UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008.

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

For the transition period from                      to                     .

CCFNB BANCORP, INC.

(Exact 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, PA (Address of principal executive offices)		17815 (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirings for the past 90 days. Yes þ 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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

On October 31, 2008, there were 2,249,010 shares of the Registrant’s Common stock outstanding, par value $1.25.

 

 

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

		Page
		Number
Part I Financial Information
Item1. Financial Statements
Consolidated Balance Sheet as of September 30,2008 (unaudited) and December 31, 2007		2
Consolidated Statement of Income (unaudited) for the Three and Nine months ended September 30, 2008 and 2007		3
Consolidated Statement of Cash Flows (unaudited) for the Nine Months ended September 30, 2008 and 2007		4
Notes to Consolidated Financial Statements (unaudited)		5
Report of Independent Registered Public Accounting Firm		21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		31
Part II Other Information		32
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities		32
Item 4. Submission of Matters to a Vote of Security Holders		32
Item 5. Other Information		32
Item 6. Exhibits		33
Signatures		34
Exhibits		35

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CCFNB Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

		(Unaudited)
		September 30,				December 31,
(In Thousands)		2008				2007
ASSETS
Cash and due from banks		$	10,764			$	5,550
Interest-bearing deposits in other banks			348				732
Federal funds sold			1,056				7,119
Total cash and cash equivalents			12,168				13,401
Investment securities, available for sale, at fair value			209,817				57,686
Loans,net of unearned income			324,747				161,460
Less: Allowance for loan losses			3,055				1,437
Loans, net			321,692				160,023
Premises and equipment, net			12,504				5,087
Accrued interest receivable			2,802				1,082
Cash surrender value of bank-owned life insurance			10,610				7,077
Investment in limited partnerships			890				—
Intangible Assets:
Core deposit			3,579				—
Goodwill			6,235				—
Other assets			1,944				968
TOTAL ASSETS		$	582,241			$	245,324
LIABILITIES
Interest-bearing deposits		$	385,672			$	151,544
Noninterest-bearing deposits			52,580				19,394
Total deposits			438,252				170,938
Short-term borrowings			68,838				29,511
Long-term borrowings			9,134				11,137
Junior subordinate debentures			3,126				—
Accrued interest payable			1,112				475
Other liabilities			2,828				1,636
TOTAL LIABILITIES			523,290				213,697
STOCKHOLDERS’ EQUITY
Common stock, par value $1.25 per share; authorized 5,000,000 shares; issued and outstanding 2,249,010 shares in 2008 and 1,226,536 shares in 2007			2,811				1,533
Surplus			27,102				2,271
Retained earnings			28,896				27,679
Accumulated other comprehensive income			142				144
TOTAL STOCKHOLDERS’ EQUITY			58,951				31,627
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	582,241			$	245,324

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

(UNAUDITED)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In Thousands, Except Per Share Data)		2008				2007				2008				2007
INTEREST AND DIVIDEND INCOME
Interest and fees on loans:
Taxable		$	4,535			$	2,667			$	9,614			$	7,926
Tax-exempt			197				132				495				363
Interest and divedends on investment securities:
Taxable			1,967				657				3,220				1,757
Tax-exempt			80				44				164				141
Dividend and other interest income			39				32				88				92
Federal funds sold			45				138				153				412
Deposits in other banks			3				48				23				136
TOTAL INTEREST AND DIVIDEND INCOME			6,866				3,718				13,757				10,827
INTEREST EXPENSE
Deposits			1,979				1,038				4,005				3,016
Short-term borrowings			222				406				580				1,108
Long-term borrowings			140				168				432				502
Junior subordinate debentures			44				—				44				—
TOTAL INTEREST EXPENSE			2,385				1,612				5,061				4,626
NET INTEREST INCOME			4,481				2,106				8,696				6,201
PROVISION FOR LOAN LOSSES			—				—				—				30
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			4,481				2,106				8,696				6,171
NON-INTEREST INCOME
Service charges and fees			317				240				797				680
Gain on sale of loans			74				60				194				124
Bank-owned life insurance			111				74				244				217
Investment center			82				68				174				339
Trust department			143				50				217				132
Other			427				81				565				230
TOTAL NON-INTEREST INCOME			1,154				573				2,191				1,722
NON-INTEREST EXPENSE
Salaries			1,637				723				3,056				2,224
Employee benefits			1,125				212				1,595				660
Occupancy			240				122				496				369
Equipment			361				121				583				363
State shares tax			114				77				277				236
Professional services			250				84				382				213
Director’s fees			55				46				152				139
Stationary and supplies			99				32				153				127
Impairment loss on securities			283				—				283				—
Other			416				295				987				900
TOTAL NON-INTEREST EXPENSE			4,580				1,712				7,964				5,231
INCOME BEFORE INCOME TAX PROVISION			1,055				967				2,923				2,662
INCOME TAX PROVISION			183				249				653				675
NET INCOME		$	872			$	718			$	2,270			$	1,987
EARNINGS PER SHARE — BASIC AND DILUTED		$	0.43			$	0.58			$	1.51			$	1.61
DIVIDENDS PER SHARE		$	0.24			$	0.21			$	0.66			$	0.61
WEIGHTED AVERAGE SHARES OUTSTANDING			2,056,686				1,235,249				1,503,955				1,235,249

