UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

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

CCFNB BANCORP, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA		23-2254643
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
232 East Street, Bloomsburg, PA		17815
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No 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 “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

On May 2, 2011, there were 2,229,791 shares of the Registrant’s common stock outstanding, par value $1.25.

 

 

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

		Page Number
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010			3
Consolidated Statements of Income (unaudited) for the three months ended March 31, 2011 and 2010			4
Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2011 and 2010			5
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010			6
Notes to Consolidated Financial Statements (unaudited)			7
Report of Independent Registered Public Accounting Firm			24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
Part II Other Information			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 5. Other Information			36
Item 6. Exhibits			36
Signatures			37
Exhibits			38

PART I Financial Information

Item 1.		Financial Statements

CCFNB Bancorp, Inc.

		March 31,				December 31,
(In Thousands)		2011				2010
ASSETS
Cash and due from banks		$	6,696			$	7,263
Interest-bearing deposits in other banks			24,783				18,683
Federal funds sold			1,472				1,649
Total cash and cash equivalents			32,951				27,595
Investment securities, available for sale, at fair value			204,238				207,173
Restricted securities, at cost			2,863				3,012
Loans, net of unearned income			343,381				340,453
Less: Allowance for loan losses			4,858				4,801
Loans, net			338,523				335,652
Premises and equipment, net			12,043				11,992
Accrued interest receivable			1,691				1,632
Cash surrender value of bank-owned life insurance			12,075				11,942
Investment in limited partnerships			1,568				1,607
Intangible Assets:
Core deposit			2,065				2,192
Goodwill			7,937				7,937
Prepaid FDIC assessment			1,352				1,490
Other assets			2,800				2,075
TOTAL ASSETS		$	620,106			$	614,299
LIABILITIES
Interest-bearing deposits		$	416,893			$	410,915
Noninterest-bearing deposits			65,574				62,877
Total deposits			482,467				473,792
Short-term borrowings			55,060				58,759
Long-term borrowings			6,122				6,123
Junior subordinate debentures			4,640				4,640
Accrued interest payable			592				652
Other liabilities			2,682				2,479
TOTAL LIABILITIES			551,563				546,445
STOCKHOLDERS’ EQUITY
Common stock, par value $1.25 per share; authorized 5,000,000 shares; issued 2,290,791 shares in 2011 and 2,286,931 shares in 2010			2,864				2,859
Surplus			28,076				27,964
Retained earnings			37,317				36,397
Accumulated other comprehensive income			1,873				2,221
Treasury stock, at cost; 61,000 shares in 2011 and 2010			(1,587	)			(1,587	)
TOTAL STOCKHOLDERS’ EQUITY			68,543				67,854
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	620,106			$	614,299

See accompanying notes to unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

		For the Three Months Ended March 31,
(In Thousands, Except Per Share Data)		2011				2010
INTEREST AND DIVIDEND INCOME
Interest and fees on loans:
Taxable		$	4,448			$	4,677
Tax-exempt			280				212
Interest and dividends on investment securities:
Taxable			1,457				1,861
Tax-exempt			126				105
Dividend and other interest income			11				10
Federal funds sold			1				1
Deposits in other banks			9				2
TOTAL INTEREST AND DIVIDEND INCOME			6,332				6,868
INTEREST EXPENSE
Deposits			1,224				1,537
Short-term borrowings			84				106
Long-term borrowings			39				125
Junior subordinate debentures			24				23
TOTAL INTEREST EXPENSE			1,371				1,791
NET INTEREST INCOME			4,961				5,077
PROVISION FOR LOAN LOSSES			80				310
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			4,881				4,767
NON-INTEREST INCOME
Service charges and fees			414				426
Gain on sale of loans			161				130
Earnings on bank-owned life insurance			108				116
Brokerage			60				89
Trust			216				171
Interchange fees			219				195
Other			250				171
TOTAL NON-INTEREST INCOME			1,428				1,298
NON-INTEREST EXPENSE
Salaries			1,657				1,576
Employee benefits			585				471
Occupancy			298				293
Furniture and equipment			301				311
State shares tax			143				133
Professional fees			153				145
Director’s fees			68				67
FDIC assessments			149				147
Telecommunications			83				96
Amortization of core deposit intangible			127				151
Automated teller machine and interchange			151				130
Other			429				455
TOTAL NON-INTEREST EXPENSE			4,144				3,975
INCOME BEFORE INCOME TAX PROVISION			2,165				2,090
INCOME TAX PROVISION			555				550
NET INCOME		$	1,610			$	1,540
EARNINGS PER SHARE		$	0.72			$	0.69
CASH DIVIDENDS PER SHARE		$	0.31			$	0.29
WEIGHTED AVERAGE SHARES OUTSTANDING			2,226,195				2,243,439

