UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009,

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

For the transition period from            to           

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

PENNSYLVANIA		25-1440803
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

20 SOUTH MAIN STREET (P.O. BOX 6010), CHAMBERSBURG, PA 17201-0819
(Address of principal executive offices)

717/264-6116

Not Applicable

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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

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

There were 3,833,947 outstanding shares of the Registrant’s common stock as of April 30, 2009.

 

 

INDEX

Part I — FINANCIAL INFORMATION
Item 1 — Financial Statements
Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008 (unaudited)			3
Consolidated Statements of Income for the Three Months ended March 31, 2009 and 2008 (unaudited)			4
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months ended March 31, 2009 and 2008 (unaudited)			5
Consolidated Statements of Cash Flows for the Three Months ended March 31, 2009 and 2008 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3 — Quantitative and Qualitative Disclosures about Market Risk			28
Item 4 — Controls and Procedures			28
Part II — OTHER INFORMATION
Item 1 — Legal Proceedings			29
Item 1A — Risk Factors			29
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 3 — Defaults by the Company on its Senior Securities			29
Item 4 — Submission of Matters to a Vote of Security Holders			29
Item 5 — Other Information			29
Item 6 — Exhibits			29
SIGNATURE PAGE			30
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(unaudited)

		March 31				December 31
		2009				2008
Assets
Cash and due from banks		$	14,169			$	16,505
Federal funds sold			1,550				—
Interest-bearing deposits in other banks			141				208
Total cash and cash equivalents			15,860				16,713
Investment securities available for sale			140,246				147,559
Restricted stock			6,482				6,482
Loans			696,773				676,217
Allowance for loan losses			(7,843	)			(7,357	)
Net Loans			688,930				668,860
Premises and equipment, net			15,908				15,625
Bank owned life insurance			19,039				18,875
Goodwill			9,159				9,152
Other intangible assets			2,812				2,929
Other assets			16,836				16,265
Total assets		$	915,272			$	902,460
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Demand (non-interest bearing)		$	78,322			$	86,954
Savings and interest checking			347,531				335,418
Time			228,552				204,969
Total Deposits			654,405				627,341
Securities sold under agreements to repurchase			68,728				64,312
Short-term borrowings			—				18,850
Long-term debt			105,218				106,141
Other liabilities			13,673				12,757
Total liabilities			842,024				829,401
Shareholders’ equity
Common stock $1 par value per share, 15,000 shares authorized with 4,299 shares issued, and 3,834 shares and 3,825 shares outstanding at March 31, 2009 and December 31, 2008, respectively			4,299				4,299
Capital stock without par value, 5,000 shares authorized with no shares issued or outstanding			—				—
Additional paid-in capital			32,854				32,883
Retained earnings			53,194				52,126
Accumulated other comprehensive loss			(8,773	)			(7,757	)
Treasury stock, 465 shares and 474 shares at cost at March 31, 2009 and December 31, 2008, respectively			(8,326	)			(8,492	)
Total shareholders’ equity			73,248				73,059
Total liabilities and shareholders’ equity		$	915,272			$	902,460

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Income
(Amounts in thousands, except per share data)
(unaudited)

		For the Three Months Ended
		March 31
		2009				2008
Interest income
Loans, including fees		$	9,192			$	9,643
Interest and dividends on investments:
Taxable interest			1,089				1,366
Tax exempt interest			474				562
Dividend income			57				75
Federal funds sold			—				32
Deposits and obligations of other banks			—				4
Total interest income			10,812				11,682
Interest expense
Deposits			2,482				2,856
Securities sold under agreements to repurchase			45				608
Short-term borrowings			11				13
Long-term debt			1,055				691
Total interest expense			3,593				4,168
Net interest income			7,219				7,514
Provision for loan losses			593				215
Net interest income after provision for loan losses			6,626				7,299
Noninterest income
Investment and trust services fees			894				915
Loan service charges			277				177
Mortgage banking activities			(28	)			(109	)
Deposit service charges and fees			580				592
Other service charges and fees			302				299
Increase in cash surrender value of life insurance			164				166
Equity method investment			—				(166	)
Other			295				22
Impairment writedown on equity securities			(209	)			(222	)
Securities gains, net			12				329
Total noninterest income			2,287				2,003
Noninterest Expense
Salaries and benefits			3,153				3,101
Net occupancy expense			480				458
Furniture and equipment expense			217				216
Advertising			315				314
Legal and professional fees			251				248
Data processing			401				357
Pennsylvania bank shares tax			145				170
Intangible amortization			117				90
FDIC insurance			231				18
Other			840				877
Total noninterest expense			6,150				5,849
Income before federal income taxes			2,763				3,453
Federal income tax expense			662				921
Net income		$	2,101			$	2,532
Per share
Basic earnings per share		$	0.55			$	0.66
Diluted earnings per share		$	0.55			$	0.66
Cash dividends declared per share		$	0.27			$	0.26