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc. & Subsidiary

Consolidated Statement of Cash Flows

(Unaudited)

		Nine Months Ended
		September 30,
(In Thousands)		2008				2007
OPERATING ACTIVITIES
Net Income		$	2,270			$	1,987
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			—				30
Depreciation and amortization			565				307
Employee stock purchase plan expense			2				2
Impairment loss on securites			283				—
Amortization of investment security premiums			217				70
Accretion of investment security discounts			(36	)			(21	)
Deferred income taxes benefit			(165	)			(55	)
Gain on sale of loans			(194	)			(124	)
Proceeds from sale of mortgage loans			11,194				5,260
Originations of mortgage loans held for resale			(11,775	)			(5,167	)
Income from investment in insurance agency			(18	)			(10	)
Increase in accrued interest receivable and other assets			(617	)			(728	)
Increases in cash surrender value of bank-owned life insurance			(275	)			(242	)
(Decrease) Increase in accrued interest payable, other expenses and other liabilites			(22	)			135
Net cash provided by operating activities			1,429				1,444
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases			(48,283	)			(31,379	)
Proceeds from sales, maturities and redemptions			34,380				22,806
Proceeds from redemption of regulatory stock			1,387				6
Purchase of regulatory stock			(1,825	)			(62	)
Net decrease in loans			(412	)			(830	)
Acquisition of bank cash			5,803				—
Acquisition of bank premises and equipment			(515	)			(440	)
Net cash used for investing activities			(9,465	)			(9,899	)
FINANCING ACTIVITIES
Net increase in deposits			2,622				3,271
Net increase in short-term borrowings			7,444				8,056
Repayment of long-term borrowings			(2,003	)			(159	)
Acquisition of treasury stock			(398	)			(499	)
Proceeds from issuance of common stock			191				181
Cash dividends paid			(1,053	)			(752	)
Net cash provided by financing activities			6,803				10,098
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(1,233	)			1,643
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			13,401				15,531
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	12,168			$	17,174
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	4,424			$	4,564
Income taxes paid			735				644
Loans transferred to other real estate owned			242				—

See accompanying notes to the unaudited consolidated financial statements.

CCFNB Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

NOTE 1 — Summary of Significant Accounting Policies

The accounting and reporting policies of CCFNB Bancorp, Inc. and Subsidiary (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”), parent company of the Bank was acquired by CCFNB Bancorp, Inc. on July 18, 2008 and Columbia County Farmers National Bank (“CCFNB”) merged with the Bank on July 18, 2008. Financial results reflected in the statements of this report include results of earnings of the Corporation from January 1, 2008 through September 30, 2008, which includes the earnings results of the acquired entities from July 18, 2008 through September 30, 2008. All significant inter-company balances and transactions have been eliminated in consolidation.

Nature of Operations & Lines of Business

The Corporation provides full banking services, 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 its banking subsidiary are subject to 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 the loans are mainly real estate loans covering primary residences and small business enterprises. The trust services, under the name of B.B.C.T. Co. include administration of various estates, pension plans, self-directed IRA’s and other services. Two third-party brokerage arrangements are also resident in the Main branch in Bloomsburg and the Lightstreet branch. These investment centers offer a full line of stocks, bonds and other non-insured financial services.

Segment Reporting

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

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

Use of Estimates

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted 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 income and expenses during the reporting periods. Actual results could differ from those estimates.

Investment Securities

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

Debt securities not classified as held-to-maturity and equity securities included in the available-for-sale category, are carried at fair value, and the amount of any unrealized gain or loss net of the effect of deferred income taxes is reported as other comprehensive income (see Note 6). Management’s decision to sell available-for-sale securities is based on changes in economic conditions controlling the sources and uses of funds, terms, availability of and yield of alternative investments, interest rate risk, and the need for liquidity.

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

Loans

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

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

Past Due Loans - Generally, a loan is considered past due when a payment is in arrears for a period of 10 or 15 days, depending on the type of loan. Delinquent notices are issued at this point and 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.

Non-Accrual Loans - Generally, a loan is classified as non-accrual, with the accrual of interest on such a loan discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even

though the loan currently is performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. Certain non-accrual loans may continue to perform, wherein, payments are still being received with those payments generally applied to principal. Non-accrual loans remain under constant scrutiny and if performance continues, interest income may be recorded on a cash basis based on management’s judgement as to collectability of principal.

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.