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

																		Accumulated
		Common																Other								Total
		Stock												Retained				Comprehensive				Treasury				Stockholders’
(In Thousands Except Per Share Data)		Shares				Amount				Surplus				Earnngs				Income (Loss)				Stock				Equity
Balance, December 31, 2009			2,270,850			$	2,838			$	27,539			$	32,723			$	2,523			$	(537	)		$	65,086
Comprehensive Income:
Net income															1,540												1,540
Change in net unrealized gain on investment securities available-for-sale, net of reclassification adjustment and tax effects																			348								348
Total comprehensive income																											1,888
Common stock issuance under dividend reinvestment and stock purchase plans			4,140				6				106																112
Recognition of employee stock purchase plan expense											1																1
Purchase of treasury stock (17,500 shares)																							(474	)			(474	)
Cash dividends, ($0.29 per share)															(650	)											(650	)
Balance, March 31, 2010			2,274,990			$	2,844			$	27,646			$	33,613			$	2,871			$	(1,011	)		$	65,963
Balance, December 31, 2010			2,286,931			$	2,859			$	27,964			$	36,397			$	2,221			$	(1,587	)		$	67,854
Comprehensive Income:
Net income															1,610												1,610
Change in net unrealized gain on investment securities available-for-sale, net of reclassification adjustment and tax effects																			(348	)							(348	)
Total comprehensive income																											1,262
Common stock issuance under dividend reinvestment and stock purchase plans			3,860				5				111																116
Recognition of employee stock purchase plan expense											1																1
Cash dividends, ($0.31 per share)															(690	)											(690	)
Balance, March 31, 2011			2,290,791			$	2,864			$	28,076			$	37,317			$	1,873			$	(1,587	)		$	68,543

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc.

		For The Three Months Ended March 31,
(In Thousands)		2011				2010
OPERATING ACTIVITIES
Net income		$	1,610			$	1,540
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			80				310
Depreciation and amortization of premises and equipment			200				233
Amortization and accretion on investment securities			255				242
Deferred income taxes (benefit) provision			(63	)			44
Gain on sale of loans			(161	)			(130	)
Proceeds from sale of mortgage loans			7,305				4,561
Originations of mortgage loans held for resale			(8,202	)			(4,815	)
Amortization of intangibles and invesment in limited partnerships			166				192
(Increase) Decrease in accrued interest receivable			(59	)			103
Increases in cash surrender value of bank-owned life insurance			(133	)			(141	)
Decrease in accrued interest payable			(60	)			(96	)
Other, net			8				(1,085	)
Net cash provided by operating activities			946				958
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases			(20,044	)			(5,118	)
Proceeds from sales, maturities and redemptions			22,048				29,102
Proceeds from redemption of restricted securities			149				—
Purchase of restricted securities			—				(184	)
Net increase in loans			(1,893	)			(6,905	)
Acquisition of premises and equipment			(251	)			(158	)
Net cash provided by investing activities			9				16,737
FINANCING ACTIVITIES
Net increase in deposits			8,675				5,968
Net decrease in short-term borrowings			(3,699	)			(2,747	)
Repayment of long-term borrowings			(1	)			(5,001	)
Acquisition of treasury stock			—				(474	)
Proceeds from issuance of common stock			116				112
Cash dividends paid			(690	)			(650	)
Net cash provided by (used for) financing activities			4,401				(2,792	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			5,356				14,903
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			27,595				11,459
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	32,951			$	26,362
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	1,431			$	1,887
Income taxes paid			—				99
Loans transferred to other real estate owned			—				300

See accompanying notes to the unaudited consolidated financial statements.

CCFNB BANCORP, INC.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

PRINCIPLES OF CONSOLIDATION

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

NATURE OF OPERATIONS

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

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

SEGMENT REPORTING

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

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

USE OF ESTIMATES

     The preparation of these consolidated financial statements in conformity with accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes include the assessment for impairment of certain investment securities, the allowance for loan losses, deferred tax assets and liabilities, impairment of other intangible assets, and other real estate owned. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstances indicate that the previous assumptions and factors have changed. The result of the analysis could result in adjustments to the estimates.

INVESTMENT SECURITIES

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

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

     The cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, as well as interest and dividends, is included in interest income from investments. Realized gains and losses are included in net investment securities gains. The cost of investment securities sold, redeemed or matured is based on the specific identification method.