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Changes in Shareholders’ Equity
for the three months ended March 31, 2009 and 2008
(unaudited)

														Accumulated
						Additional								Other
		Common				Paid-in				Retained				Comprehensive				Treasury
(Dollars in thousands, except per share data)		Stock				Capital				Earnings				Income (Loss)				Stock				Total
Balance at December 31, 2007		$	4,299			$	32,620			$	47,946			$	664			$	(7,887	)		$	77,642
Comprehensive income:
Net income			—				—				2,532				—				—				2,532
Unrealized loss on securities, net of reclassification adjustments and taxes			—				—				—				(621	)			—				(621	)
Unrealized loss on hedging activities, net of reclassification adjustments and taxes			—				—				—				(3	)			—				(3	)
Total Comprehensive income															—								1,908
Cash dividends declared, $.26 per share			—				—				(997	)			—				—				(997	)
Cumulative adjustment for change in accounting principle											(422	)											(422	)
Acquisition of 17,648 shares of treasury stock			—				—				—				—				(419	)			(419	)
Treasury shares issued to dividend reinvestment plan, 7,327 shares			—				46				—				—				128				174
Stock option compensation			—				28				—				—				—				28
Balance at March 31, 2008		$	4,299			$	32,694			$	49,059			$	40			$	(8,178	)		$	77,914
Balance at December 31, 2008		$	4,299			$	32,883			$	52,126			$	(7,757	)		$	(8,492	)		$	73,059
Comprehensive income:
Net income			—				—				2,101				—				—				2,101
Unrealized loss on securities, net of reclassification adjustments and taxes			—				—				—				(1,202	)			—				(1,202	)
Unrealized gain on hedging activities, net of reclassification adjustments and taxes			—				—				—				186				—				186
Total Comprehensive income															—								1,085
Cash dividends declared, $.27 per share			—				—				(1,033	)			—				—				(1,033	)
Acquisition of 3,000 shares of treasury stock			—				—				—				—				(51	)			(51	)
Treasury shares issued to dividend reinvestment plan, 12,049 shares			—				(34	)			—				—				217				183
Stock option compensation			—				5				—				—				—				5
Balance at March 31, 2009		$	4,299			$	32,854			$	53,194			$	(8,773	)		$	(8,326	)		$	73,248

The accompanying notes are an integral part of these statements.

Consolidated Statements of Cash Flows
(unaudited)

		For the Three Months Ended March 31
(Amounts in thousands)		2009				2008
Cash flows from operating activities
Net income		$	2,101			$	2,532
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			361				319
Net accretion of loans and investment securities			(35	)			(85	)
Stock option compensation expense			5				28
Amortization and net change in mortgage servicing rights valuation			111				245
Amortization of intangibles			117				90
Provision for loan losses			593				215
Net realized gains on sales of securities			(12	)			(329	)
Impairment writedown on equity securities			209				222
Loans originated for sale			—				(2,113	)
Proceeds from sale of loans			—				2,632
Gain on sales of loans			—				(43	)
Net loss on sale or disposal of other real estate/other repossessed assets			(5	)			—
Increase in cash surrender value of life insurance			(164	)			(166	)
Proceeds from surrender of life insurance policy			(275	)			-
Loss on equity method investments			—				166
Decrease (increase) in interest receivable and other assets			453				(650	)
Increase in interest payable and other liabilities			959				372
Other, net			(110	)			(18	)
Net cash provided by operating activities			4,308				3,417
Cash flows from investing activities
Proceeds from sales of investment securities available for sale			2,964				3,254
Proceeds from maturities of investment securities available for sale			5,120				14,774
Net increase in restricted stock			—				(733	)
Purchase of investment securities available for sale			(2,687	)			(10,402	)
Net increase in loans			(20,754	)			(17,628	)
Proceeds from sale of other real estate owned			—				175
Capital expenditures			(609	)			(394	)
Net cash used in investing activities			(15,966	)			(10,954	)
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW accounts and savings accounts			3,481				(9,591	)
Net increase (decrease) in certificates of deposit			23,583				(3,674	)
Net (decrease) increase in short term borrowings			(14,434	)			8,590
Long-term debt payments			(1,183	)			(2,648	)
Long-term debt advances			260				15,057
Dividends paid			(1,033	)			(997	)
Common stock issued to dividend reinvestment plan			182				174
Purchase of treasury shares			(51	)			(419	)
Net cash provided by financing activities			10,805				6,492
Decrease in cash and cash equivalents			(853	)			(1,045	)
Cash and cash equivalents as of January 1			16,713				25,491
Cash and cash equivalents as of March 31		$	15,860			$	24,446
Supplemental Disclosures of Cash Flow Information Cash paid during the year for:
Interest on deposits and other borrowed funds		$	3,323			$	4,120
Income taxes		$	203			$	622