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

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

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

Derivatives

The Bank has outstanding loan commitments that relate to the origination of mortgage loans that will be held for resale. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and SFAS No. 149 “Amendments to SFAS 133 on Derivative Instruments and Hedging Activities” and the guidance contained in the Derivatives Implementation Group Statement 133 Implementation Issue No. C 13, the Bank has accounted for such loan commitments as derivative instruments. The outstanding loan commitments in this category did not give rise to any losses for the nine-month period ended September 30, 2008 and the year ended December 31, 2007, as the fair market value of each outstanding loan commitment exceeded the Bank’s cost basis in each loan commitment.

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 Corporation originates and sells real estate loans to investors in the secondary mortgage market. After the sale, the Corporation retains the right to service some 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 sheet. The servicing rights are periodically evaluated for impairment based on their relative fair value.

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.

Bank Owned Life Insurance

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

Investment in Limited Partnerships

The Corporation is a limited partner in three partnerships at September 30, 2008 that provide low income elderly housing in the Corporation’s geographic market area. The carrying value of the Corporation’s investments in limited partnerships was $890,000 and $0 at September 30, 2008 and December 31, 2007, respectively. The Corporation is fully amortizing the investments in the partnerships over the fifteen year holding period.

Investment in Insurance Agency

On January 2, 2001, the Corporation acquired a 50% 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 September 30, 2008 and December 31, 2007 was $231,000 and $213,000, respectively, and is carried in other assets in the accompanying consolidated balance sheets.

Junior Subordinated 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 CCFNB Bancorp, Inc. became the successor Corporation of this Trust. The debentures trustees were changed following the merger. A fair value market adjustment of $1,517,000 was made to these debentures at acquisition. Additionally, $3,000 was amortized against this fair value adjustment during the third quarter. 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 4.57% at September 30, 2008 and 6.74% at December 31, 2007, respectively. 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 Asset — Goodwill

Goodwill represents the excess for the purchase price over the fair market value of net assets acquired. The Corporation has recorded net goodwill of $6,235,000 at September 30, 2008 and $0 at December 31, 2007 related to the acquisition of Columbia Financial Corporation and it’s subsidiary, First Columbia Bank & Trust Co. In accordance with current accounting standards, goodwill is not amortized, but evaluated at least annually for impairment. Any impairment of goodwill results in a charge to income. The Corporation periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired.

Intangible Asset — Core Deposit

The Corporation has an amortizable intangible asset related to the deposit premium paid for the acquisition of Columbia Financial Corporation subsidiary, First Columbia Bank & Trust Co. This intangible asset is being amortized on a sum of the years digits method over 10 years and has a carrying value of $3,579,000 and $0, net of accumulated amortization of $112,000 and $0 as of September 30, 2008 and December 31, 2007 respectively.

Amortization expense on intangible assets was $112,000 and $0 for the nine months ended September 2008 and 2007, respectively. For the years ending December 31, amortization expense is estimated to be as follows:

Remainder of 2008		$	168,000
2009			643,000
2010			576,000
2011			509,000
2012			442,000
2013			374,000
Thereafter			867,000
Total		$	3,579,000

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 bases of assets and liabilities measured by using the enacted tax rates and laws expected to be in effect when the timing differences are expected to reverse. Deferred tax expense or benefit is based on the difference between deferred tax asset or liability from period to period.

Per Share Data

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

Cash Flow Information

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

Trust Assets and Income

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

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued State of Financial Accounting Standards SFAS 141(R), “Business Combinations”. SFAS 141(R) will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Corporation will account for business combinations under this Statement include: the acquisition date will be the date the acquirer obtains control; all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date; assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year; acquisition-related restructuring costs that do not meet the criteria in SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”, will be expensed as incurred; transaction costs will be expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree will not be permitted to be recognized by the acquirer. Additionally, SFAS 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward.

The Corporation will be required to prospectively apply SFAS 141(R) to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. Management is currently evaluating the effects that SFAS 141(R) will have on the financial condition, results of operations, liquidity, and the disclosures that will be presented in the consolidated financial statements.

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

EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”, was issued in September 2006 and is effective for fiscal years beginning after December 15, 2007 with earlier application permitted. EITF 06-4 requires that, for split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods, an employer should recognize a liability for future benefits in accordance with SFAS No. 106. EITF 06-4 requires that recognition of the effects of adoption should

be either by (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. The Corporation adopted this standard as of January 1, 2007 through a cumulative-effect adjustment to beginning retained earnings. This adjustment represented a decrease of $12,570 to retained earnings.

In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 109, which addresses the valuation of written loan commitments accounted for at fair value through earnings. The guidance in SAB 109 expresses the staff’s view that the measurement of fair value for a written loan commitment accounted for at fair value through earnings should incorporate the expected net future cash flows related to the associated servicing of the loan. Previously under SAB 105, Application of Accounting Principles to Loan Commitments, this component of value was not incorporated into the fair value of the loan commitment. The Corporation does not account for any written loan commitments at fair value through earnings.