RESTRICTED SECURITIES

     Restricted equity securities consist of stock in the Federal Home Loan Bank of Pittsburgh (“FHLB — Pittsburgh”), and Atlantic Central Bankers Bank (“ACBB”) and do not have a readily determinable fair value because their ownership is restricted, and they can be sold back only to the FHLB-Pittsburgh, ACBB or to another member institution. Therefore, these securities are classified as restricted equity investment securities, carried at cost, and evaluated for impairment. At March 31, 2011, the Corporation held $2,828,000 in stock of the FHLB-Pittsburgh and $35,000 in stock of ACBB. At December 31, 2010, the Corporation held $2,977,000 in stock of FHLB-Pittsburgh and $35,000 in stock of ACBB.

     The Corporation evaluated its holding of restricted stock for impairment and deemed the stock to not be impaired due to the expected recoverability of par value, which equals the value reflected within the Corporation’s financial statements. The decision was based on several items ranging from the estimated true economic losses embedded within FHLB’s mortgage portfolio to the FHLB’s liquidity position and credit rating. The Corporation utilizes the impairment framework outlined in GAAP to evaluate stock for impairment. The following factors were evaluated to determine the ultimate recoverability of the par value of the Corporation’s restricted stock holdings; (i) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted; (ii) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; (iii) the impact of legislative and regulatory changes on the institutions and, accordingly, on the customer base of the FHLB; (iv) the liquidity position of the FHLB; and (v) whether a decline is temporary or whether it affects the ultimate recoverability of the FHLB stock based on (a) the materiality of the carrying amount to the member institution and (b) whether an assessment of the institution’s operational needs for the foreseeable future allow management to dispose of the stock. Based on the analysis of these factors, the Corporation determined that its holding of restricted stock was not impaired at March 31, 2011 and December 31, 2010.

LOANS

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

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

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

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

ALLOWANCE FOR LOAN LOSSES

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

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

     In addition, the Bank is subject to periodic examination by its federal and state examiners, and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations.

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

     The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. At the present time, select loans are not aggregated for collective impairment evaluation, as such; all loans are subject to individual impairment evaluation should the facts and circumstances pertinent to a particular loan suggest that such evaluation is necessary. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a trouble debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Bank determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

     The general component covers all other loans not identified as impaired and is based on historical losses adjusted for current factors. The historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding two years. In calculating the historical component of our allowance, we aggregate our loans into one of four portfolio segments: Commercial, Financial & Agriculture, Commercial Real Estate, Consumer Real Estate, and Installment Loans to Individuals. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer and business spending as a result continued high unemployment and reduced credit availability and lack of confidence in a sustainable recovery. Actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: the concentration of watch and substandard loans as a percentage of total loans, levels of loan concentration within the portfolio segment or division of a portfolio segment and broad economic conditions.

PREMISES AND EQUIPMENT

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

MORTGAGE SERVICING RIGHTS

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

JUNIOR SUBORDINATE DEBENTURES

     During 2006, CFC issued $4,640,000 in junior debentures due December 15, 2036 to Columbia Financial Statutory Trust I (Trust). On July 18, 2008, the Corporation became the successor to CFC and to this Trust, respectively. The Corporation owns all of the $140,000 in common equity of the Trust and the debentures are the sole asset of the Trust. The Trust, a wholly-owned unconsolidated subsidiary of the Corporation, issued $4,500,000 of floating-rate trust capital securities in a non-public offering in reliance on Section 4 (2) of the Securities Act of 1933. The floating-rate capital securities provide for quarterly distributions at a variable annual coupon rate, reset quarterly, based on the 3-month LIBOR plus 1.75%. The coupon rate was 2.06% at March 31, 2011. The securities are callable by the Corporation, subject to any required regulatory approval, at par, after five years. The Corporation unconditionally guarantees the trust capital securities. The terms of the junior subordinated debentures and the common equity of the trust mirror the terms of the trust capital securities issued by the Trust.

INTANGIBLE ASSETS — GOODWILL

     Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. The Corporation has recorded net goodwill of $7,937,000 at March 31, 2011 and December 31, 2010 related to the 2008 acquisition of Columbia Financial Corporation and its subsidiary, First Columbia Bank & Trust Co. In accordance with current accounting standards, goodwill is not amortized. Management performs an annual evaluation for impairment. Any impairment of goodwill results in a charge to income. The Corporation periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired. Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company employs general industry practices in evaluating the impairment of its goodwill and other intangible assets. The Company calculates the value of goodwill using a combination of the following valuation methods: dividend discount analysis under the income approach, which calculates the present value of all excess cash flows plus the present value of a terminal value, the price/earnings multiple under the market approach and the

change in control premium to market price approach. Based upon these reviews, management determined there was no impairment of goodwill during 2011 or 2010. No assurance can be given that future impairment tests will not result in a charge to earnings.