The accompanying notes are an integral part of these statements.

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank), Franklin Financial Properties Corp., and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Realty Services Corporation. Franklin Realty Services Corporation is an inactive real-estate brokerage company. Franklin Financial Properties Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of nonbank entities are not significant to the consolidated totals. All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2009, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2008 Annual Report on Form 10-K. The consolidated results of operations for the period ended March 31, 2009 are not necessarily indicative of the operating results for the full year.

The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include Cash and due from banks, interest-bearing deposits in other banks and Federal funds sold. Generally, Federal funds are purchased and sold for one-day periods.

Earnings per share is computed based on the weighted average number of shares outstanding during each period end. A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

		For the Three Months Ended
		March 31
(Amounts in thousands)		2009				2008
Weighted average shares outstanding (basic)			3,827				3,838
Impact of common stock equivalents			—				2
Weighted average shares outstanding (diluted)			3,827				3,840

Note 2 — Recent Accounting Pronouncements

FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly”

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The Corporation is currently reviewing the effect this new pronouncement will have on its consolidated financial statements and the Corporation did not adopt the pronouncement early.

FAS 115-2 and FAS 124-2“Recognition and Presentation of Other-Than-Temporary Impairments”

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The Corporation is currently reviewing the effect this new pronouncement will have on its consolidated financial statements and the Corporation did not adopt the pronouncement early.

FAS 107-1 and APB 28-1“Interim Disclosures about Fair Value of Financial Instruments”

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The Corporation is currently reviewing the effect this new pronouncement will have on its consolidated financial statements and the Corporation did not adopt the pronouncement early.

SFAS No. 141 (R) “Business Combinations”

FASB Statement No. 141 (R) “Business Combinations” was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact the Corporation’s accounting for business combinations completed beginning January 1, 2009.

SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (Statement 161). Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 has been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Corporation adopted Statement 161 effective with the quarter ended March 31, 2009.

FSP FAS 142-3 “Determination of the Useful Life of Intangible Assets”

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Corporation does not expect the new pronouncement to have a material effect on its consolidated financial statements. The Corporation adopted Statement 142 effective with the quarter ended March 31, 2009.

FASB Staff Position (FSP) 157-3“Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active” (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective upon issuance. The application of the provisions of FSP 157-3 did not materially affect our results of operations or financial condition as of and for the periods ended March 31, 2009.

FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15, 2009. The Corporation is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

Note 3 — Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available-for-sale securities and derivatives and the change in plan assets and benefit obligations on the Bank’s pension plan, net of tax, that are recognized as separate components of shareholders’ equity.

The components of comprehensive income and related tax effects are as follows:

		For the Three Months Ended
		March 31
		2009				2008
Net Income		$	2,101			$	2,532
Securities:
Unrealized losses arising during the period			(2,018	)			(834	)
Reclassification adjustment for losses (gains) included in net income			197				(107	)
Net unrealized (losses)			(1,821	)			(941	)
Tax effect			619				320
Net of tax amount			(1,202	)			(621	)
Derivatives:
Unrealized gains (losses) arising during the period			109				(43	)
Reclassification adjustment for losses included in net income			173				38
Net unrealized gains (losses)			282				(5	)
Tax effect			(96	)			2
Net of tax amount			186				(3	)
Total other comprehensive loss			(1,016	)			(624	)
Total Comprehensive Income		$	1,085			$	1,908