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

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

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

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”. The statement allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period. The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings. The election is irrevocable. The Corporation is currently assessing whether it will elect to adopt SFAS 159.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans” which requires the Corporation to recognize the funded status of a benefit plan as either assets or liabilities in the consolidated balance sheet and to recognize as a component of other comprehensive income, net of tax, the unrecognized actuarial gains or losses, prior service costs and transition obligations that arise during the period. The adoption of SFAS 158 for the year ended December 31, 2007 did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

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

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

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

In March 2006, the FASB issued Statement of Financial Accounting Standards SFAS 156, “Accounting for Servicing of Financial Assets”, an amendment of SFAS 140. This standard requires entities to separately recognize a servicing asset or liability whenever it undertakes an obligation to service financial assets and also requires all separately recognized servicing assets or liabilities to be initially measured at fair value. Additionally, this standard permits entities to choose among two

alternatives, the amortization method or fair value measurement method, for the subsequent measurement of each class of separately recognized servicing assets and liabilities. Under the amortization method, an entity shall amortize the value of servicing assets or liabilities in proportion to and over the period of estimated net servicing income or net servicing loss and assess servicing assets or liabilities for impairment or increased obligation based on fair value at each reporting date. Under the fair value measurement method, an entity shall measure servicing assets or liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur.

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

In February 2006, the FASB issued Statement of Financial Accounting Standards SFAS 155, “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS 155 requires entities to evaluate and identify whether interests in securitized financial assets are freestanding derivatives, hybrid financial instruments that contain an embedded derivative requiring bifurcation, or hybrid financial instruments that contain embedded derivatives that do not require bifurcation. SFAS 155 also permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement was effective for all financial instruments acquired or issued by the Corporation on or after January 1, 2007 and the adoption of SFAS 155 did not have a material impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

Advertising Costs

It is the Corporation’s policy to expense advertising costs in the period in which they are incurred. Advertising expense for the nine-month periods ended September 30, 2008 and 2007 was approximately $77,000 and $76,000, respectively.

Reclassification

Certain amounts in the consolidated financial statements of the prior years have been reclassified to conform with presentation used in the 2008 consolidated financial statements. Such reclassifications had no effect on the Corporation’s consolidated financial condition or net income.

NOTE 2 – Allowance for Loan Losses

Changes in the allowance for loan losses for the nine-month periods ended September 30, 2008 and September 30, 2007 were as follows:

		(Amounts in Thousands)
		2008				2007
Balance, beginning of year		$	1,437			$	1,456
Provision charged to operations			—				30
Allowance acquired			1,683				—
Loans charged-off			(94	)			(59	)
Recoveries			29				33
Balance, September 30		$	3,055			$	1,460

At September 30, 2008, the total recorded investment in loans that are considered to be impaired as defined by SFAS No. 114 was $3,835000. These impaired loans had a related allowance for loan losses of $128,000. No additional charge to operations was required to provide for the impaired loans since the total allowance for loan losses is estimated by management to be adequate to provide for the loan loss allowance required by SFAS No. 114 along with any other potential losses. Impaired loans of CFC on the date of acquisition were $2,361,000.

At September 30, 2008, there were no significant commitments to lend additional funds with respect to non-accrual and restructured loans.

Non-accrual loans at September 30, 2008, and December 31, 2007 were $3,835,000 and $77,000, respectively. Non-accrual loans of CFC at the date of acquisition were $2,361,000.

At September 30, 2008 there were no loans past due 90 days or more and still accruing interest.

NOTE 3 – Short-Term Borrowings

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

NOTE 4 – Long-Term Borrowings

Long-term borrowings are comprised of advances from the Federal Home Loan Bank.

NOTE 5 – Deferred Compensation Plans

The Bank has entered into certain non-qualified deferred compensation agreements with certain executive officers and directors. Expenses related to these non-qualified deferred compensation plans amounted to $116,000 and $70,000 for the nine-month periods ended September 30, 2008 and 2007, respectively.

There were no substantial changes in other plans as disclosed in the 2007 Annual Report.

NOTE 6 – Stockholders’ Equity

Changes in stockholders’ equity for the nine-month period ended September 30, 2008 were as follows:

		(Amounts in Thousands, Except Common Share Data)
																						Accumulated
																						Other
																						Comprehensive
		Common				Common								Comprehensive				Retained				Income				Treasury
		Shares				Stock				Surplus				Income				Earnings				(Loss)				Stock				Total
Balance at January 1, 2008			1,226,536			$	1,533			$	2,271							$	27,679			$	144			$	—			$	31,627
Comprehensive Income:
Net income														$	2,270				2,270												2,270
Change in unrealized gain (loss) on investment securities available-for-sale net of reclassification adjustment and tax effects															(2	)							(2	)							(2	)
TOTAL COMPREHENSIVE INCOME														$	2,268
Par value of new shares issued to acquire Columbia Financial			1,030,286				1,288				25,026																				26,314
Issuance of 8,188 shares of common stock under dividend reinvestment and stock purchase plans			8,188				10				181																				191
Recognition of employee stock purchase plan expense											2																				2
Purchase of 16,000 shares of treasury stock																											(398	)			(398	)
Retirement of 16,000 shares of treasury stock			(16,000	)			(20	)			(378	)															398				—
Cash dividends $.66 per share																			(1,053	)											(1,053	)
Balance at September 30, 2008			2,249,010			$	2,811			$	27,102							$	28,896			$	142			$	—			$	58,951