INTANGIBLE ASSETS — CORE DEPOSIT

     The Corporation has an amortizable intangible asset related to the deposit premium paid for the acquisition of Columbia Financial Corporation’s subsidiary, First Columbia Bank & Trust Co. This intangible asset is being amortized on a sum of the years digits method over 10 years and has a carrying value of $2,065,000 as of March 31, 2011. At December 31, 2010, the intangible asset had a carrying value of $2,192,000. The recoverability of the carrying value is evaluated on an ongoing basis, and permanent declines in value, if any, are charged to expense. Amortization of the core deposit intangible amounted to $127,000 and $151,000 for the three months ended March 31, 2011 and 2010, respectively.

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

For the Year Ended:
Remainder of 2011		$	382,000
2012			442,000
2013			374,000
2014			308,000
2015			240,000
Thereafter			319,000
Total		$	2,065,000

OTHER REAL ESTATE OWNED

     Real estate properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value on the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell and is included in other assets. Revenues derived from and costs to maintain the assets and subsequent gains and losses on sales are included in other non-interest income and expense. There was no other real estate owned as of March 31, 2011 and December 31, 2010.

BANK OWNED LIFE INSURANCE

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

INVESTMENTS IN LIMITED PARTNERSHIPS

     The Corporation is a limited partner in four partnerships at March 31, 2011 that provide low income housing in the Corporation’s geographic market area. The investments are accounted for under the effective yield method. Under the effective yield method, the Corporation recognizes tax credits as they are allocated and amortizes the initial cost of the investment to provide a constant effective yield over the period that the tax credits are allocated to the Corporation. Under this method, the tax credits allocated, net of any amortization of the investment in the limited partnerships, are recognized in the consolidated statements of income as a component of income tax expense. The amount of tax credits allocated to the Corporation was $158,000 and the amortization of the investments in limited partnerships was $38,000 and $41,000 for the three months ended March 31, 2011 and 2010, respectively. The carrying value of the Corporation’s investments in limited partnerships was $1,568,000 at March 31, 2011 and $1,607,000 at December 31, 2010.

INVESTMENT IN INSURANCE AGENCY

     The Corporation owns a 50 percent interest in a local insurance agency, a corporation organized under the laws of the Commonwealth of Pennsylvania. The income or loss from this investment is accounted for under the equity method of accounting. The carrying value of this investment as of March 31, 2011 and December 31, 2010 was $232,000, and is included in other assets in the accompanying consolidated balance sheets.

INCOME TAXES

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

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the

scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

     A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

     The Corporation and the Bank are subject to U.S. federal income tax and Commonwealth of Pennsylvania tax. The Corporation is no longer subject to examination by Federal or State taxing authorities for the years before 2007. At March 31, 2011 and December 31, 2010 the Corporation did not have any unrecognized tax benefits. The Corporation does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months. The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense. At March 31, 2011 and December 31, 2010, the Corporation does not have any amounts accrued for interest and/or penalties.

PER SHARE DATA

     Basic earnings per share are calculated by dividing net income by the weighted average number of shares of common stock outstanding at the end of each period. Diluted earnings per share are calculated by increasing the denominator for the assumed conversion of all potentially dilutive securities. The Corporation does not have any securities which have or will have a dilutive effect, so accordingly, basic and diluted per share data are the same.

CASH FLOW INFORMATION

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

TREASURY STOCK

     The purchase of the Corporation’s common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a last-in first-out basis.

TRUST ASSETS AND INCOME

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

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

ADVERTISING COSTS

     It is the Corporation’s policy to expense advertising costs in the period in which they are incurred. Advertising expense for the three months ended March 31, 2011 and 2010 was approximately $45,000 and $46,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

     FASB ASU 2010-20, “Receivable (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” — ASU 2010-20 requires new and enhanced disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses. The new and amended disclosure requirements focus on such areas as nonaccrual and past due financing receivables, allowance for credit losses related to financing receivables, impaired loans, credit quality information and modifications. The ASU requires an entity to disaggregate new and existing disclosures based on how it develops its allowance for credit losses and how it manages credit exposures. For public entities, the disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010. See Note 3.

     FASB ASU 2010-09 — Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure requirements.

This accounting standard update modifies the requirement to disclose the date that subsequent events are considered through for SEC filers. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements.

     FASB ASC 860 — In June 2009, the FASB issued new guidance impacting FASB ASC 860, Transfers and servicing (Statement No. 166 — Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140). The new guidance

removes the concept of a qualifying special-purpose entity and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The new guidance became effective for the Corporation on January 1, 2010. The implementation of this new guidance did not have a material impact on the Corporation’s consolidated financial statements.

