,254				2,339				(702	)			1,637
Short-term borrowings			93				(479	)			(386	)			404				(1,107	)			(703	)
Long-term borrowings, FHLB			168				(100	)			68				(107	)			10				(97	)
Junior subordinate debentures			84				(52	)			32				96				—				96
Total interest-bearing liabilities			3,008				(1,898	)			1,110				1,516				(197	)			1,319
Change in net interest income		$	5,995			$	110			$	6,105			$	6,474			$	(781	)		$	5,693

PROVISION FOR LOAN LOSSES

2009 vs. 2008

     The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, evaluate potential charge-offs and recoveries, and assess the general conditions in the markets served. Management remains committed to an aggressive and thorough program of problem loan identification and resolution. 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, 2009, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy or employment and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in interest income. Also, as part of the examination process, bank regulatory agencies periodically review the Bank’s loan loss allowance. The bank regulators could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

     The provision for loan losses amounted to $1,025,000 and $750,000 for the years ended December 31, 2009 and 2008, respectively. Management concluded the increase of the provision was appropriate considering the gross loan growth experience of $10.2 million, increases in nonperforming assets, and the general downturn in the national economy. Utilizing the resources noted above, management concluded that the allowance for loan losses remains at a level adequate to provide for probable losses inherent in the loan portfolio.

2008 vs. 2007

     The provision for loan losses increased from $30,000 in 2007 to $750,000 in 2008.

NON-INTEREST INCOME

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 $467,000 or 137.8 percent from $339,000 in 2008 to $806,000 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 $397,000 from $419,000 in 2008 to $816,000 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			806				15.9				339				11.1				467				137.8
Earnings on bank-owned life insurance			445				8.8				366				12.0				79				21.6
Brokerage and insurance			281				5.5				218				7.2				63				28.9
Trust			655				12.9				434				14.3				221				50.9
Investment security (losses) gains			(385	)			(7.6	)			(431	)			(14.2	)			46				(10.7	)
Bank card and credit card interchange fees			743				14.7				417				13.7				326				78.2
Other			816				16.2				419				13.8				397				94.7
Total non-interest income		$	5,065				100.0	%		$	3,043				100.0	%		$	2,022				66.4	%

2008 vs. 2007

     Total non-interest income increased $738 thousand or 51.0 percent to $3.0 million for the year ended December 31, 2008. The increase primarily resulted from the 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 $339,000 or 36.0 percent to $1,281,000 for the year ended December 31, 2008. Gain on sale of loans increased $157,000 or 86.3 percent from $182,000 in 2007 to $339,000 in 2008. Brokerage income decreased $181,000 or 45.4 percent from $399,000 in 2007 to $218,000 in 2008. The decrease in brokerage income was significantly influenced by the national economic crises and the related market contraction that followed. During 2008, we recorded an other than temporary impairment loss on the equity security portfolio in the amount of $437,000. Bank and credit card

card interchange fees and other income increased $536,000 from $300,000 in 2007 to $836,000 in 2008 as a result of increased ATM transaction revenue and related surcharges

		For The Year Ended
		December 31,2008								December 31,2007								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Service charges and fees		$	1,281				42.1	%		$	942				40.9	%		$	339				36.0	%
Gain on sale of loans			339				11.1				182				7.9				157				86.3
Earnings on bank-owned life insurance			366				12.0				285				12.4				81				28.4
Brokerage and insurance			218				7.2				399				17.3				(181	)			(45.4	)
Trust			434				14.3				196				8.5				238				121.4
Investment security (losses) gains			(431	)			(14.2	)			1				—				(432	)			—
Bank card and credit card interchange fees			417				13.7				173				7.5				244				141.0
Other			419				13.8				127				5.5				292				229.9
Total non-interest income		$	3,043				100.0	%		$	2,305				100.0	%		$	738				32.0	%

NON-INTEREST EXPENSE

2009 vs. 2008

     Total non-interest expense increased $3.8 million or 30.7% from $12.1 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 $865 thousand or 12.5 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			1,492				9.4				2,179				17.9				(687	)			(31.5	)
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				129.6
Automated teller machine and interchange			509				3.2				286				2.3				223				78.0
Other			1,955				12.2				1,450				12.0				505				34.8
Total non-interest expense		$	15,914				100.0	%		$	12,172				100.0	%		$	3,742				30.7	%

2008 vs. 2007

     Total non-interest expense increased $5.1 million or 72.9% from $7.0 million in 2007 to $12.1 million in 2008. The increases primarily resulted from the 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 $3.0 million or 78.1 percent for the year ended December 31, 2008. Included in the increase was approximately $672,000 of compensation and benefits offered as severance packages to former Columbia County Farmers National Bank employees. Professional fees increased $255,000 or 81.0 percent from $315,000 in 2007 to $570,000 in 2008. Other expenses, Occupancy, Furniture and Equipment, Professional fees, and Directors fees all experienced net increases as a result of the CFC acquisition.