NOTE 7 – Acquisition

     On July 18, 2008, the Corporation completed its acquisition of Columbia Financial Corporation(“CFC”). Under the terms of the Agreement and Plan of Reorganization dated as of November 29, 2007, CFC merged with and into the Corporation; and the 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 million. The transaction was accounted for in accordance with SFAS No. 141, “Business Combinations.” In connection therewith, the Corporation issued approximately 1,030,286 shares of its common stock and paid cash of approximately $3 thousand in lieu of the issuance of fractional shares in exchange for all of the issued and outstanding shares of CFC common stock. Assets and liabilities of CFC are recorded at estimated fair values as of the acquisition date.

The following table shows the excess purchase price of the carrying value of net assets acquired, purchase price allocation and resulting goodwill recorded for this acquisition:

(Amounts in thousands)
Purchase price		$	26,316
Carrying value of net assets acquired			(17,855	)
Excess of purchase price over carrying value of net assets acquired			8,461
Purchase accounting adjustments:
Loans			30
Premises and equipment			19
Deposits			1,235
Junior subordinate debentures			(1,517	)
Severance and related costs			840
Deferred taxes			857
Subtotal			9,925
Core deposit intangibles			(3,690	)
Goodwill		$	6,235

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

(Amounts in thousands)
Assets
Cash and cash equivalents		$	5,157
Interest-bearing deposits in other banks			129
Federal funds sold			517
Investment securities			138,257
Loans, net of allowance for loan losses			160,724
Premises and equipment			7,326
Accrued interest receivable			1,534
Bank-owned life insurance			3,258
Investment in limited partnerships			919
Goodwill and other intangibles			9,925
Other assets			119
Total assets		$	327,865
Liabilities
Deposits		$	264,692
Borrowings			31,883
Junior subordinate debenturs			3,123
Accrued interest payable			764
Other liabilities			1,087
Total liabilities		$	301,549
Fair value of net assets acquired		$	26,316

The following unaudited pro forma consolidated financial information presents the combined results of operations of the Corporation as if the CFC acquisition had occurred as of the beginning of 2008 and 2007, respectively:

		Nine Months Ended
		September 30,				September 30,
(Amounts in thousands, except per share amounts)		2008				2007
Net interest income		$	13,975			$	13,334
Provision for loan losses			25				255
Net interest income after provision for loan losses			13,950				13,079
Noninterest income			3,604				3,125
Noninterest expense			12,432				12,560
Income before income tax expense			5,122				3,644
Income tax expense			1,500				832
Net income		$	3,622			$	2,812
Net Income per Common Share		$	1.61			$	1.24
Average common shares outstanding			2,252,228				2,265,535

The pro forma results include amortization of fair value adjustments on loans, deposits, and debt, and amortization of newly acquired intangibles. The proforma number of average shares outstanding includes adjustments for shares issued for the acquisitions but does not assume any incremental repurchases. The pro forma results presented do not reflect cost savings or revenue enhancements anticipated from the acquisition and are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

NOTE 8 – Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These consolidated financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation does not engage in trading activities with respect to any of its financial instruments with off-balance sheet risk.

The Corporation may require collateral or other security to support financial instruments with off-balance sheet credit risk. The contract or notional amounts at September 30, 2008 and December 31, 2007 were as follows:

		(Amounts in Thousands)
		September				December
		30, 2008				31, 2007
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit		$	62,334			$	20,492
Financial standby letters of credit			2,970				756
Performance standby letters of credit			106				923
Dealer floor plans			337				66
Loans for resale			1,632				418

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

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

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

The Corporation granted commercial, consumer and residential loans to customers primarily within Pennsylvania. Of the total loan portfolio at September 30, 2008, 83.2% was for real estate loans, with significantly most being residential. It was the opinion of management that the high concentration did not pose an adverse credit risk. Further, it was management’s opinion that the remainder of the loan portfolio was balanced and diversified to the extent necessary to avoid any significant concentration of credit.

NOTE 9 – Fair Value Measurements

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

Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:		Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observables as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments of which can be directly observed.
Level III:		Assets and liabilities that have little or no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into determination of fair value require significant management judgment or estimation.

The following table presents the assets reported on the consolidated statements of financial condition at their fair value as of September 30, 2008 by level within the fair value hierarchy. As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

		September 30, 2008
(In Thousands)		Level I				Level II				Level III				Total
Assets:
Investment Securities, available-for-sale		$	—			$	209,817			$	—			$	209,817

NOTE 10 – Management’s Assertions and Comments Required to be Provided with Form 10Q Filing

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

Due to the mergers with CFC and the Bank, the results of operations for the nine-month period ended September 30, 2008, are not indicative of the results to be expected for the full year.