     FASB ASC 820-10 — In January 2010, the FASB issued an update (ASC No. 2010-06, Improving Disclosures about Fair Value Measurements) impacting FASB ASC 820-10, Fair Value Measurements and Disclosures. The amendments in this update require new disclosures about significant transfers in and out of Level 1 and Level 2 fair value measurements. The amendments also require a reporting entity to provide information about activity for purchases, sales, issuances and settlements in Level 3 fair value measurements and clarify disclosures about the Level of disaggregation and disclosures about inputs and valuation techniques. This update became effective for the Corporation on January 1, 2010. The implementation of this new guidance did not have a material impact on the Corporation’s consolidated financial statements.

RECLASSIFICATIONS

     Certain amounts in the consolidated financial statements of the prior periods have been reclassified to conform to presentations used in the 2011 consolidated financial statements. Such reclassifications had no effect on the Corporation’s consolidated financial condition or net income.

2. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

     The amortized cost, related estimated fair value, and unrealized gains and losses for investment securities were as follows at March 31, 2011 and December 31, 2010:

		March 31, 2011
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In Thousands)		Cost				Gains				Losses				Value
Obligation of U.S.Government Corporations and Agencies:
Mortgage-backed		$	118,316			$	3,262			$	(299	)		$	121,279
Other			65,538				184				(414	)			65,308
Obligations of state and political subdivisions			15,417				144				(34	)			15,527
Total debt securities			199,271				3,590				(747	)			202,114
Marketable equity securities			2,130				183				(189	)			2,124
Total investment securities AFS		$	201,401			$	3,773			$	(936	)		$	204,238

		December 31, 2010
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In Thousands)		Cost				Gains				Losses				Value
Obligation of U.S. Government Corporations and Agencies:
Mortgage-backed		$	129,008			$	3,794			$	(287	)		$	132,515
Other			59,046				279				(422	)			58,903
Obligations of state and political subdivisions			13,625				115				(69	)			13,671
Total debt securities			201,679				4,188				(778	)			205,089
Marketable equity securities			2,130				148				(194	)			2,084
Total investment securities AFS		$	203,809			$	4,336			$	(972	)		$	207,173

     Securities available-for-sale with an aggregate fair value of $105,508,000 and $94,979,000 at March 31, 2011 and December 31, 2010, respectively, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and other balances of $69,436,000 and $70,861,000 at March 31, 2011 and December 31, 2010, respectively, as required by law.

     The amortized cost and estimated fair value of investment securities, by expected maturity, are shown below at March 31, 2011. Expected maturities on debt securities will differ from contractual maturities, because some borrowers may have the right to call

or prepay obligations with or without call or prepayment penalties. Other securities and marketable equity securities are not considered to have defined maturities and are included in the “Due after ten years” category:

										Weighted
		Amortized				Estimated				Average
(In Thousands)		Cost				Fair Value				Yield
Due in one year or less		$	2,320			$	2,339				3.55	%
Due after one year to five years			47,391				47,301				1.88	%
Due after five years to ten years			35,487				35,821				3.31	%
Due after ten years			116,203				118,777				3.60	%
Total		$	201,401			$	204,238

     There were no aggregate investments with a single issuer (excluding the U. S. Government and its Agencies) which exceeded ten percent of consolidated stockholders’ equity at March 31, 2011 or December 31, 2010. The quality rating of all obligations of state and political subdivisions were “A” or higher, as rated by Moody’s or Standard and Poors. The only exceptions were local issues which were not rated, but were secured by the full faith and credit obligations of the communities that issued these securities. All of the state and political subdivision investments were actively traded in a liquid market.

     Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320 (SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). In determining OTTI under the FASB ASC 320 (SFAS No. 115) model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

     When other-than-temporary-impairment occurs, the amount of the other-than-temporary-impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the other-than-temporary impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total other-than-temporary- impairment related to the other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary-impairment recognized in earnings shall become the new amortized cost basis of the investment.

     The following summary shows the gross unrealized losses and fair value, aggregated by investment category of those individual securities that have been in a continuous unrealized loss position for less than or more than 12 months as of March 31, 2011 and December 31, 2010:

		March 31, 2011
		Less than Twelve Months								Twelve Months or Greater								Total
		Estimated				Gross				Estimated				Gross				Estimated				Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In Thousands)		Value				Losses				Value				Losses				Value				Losses
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed		$	27,570			$	299			$	—			$	—			$	27,570			$	299
Other			36,587				414				—				—				36,587				414
Obligations of state and political subdivisions			2,917				34				—				—				2,917				34
Total debt securities			67,074				747				—				—				67,074				747
Equity securities			45				3				922				186				967				189
Total		$	67,119			$	750			$	922			$	186			$	68,041			$	936