     One standard to measure non-interest expense is to express non-interest expense as a percentage of average total assets. In 2008 this percentage was 3.06 percent compared to 2.83 percent in 2007.

		For The Years Ended
		December 31,2008								December 31,2007								Change
(In Thousands)		Amount				% Total				Amount				% Total				Amount				%
Salaries		$	4,762				39.1	%		$	3,000				42.6	%		$	1,762				58.7	%
Employee benefits			2,179				17.9				897				12.7				1,282				142.9
Occupancy			760				6.2				491				7.0				269				54.8
Furniture and equipment			927				7.6				485				6.9				442				91.1
State shares tax			418				3.4				313				4.4				105				33.5
Professional fees			570				4.7				315				4.5				255				81.0
Directors fees			244				2.0				188				2.7				56				29.8
FDIC assessments			81				0.7				20				0.3				61				305.0
Telecommunications			215				1.8				49				0.7				166				338.8
Amortization of core deposit intangible			280				2.3				—				—				280				—
Automated teller machine and interchange			286				2.3				167				2.4				119				71.3
Other			1,450				12.0				1,113				15.8				337				30.3
Total non-interest expense		$	12,172				100.0	%		$	7,038				100.0	%		$	5,134				72.9	%

FINANCIAL CONDITION

     Our consolidated assets at December 31, 2009 were $602.5 million which represented an increase of $34.2 million or 6.0 percent from $568.3 million at December 31, 2008. The increase for 2008 from 2007 was 131.7 percent or $324.0 million. The 2008 increase primarily resulted from the acquisition of CFC as described in Note 15 of the Notes to the Consolidated Financial Statements included in Item 8.

     Capital increased 7.1 percent from $60.8 million in 2008 to $65.1 million in 2009, after an adjustment for the fair market value of securities which was an increase in capital of $901 thousand for 2009 compared to a increase in capital of $1.5 million for 2008. Common stock and surplus increased a net $388 thousand resulting primarily from issuance of 17,770 shares of stock issued under our Employee Stock Purchase Plan and the Dividend Reinvestment Plan.

     Total average assets increased 46.5 percent from $397.8 million at December 31, 2008 to $582.8 million at December 31, 2009. Average earning assets were $538.3 million in 2009 and $367.7 million in 2008.

     Loans increased 3.3 percent from $320.1 million at December 31, 2008 to $330.5 million at December 31, 2009.

     Interest bearing deposits increased 6.47 percent to $406.6 million at December 31, 2009 from $381.8 million at December 31, 2008. Noninterest-bearing deposits increased 6.2 percent from $52.5 million in 2008 to $55.7 million in 2009.

     The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased during 2009 to 71.5 percent compared to 73.7 percent during 2008.

     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.

INVESTMENTS SECURITIES AVAILABLE-FOR-SALE

		For the Years Ended December 31,
(In Thousands)		2009				2008				2007
Federal Agency Obligations		$	68,339			$	64,080			$	27,547
Mortgage-backed Securities			138,856				118,046				23,782
Obligations of State amd Political Subdivisions			11,374				9,994				4,045
Marketable Equity Securities			1,697				2,293				1,037
Total		$	220,266			$	194,413			$	56,411

     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, 2009 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		$	1,007				3.92	%		$	55,004				2.86	%		$	26,903				4.65	%		$	120,171				4.44	%		$	203,085				4.03	%
Obligations of State and Political Subdivisions			471				3.06	%			3,257				5.25	%			2,839				6.30	%			4,698				6.21	%			11,265				5.82	%
		$	1,478							$	58,261							$	29,742							$	124,869								214,350
Marketable Equity Securities																																			2,093
Total Invesment Securities																																		$	216,443