These consolidated interim financial statements have been prepared in accordance with requirements of Form 10Q and therefore do not include all disclosures normally required by accounting principles generally accepted in the United States of America applicable to financial institutions as included with consolidated financial statements included in the Corporation’s annual Form 10K filing. The reader of these consolidated interim financial statements may wish to refer to the Corporation’s annual report or Form 10K for the period ended December 31, 2007 filed with the Securities and Exchange Commission.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying consolidated balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of September 30, 2008, the related consolidated statements of income for the three and nine-month periods ended September 30, 2008 and 2007 and cash flows for the nine-month periods ended September 30, 2008 and 2007. These consolidated interim financial statements are the responsibility of the management of CCFNB Bancorp, Inc. and Subsidiary.

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

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

We have previously audited, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CCFNB Bancorp, Inc. and Subsidiary as of December 31, 2007, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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

J.H. Williams & Co., LLP
Kingston, Pennsylvania
November 7, 2008

CCFNB Bancorp, Inc.
Form 10-Q
For the Quarter Ended September 30, 2008

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

Consolidated Summary of Operations
(Dollars in Thousands, except for per share data)

		At and For the Nine
		Months
		Ended September 30,								At and For the Years Ended December 31,
		2008				2007				2007				2006				2005				2004				2003
Income and Expense:
Interest income		$	13,757			$	10,827			$	14,483			$	13,202			$	11,442			$	10,843			$	11,221
Interest expense			5,061				4,626				6,185				5,301				4,131				3,669				4,366
Net interest income			8,696				6,201				8,298				7,901				7,311				7,174				6,855
Provision for possible loan losses			0				30				30				175				90				140				200
Net interest income after loan loss provision			8,696				6,171				8,268				7,726				7,221				7,034				6,655
Non-interest income			2,191				1,722				2,305				1,900				1,713				1,530				1,508
Non-interest expense			7,964				5,231				7,038				6,437				6,077				5,746				5,409
Income before income taxes			2,923				2,662				3,535				3,189				2,857				2,818				2,754
Income taxes			653				675				888				777				631				601				591
Net income		$	2,270			$	1,987			$	2,647			$	2,412			$	2,226			$	2,217			$	2,163
Per Share: (1)
Net income		$	1.51			$	1.61			$	2.15			$	1.93			$	1.76			$	1.74			$	1.69
Cash dividends paid			.66				.61				.82				.78				.74				.70				.66
Average shares outstanding			1,503,955				1,235,249				1,233,339				1,249,844				1,262,171				1,267,718				1,281,265
Average Balance Sheet:
Loans		$	205,486			$	160,038			$	160,348			$	158,554			$	150,065			$	147,348			$	149,485
Investments			98,444				57,503				58,553				53,703				54,943				61,999				58,152
Other earning assets			9,870				14,362				12,767				7,621				7,503				5,705				8,036
Total assets			313,800				247,625				248,476				236,569				230,081				231,477				230,975
Deposits			250,799				170,489				172,803				167,024				167,812				172,028				171,956
Other interest-bearing liabilities			46,279				45,440				42,770				36,676				32,253				29,823				29,772
Stockholders’ equity			39,602				30,658				31,003				29,672				28,789				28,136				27,223
Balance Sheet Data:
Loans		$	324,747			$	161,476			$	161,460			$	160,641			$	154,271			$	149,900			$	147,631
Investments			209,817				62,159				57,686				53,486				53,919				61,834				62,775
Other earning assets			12,168				11,790				13,401				10,712				6,239				6,233				6,882
Total assets			582,241				254,202				245,324				241,920				231,218				235,377				232,914
Deposits			438,252				172,556				170,938				169,285				164,847				172,487				171,786
Other interest-bearing liabilities			81,098				48,504				40,648				40,607				35,910				30,080				32,325
Stockholders’ equity			58,951				31,228				31,627				30,248				29,012				28,506				27,603
Ratios: (2)
Return on average assets			.89	%			1.07	%			1.07	%			1.02	%			.97	%			.96	%			.94	%
Return on average equity			7.64	%			8.64	%			8.54	%			8.13	%			7.73	%			7.88	%			7.95	%
Dividend payout ratio			46.39	%			37.80	%			38.15	%			40.39	%			41.92	%			40.19	%			39.02	%
Average equity to average assets ratio			11.68	%			12.38	%			12.89	%			12.54	%			12.51	%			12.17	%			11.79	%

Cautionary Statement Concerning Forward-Looking Statements

This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about our confidence and strategies and our expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” “will,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers, and sources for loans, as well as the effects of economic conditions and legal and regulatory barriers and structure. Actual results may differ materially from such forward-looking statements. We assume no obligation for updating any such forward-looking statement at any time. Our consolidated financial condition and results of operations are essentially those of our wholly-owned subsidiary bank, the Bank, which reflects the acquisition of CFC and the resulting merger of Columbia County Farmers National Bank. Therefore, our discussion and analysis that follows is primarily centered on the performance of this bank.