		December 31, 2010
		Less than Twelve Months								Twelve Months or Greater								Total
		Estimated				Gross				Estimated				Gross				Estimated				Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(In Thousands)		Value				Losses				Value				Losses				Value				Losses
Obligations of U.S. Government Corporations and Agencies:
Mortgage-backed		$	33,482			$	287			$	—			$	—			$	33,482			$	287
Other			29,578				422				—				—				29,578				422
Obligations of state and political subdivisions			3,849				69				—				—				3,849				69
Total debt securities			66,909				778				0				0				66,909				778
Equity securities			45				3				1,005				191				1,050				194
Total		$	66,954			$	781			$	1,005			$	191			$	67,959			$	972

     At March 31, 2011, the Corporation had a total of 277 individual debt securities and 45 individual equity security positions. At March 31, 2011, there were a total of 43 individual debt securities and 13 individual equity securities that were in a continuous unrealized loss position for less than twelve months. At March 31, 2011, there were no debt securities and a total of 10 individual equity securities in a continuous loss position for greater than twelve months.

     The Corporation invests in various forms of agency debt including mortgage-backed securities and callable agency debt. The fair market value of these securities is influenced by market interest rates, prepayment speeds on mortgage securities, bid to offer spreads in the market place and credit premiums for various types of agency debt. These factors change continuously and therefore the market value of these securities may be higher or lower than the Corporation’s carrying value at any measurement date. The Corporation does not consider the debt securities contained in the previous table to be other-than-temporarily impaired since it has both the intent and ability to hold the securities until a recovery of fair value, which may be maturity.

     The Corporation’s marketable equity securities consist of common stock positions in various Commercial Banks, Savings and Loans/Thrifts, and Diversified Financial Service Corporations varying in asset size and geographic region. The Corporation’s equity securities represent less than 1 percent of the total available for sale investments as of March 31, 2011. The following tables display the Corporation’s holdings of these securities by asset size and geographic region as of March 31, 2011:

		March 31, 2011
						Gross				Gross				Estimated
(In Thousands)		Amortized				Unrealized				Unrealized				Fair
Asset size($)		Cost				Gains				Losses				Value
Under $1 Billion		$	455			$	64			$	(24	)		$	495
$1 to $5 Billion			209				14				(7	)			216
$6 to $100 Billion			780				41				(141	)			680
Over $100 Billion			686				64				(17	)			733
		$	2,130			$	183			$	(189	)		$	2,124

		March 31, 2011
						Gross				Gross				Estimated
(In Thousands)		Amortized				Unrealized				Unrealized				Fair
Geographic Region		Cost				Gains				Losses				Value
Eastern U.S.		$	1,040			$	103			$	(97	)		$	1,046
Southeastern U.S.			110				—				(1	)			109
Western U.S.			53				—				(3	)			50
National			927				80				(88	)			919
		$	2,130			$	183			$	(189	)		$	2,124

     The fair market value of the equity securities tends to fluctuate with the overall equity markets as well as the trends specific to each institution. The equity securities portfolio is reviewed in a similar manner as that of the debt securities with greater emphasis placed on the length of time the market value has been less than the carrying value and the financial sector outlook. The Corporation also reviews dividend payment activities, levels of non performing assets and loan loss reserves, and whether or not the issuer is participating in the TARP Capital Purchase Program. The starting point for the equity analysis is the length and severity of market value decline. The Corporation and an independent consultant monitor the entire portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months. During 2010, impairment was recognized on a

few securities which management believed that a sufficient amount of credit damage had occurred relative to the issuer’s capital position to render the security unlikely to recover to our cost within the near term. For the three months ended March 31, 2011 and 2010 the Corporation did not record an other-than-temporary impairment related to the investment in these equity securities. Securities with an unrealized loss that were determined to be other-than-temporary were written down to fair value, with the write-down recorded as a realized loss included in security (losses) gains. The Corporation evaluated the near-term prospects of the issuer in relation the severity and duration of the market value decline as well as the other attributes listed above. Based on that evaluation and the Corporation’s ability and intent to hold these equity securities for a reasonable period of time sufficient for a forecasted recovery of fair value, the Corporation does not consider these equity securities to be other-than-temporarily impaired at March 31, 2011.

3. LOANS

     Major classifications of loans at March 31, 2011 and December 31, 2010 consisted of:

(In Thousands)		2011				2010
Commercial, financial and agricultural		$	35,836			$	33,819
Tax-exempt			27,194				25,180
Commercial real estate:
Commercial mortgages			92,737				95,688
Other construction and land development loans			7,155				6,284
Secured by farmland			5,635				5,697
Consumer real estate:
Home equity loans			20,494				21,687
Home equity lines of credit			17,778				17,802
1-4 family residential mortgages			124,011				121,665
Construction			5,556				5,405
Installment loans to individuals			6,990				7,232
Unearned discount			(5	)			(6	)
Gross loans		$	343,381			$	340,453

Loan Origination and Risk Management

     The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and the Board of Directors approve these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

     Commercial, financial, and agricultural loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Corporation’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial, financial, and agricultural loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial, financial, and agricultural loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

     Commercial real estate loans are subject to underwriting standards and processes similar to commercial, financial, and agricultural loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Corporations’ commercial real estate portfolio are diverse in terms of type and geographic locations served by the Corporation. This diversity helps reduce the Corporation’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral. As a general rule the Corporation avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk.