Earnings Summary

Assets and liabilities of CFC are recorded at estimated fair values as of the acquisition date and financial results reflected in the statements of this report include results of earnings of he Corporation from January 1, 2008 through September 30, 2008, which includes the earnings results of the acquired entities from July 18, 2008 through September 30, 2008.

Net income for the nine months ended September 30, 2008 was $2,270,000 or $1.51 per basic and diluted share. These results compare with net income of $1,987,000 or $1.61 per basic and diluted share for the same period in 2007. Annualized return on average equity decreased to 7.64 percent from 8.64 percent, while the annualized return on average assets decreased to .89 percent from 1.07 percent, for the nine months ended September 30, 2008 and 2007 respectively.

Net interest income continues to be the largest source of our operating income. Net interest income on a tax equivalent basis increased 39.8 percent to $9,036,000 at September 30, 2008 from $6,461,000 at September 30, 2007. Overall, interest earning assets yielded 5.99 percent for the nine months ended September 30, 2008 compared to 6.37 percent yield for the nine months ended September 30, 2007. The tax equivalized net interest margin increased to 3.84 percent compared to 3.72 percent for the nine months ended September 30, 2007.

Average interest earning assets increased $81.9 million or 35.3 percent for the nine months ended September 30, 2008 over the same period in 2007 from $231.9 million at September 30, 2007 to $313.8 million at September 30, 2008. Average loans increased $45.4 million for the nine months ended September 30, 2008 from $160.0 million at September 30, 2007 to $205.5 million at September 30, 2008. Average investments increased $40.9 million or 71.1 percent from $57.5 million at September 30, 2007 to $98.4 million at September 30, 2008 and average federal funds sold and interest-bearing deposits with other financial institutions decreased $4.5 million or 31.3 percent from $14.4 million at September 30, 2007 to $9.9 million at September 30, 2008.

Average interest bearing liabilities for the nine months ended September 30, 2008 were $268.0 million and for the nine month period ending September 30, 2007, they were $197.6 million, an increase of $70.4 million or 35.7 percent. Average short-term borrowings were $34.3 million at September 30, 2007 and $35.7 million at September 30, 2008. Average long-term debt, which includes primarily FHLB advances, was $11.1 million at September 30, 2007 and $9.5 million at September 30, 2008. Average Junior subordinate debentures were $0 at September 30, 2007 and $1.1 million at September 30, 2008. Average demand deposits increased from $18.4 million at September 30, 2007 to $29.1 million at September 30, 2008.

The average interest rate for loans decreased to 6.73 percent at September 30, 2008 from 7.06 at September 30, 2007, a 33 basis point decrease. Interest-bearing deposits with other Financial Institutions and Federal Funds Sold rates decreased 271 basis points to 2.37 percent at September 30, 2008 from 5.08 percent at September 30, 2007. Average rates on interest bearing deposits decreased by 23 basis points from 2.64 percent to 2.41 percent in one year. Average interest rates decreased on total interest bearing liabilities by 60 basis points to 2.52 percent from 3.12 percent. The cost of long-term debt averaged 6.06 percent at September 30, 2008 compared to 6.01 percent at September 30, 2007. $2 million of this long term debt was able to be paid off in 2008 with the remaining $9 million due in 2010. This high costing liability will remain due to the fact that the Federal Home Loan Bank has the option to reprice these loans at their discretion. We will continue to price deposits accordingly. Junior subordinate debentures, acquired July 18, 2008, reflects an average rate of 5.40 percent at September 30, 2008 and 0 percent at September 30, 2007.

Net Interest Income

Tax equivalized net interest income increased $2.5 million at September 30, 2008 from $6.5 million at September 30, 2007 to $9.0 million at September 30, 2008.

The following table sets forth the average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and rate spread created:

ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND CAPITAL EQUITY
AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS

		AVERAGE BALANCES AND INTEREST RATES
		Nine Months Ended												Nine Months Ended
		September 30, 2008												September 30, 2007
		Average Balance				Interest				Average Rate				Average Balance				Interest				Average Rate
(In Thousands)		(1)				(2)								(1)				(2)
Assets:
Tax-exempt loans (3)		$	14,994			$	750				6.68	%		$	11,880			$	550				6.19	%
All other loans			190,492				9,614				6.74	%			148,158				7,926				7.15	%
Total loans			205,486				10,364				6.74	%			160,038				8,476				7.08	%
Taxable investment securities			93,239				3,309				4.73	%			53,489				1,849				4.61	%
Tax-exempt investment securities (3)			5,205				248				6.35	%			4,014				214				7.11	%
Total securities			98,444				3,557				4.82	%			57,503				2,063				4.78	%
Interest bearing deposits			9,870				176				2.38	%			14,362				548				5.10	%
Total interest-earning assets			313,800				14,097				6.00	%			231,903				11,087				6.39	%
Other assets			25,220												15,722
Total assets		$	339,020											$	247,625
Liabilities:
Interest-bearing deposits		$	221,738				4,005				2.41	%		$	152,137				3,016				2.65	%
Short-term borrowings			35,684				580				2.17	%			34,302				1,108				4.32	%
Junior subordinate debt			1,087				44				5.41	%			—				—				N/A
Other borrowings			9,508				432				6.07	%			11,138				502				6.03	%
Total interest-bearing liabilities			268,017				5,061				2.52	%			197,577				4,626				3.13	%
Demand deposits			29,061												18,352
Other liabilities			2,340												1,038
Shareholders’ equity			39,602												30,658
		$	339,020											$	247,625
Interest rate spread (6)											3.48	%											3.26	%
Net interest income/margin (4)(5)						$	9,036				3.84	%						$	6,461				3.72	%

The following table presents the adjustment to convert net interest income to net interest income on a fully tax equivalent basis for the nine month period ended September 30, 2008.

		For the Nine Months Ended
		September 30,
(In Thousands)		2008				2007
Total interest income		$	13,757			$	10,827
Total interest expense			5,061				4,626
Net interest income			8,696				6,201
Tax equivalent adjustment			340				260
Net interest income (fully taxable equivalent)		$	9,036			$	6,461

The following table demonstrates the relative impact on net interest income of changes in volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by us on such assets and liabilities.

		Nine Months Ended September 30,
						2008 vs 2007
						Increase (Decrease)
		Due to (1)
(In Thousands)		Volume				Rate				Net
Interest income:
Loans, tax-exempt		$	144			$	56			$	200
Loans			2,265				(577	)			1,688
Taxable investment securities			1,374				86				1,460
Tax-exempt investment securities			63				(29	)			34
Interest bearing deposits			(171	)			(201	)			(372	)
Total interest-earning assets			3,675				(665	)			3,010
Interest expense:
Interest -bearing deposits			1,380				(391	)			989
Short-term borrowings			45				(573	)			(528	)
Junior subordinate debentures			44				—				44
Long-term borrowings, FHLB			(73	)			3				(70	)
Total interest-bearing liabilities			1,396				(961	)			435
Change in net interest income		$	2,279			$	296			$	2,575

The outstanding balance of loans at September 30, 2008 was $324.7 million and September 30, 2007 was $161.5 million. The acquisition of CFC contributed an increase in net loans in the amount of $160.7 as described in Note 7 of the Notes to Consolidated Financial Statements.

Income from investment securities increased to $3.5 million at September 30, 2008 compared to $2.0 million at September 30, 2007. The average balance of investment securities for the nine months ended September 30, 2008 was $98.4 million compared to $57.5 million at September 30, 2007.

Total interest expense increased $.5 million or 10.9 percent for the first nine months of 2008 as compared to the first nine months of 2007.

Non-Interest Income

The following table presents the components of non-interest income for the nine months ended September 30, 2008 and 2007:

		Nine Months Ended
		September 30,
		(Dollars in thousands)
		2008				2007
Service charges and fees		$	797			$	680
Gain on sale of loans			194				124
Bank-owned life insurance income			244				217
Investment center			174				339
Trust department			217				132
Other			565				230
Total		$	2,191			$	1,722

Non-interest income continues to represent a considerable source of our income. We are committed to increasing non-interest income. Increases will be from our existing sources of non-interest income and any new opportunities that may develop. For the nine months ended September 30, 2008 and September 30, 2007 total non-interest income increased $469 thousand from $1,722 thousand at September 30, 2007 to $2,191 thousand at September 30, 2008.

Service charges and fees increased $117 thousand from $680 thousand at September 30, 2007 to $797 thousand, or 17.2 percent, at September 30, 2008.

Income from sales of fixed rate mortgages through the Mortgage Partnership Finance (MPF) and PHFA programs reflected an increase at September 30, 2008 to $194 thousand compared to $124 thousand at September 30, 2007. The MPF loans are being serviced by the bank and the bank retains minimal credit risk.

Third party brokerage fees at September 30, 2007 of $339 thousand included $68 thousand from the one time sale of non deposit retail products. The current economic environment has affected the investment center income.

Other income increased from $230 thousand at September 30, 2007 to $565 thousand at September 30, 2008 primarily due to increased ATM related fees.

Non-Interest Expense

The following table presents the components of non-interest expense for the nine months ended September 30, 2008 and 2007:

		Nine Months Ended
		September 30,
		2008				2007
		(Dollars in Thousands)
Salaries		$	3,056			$	2,224
Employee benefits			1,595				660
Occupancy			496				369
Equipment			583				363
State shares tax			277				236
Professional services			382				213
Director’s fees			152				139
Stationery and supplies			153				127
Impairment loss on securities			283				0
Other			987				900
Total		$	7,964			$	5,231