     The Corporation originates consumer loans using a credit scoring system to supplement the underwriting process. To monitor and manage consumer loan risk, polices and procedures are reviewed and modified on a regular basis. In addition, risk is reduced by keeping the loan amounts relatively small and spread across many individual borrowers. Additionally, trend reports are reviewed regularly by management. Underwriting standards for home equity loans are influenced by statutory requirements, which include such

controls as maximum loan-to-value percentages, collection remedies, documentation requirements, and limits on the number of loans an individual can have at one time.

     The Corporation contracts an independent third party consultant that reviews and validates the credit risk program on an annual basis. Results of theses reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Corporation’s loan policies and procedures.

     Real estate loans held-for-sale in the amount of $3,063,000 at March 31, 2011 and $2,005,000 at December 31, 2010 are included in consumer real estate loans above and are carried at the lower of cost or market.

     The aggregate amount of demand deposits that have been reclassified as consumer loan balances at March 31, 2011 and December 31, 2010 are $189,000 and $137,000, respectively.

Concentrations of Credit Risk

     Most of the Corporation’s lending activity occurs within the Bank’s primary market area which encompasses Columbia County, a 484 square mile area located in North central Pennsylvania. The majority of the Corporation’s loan portfolio consists of commercial real estate and consumer real estate loans. As of March 31, 2011 and December 31, 2010, there were no concentrations of loans related to any single industry in excess of 10% of total loans.

Non-Accrual and Past Due Loans

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

     Non-accrual loans, segregated by class of loans, were as follows as of March 31, 2011 and December 31, 2010:

(In Thousands)		March 31, 2011				December 31, 2010
Commercial, financial and agricultural		$	338			$	224
Tax-exempt			—				—
Commercial real estate:
Commercial mortgages			1,151				2,166
Other construction and land development loans			—				—
Secured by farmland			—				—
Consumer real estate:
Home equity loans			305				297
Home equity lines of credit			—				—
1-4 family residential mortgages			1,323				1,141
Construction			—				—
Installment loans to individuals			—				—
Total		$	3,117			$	3,828

     At March 31, 2011 and December 31, 2010, there were no significant commitments to lend additional funds with respect to non-accrual and restructured loans.

     Generally, a loan is considered past due when a payment is in arrears for a period of 10 or 15 days, depending on the type of loan. Delinquent notices are issued at this point and collection efforts will continue on loans past due beyond 60 days which have not been satisfied. Past due loans are continually evaluated with determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

     An age analysis of past due loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010 were as follows:

		March 31, 2011
		Loans				Loans																Accruing Loans
		30-89 Days				90 or more days				Total Past				Current				Total				90 or more
(In Thousands)		Past Due				Past Due				Due Loans				Loans				Loans				Days Past Due
Commercial, financial and agricultural		$	309			$	338			$	647			$	35,189			$	35,836			$	—
Tax-exempt			—				—				—				27,194				27,194				—
Commercial real estate:
Commercial mortgages			136				1,151				1,287				91,450				92,737				—
Other construction and land development loans			—				—				—				7,155				7,155				—
Secured by farmland			—				—				—				5,635				5,635				—
Consumer real estate:
Home equity loans			292				305				597				19,897				20,494				—
Home equity lines of credit			40				—				40				17,738				17,778				—
1-4 family residential mortgages			1,954				1,323				3,277				120,734				124,011				—
Construction			—				—				—				5,556				5,556				—
Installment loans to individuals			37				—				37				6,953				6,990				—
Unearned discount			—				—				—				(5	)			(5	)
Gross loans		$	2,768			$	3,117			$	5,885			$	337,496			$	343,381			$	—

		December 31, 2010
		Loans				Loans																Accruing Loans
		30-89 Days				90 or more days				Total Past				Current				Total				90 or more
(In Thousands)		Past Due				Past Due				Due Loans				Loans				Loans				Days Past Due
Commercial, financial and agricultural		$	244			$	224			$	468			$	33,351			$	33,819			$	—
Tax-exempt			—				—				—				25,180				25,180				—
Commercial real estate:
Commercial mortgages			511				2,166				2,677				93,011				95,688				—
Other construction and land development loans			—				—				—				6,284				6,284				—
Secured by farmland			—				—				—				5,697				5,697				—
Consumer real estate:
Home equity loans			136				297				433				21,254				21,687				—
Home equity lines of credit			—				—				—				17,802				17,802				—
1-4 family residential mortgages			2,233				1,141				3,374				118,291				121,665				—
Construction			—				—				—				5,405				5,405				—
Installment loans to individuals			32				—				32				7,200				7,232				—
Unearned discount			—				—				—				(6	)			(6	)
Gross loans		$	3,156			$	3,828			$	6,984			$	333,469			$	340,453			$	—

     There were no loans past due 90 days and still accruing interest at March 31, 2011 and December 31, 2010.

Impaired Loans

     A loan is considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in smaller-balance loans of a similar nature and on an individual basis for other loans. If a loan is impaired, a specific allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The recognition of interest income on impaired loans is the same as for non-accrual loans discussed above.

     No additional charge to operations was required to provide for these impaired loans as the specifically allocated allowance of $790,000 at March 31, 2011, is estimated by management to be adequate to provide for the loan loss allowance associated with these impaired loans.

     Impaired loans are set forth in the following table as of March 31, 2011 and December 31, 2010:

		March 31, 2011
		Unpaid				Recorded				Recorded
		Contractual				Investment				Investment				Total
		Principal				With No				With				Recorded				Related
(In Thousands)		Balance				Allowance				Allowance				Investment				Allowance
Commercial, financial and agricultural		$	612			$	448			$	164			$	612			$	133
Tax-exempt			—				—				—				—				—
Commercial real estate:
Commercial mortgages			1,263				198				1,065				1,263				376
Other construction and land development loans			—				—				—				—				—
Secured by farmland			318				318				—				318				—
Consumer real estate:
Home equity loans			448				80				368				448				210
Home equity lines of credit			—				—				—				—				—
1-4 family residential mortgages			1,293				880				413				1,293				71
Construction			—				—				—				—				—
Installment loans to individuals			—				—				—				—				—
Gross loans		$	3,934			$	1,924			$	2,010			$	3,934			$	790

		December 31, 2010
		Unpaid				Recorded				Recorded
		Contractual				Investment				Investment				Total
		Principal				With No				With				Recorded				Related
(In Thousands)		Balance				Allowance				Allowance				Investment				Allowance
Commercial, financial and agricultural		$	498			$	463			$	35			$	498			$	15
Tax-exempt			—				—				—				—				—
Commercial real estate:
Commercial mortgages			2,325				484				1,841				2,325				499
Other construction and land development loans			—				—				—				—				—
Secured by farmland			319				319				—				319				—
Consumer real estate:
Home equity loans			411				112				299				411				209
Home equity lines of credit			—				—				—				—				—
1-4 family residential mortgages			1,211				716				495				1,211				90
Construction			—				—				—				—				—
Installment loans to individuals			—				—				—				—				—
Gross loans		$	4,764			$	2,094			$	2,670			$	4,764			$	813

Allowance for Possible Loan Losses

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

     The following table details activity in the allowance for possible loan losses by portfolio segment for the three months ended March 31, 2011 and 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

		March 31, 2011
		Commercial				Commercial				Consumer				Installment
		Financial &				Real				Real				Loans
(In Thousands)		Agricultural				Estate				Estate				Individuals				Unallocated				Total
Balance, beginning of year		$	752			$	2,286			$	1,243			$	106			$	414			$	4,801
Provision charged to operations			167				(117	)			60				9				(39	)			80
Loans charged off			—				(9	)			(4	)			(15	)			—				(28	)
Recoveries			—				—				2				3				—				5
Ending balance		$	919			$	2,160			$	1,301			$	103			$	375				4,858
Ending balance individually evaluated for impairment		$	133			$	567			$	76			$	—			$	—			$	776
Ending balance collectively evaluated for impairment		$	786			$	1,593			$	1,225			$	103			$	375			$	4,082

		March 31, 2010
		Commercial				Commercial				Consumer				Installment
		Financial &				Real				Real				Loans
(In Thousands)		Agricultural				Estate				Estate				Individuals				Unallocated				Total
Balance, beginning of year		$	567			$	1,793			$	1,339			$	149			$	362			$	4,210
Provision charged to operations			37				577				(21	)			(14	)			(269	)			310
Loans charged off			—				(518	)			(18	)			(4	)			—				(540	)
Recoveries			1				—				1				4				—				6
Ending balance		$	605			$	1,852			$	1,301			$	135			$	93				3,986
Ending balance individually evaluated for impairment		$	—			$	411			$	86			$	—			$	—			$	497
Ending balance collectively evaluated for impairment		$	605			$	1,441			$	1,215			$	135			$	93			$	3,489