The components of accumulated other comprehensive loss included in shareholders’ equity are as follows:

		March 31				December 31
(Amounts in thousands)		2009				2008
Net unrealized losses on securities		$	(6,292	)		$	(4,471	)
Tax effect			2,139				1,520
Net of tax amount			(4,153	)			(2,951	)
Net unrealized losses on derivatives			(2,197	)			(2,477	)
Tax effect			748				842
Net of tax amount			(1,449	)			(1,635	)
Accumulated pension adjustment			(4,805	)			(4,805	)
Tax effect			1,634				1,634
Net of tax amount			(3,171	)			(3,171	)
Total accumulated other comprehensive loss		$	(8,773	)		$	(7,757	)

Note 4 — Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments. The Bank had $32.1 million of standby letters of credit as of March 31, 2009 and December 31, 2008, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of March 31, 2009 and December 31, 2008 for guarantees under standby letters of credit issued was not material.

Note 5 — Pensions

The components of pension expense for the periods presented are as follows:

		Three Months Ended
		March 31
(Amounts in thousands)		2009				2008
Service cost		$	85			$	90
Interest cost			181				170
Expected return on plan assets			(190	)			(232	)
Amortization of prior service cost			(31	)			(44	)
Recognized net actuarial loss			82				—
Net periodic pension cost (benefit)		$	127			$	(16	)

The Bank expects its pension expense to increase by more than $500 thousand in 2009 solely as a result of the low rate environment and its affect on plan performance. The Bank expects to contribute $258 thousand to its pension plan for 2009. This amount represents the minimum required contribution as defined in the Pension Protection Act.

Note 6 — Fair Value Measurements

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end.

The Corporation adopted Financial Accounting Standards Board Statement No. 157, Fair Value Measurements (SFAS 157) for financial assets and liabilities on January 1, 2008. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:

		Level 1:		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
		Level 2:		Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
		Level 3:		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2009 are as follows:

		Fair Value at
(Dollars in Thousands)		March 31, 2009				Level 1				Level 2				Level 3
Asset Description
Investment securities available for sale		$	140,246			$	3,391			$	136,855			$	—
Total assets		$	140,246			$	3,391			$	136,855			$	—
Liability Description
Interest rate swaps		$	2,197			$	—			$	2,197			$	—
Total liabilities		$	2,197			$	—			$	2,197			$	—

The Corporation used the following methods and significant assumptions to estimate the fair value.

Investment securities: Level 1 securities represent equity securities that are valued using quoted market prices from nationally recognized markets. Level 2 securities represent debt securities that are valued using a mathematical model based upon the specific characteristics of a security in relationship to quoted prices for similar securities.

Interest rate swaps: The interest rate swaps are valued using a discounted cash flow model that uses verifiable market environment inputs to calculate the fair value. This method is not dependant on the input of any significant judgments or assumptions by Management.

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2009 are as follows:

		Fair Value at
(Dollars in Thousands)		March 31, 2009				Level 1				Level 2				Level 3
Asset Description
Impaired loans		$	10,688			$	—			$	—			$	10,688
Mortgage servicing rights			752				—				—				752
Total assets		$	11,440			$	—			$	—			$	11,440

Note 7 — Financial Derivatives

The Board of Directors has given Management authorization to enter into additional derivative activity including interest rate swaps, caps and floors, forward-rate agreements, options and futures contracts in order to hedge interest rate risk. The Bank is exposed to credit risk equal to the positive fair value of a derivative instrument, if any, as a positive fair value indicates that the counterparty to the agreement is financially liable to the Bank. To limit this risk, counterparties must have an investment grade long-term debt rating and individual counterparty credit exposure is limited by Board approved parameters. Management anticipates continuing to use derivatives, as permitted by its Board-approved policy, to manage interest rate risk. During 2008, the Bank entered into two interest rate swap transactions in order to hedge the Corporation’s exposure to changes in cash flows attributable to the effect of interest rate changes on variable rate liabilities.

Information regarding the interest rate swap as of March 31, 2009 follows:

														Amount Expected to
(Dollars in thousands)														be Expensed into
Notional		Maturity				Interest Rate								Earnings within the
Amount		Date				Fixed				Variable				next 12 Months
$10,000			5/30/2013				3.60	%			0.23	%		$	337
$10,000			5/30/2015				3.87	%			0.23	%		$	364

The variable rate is indexed to the 91-day Treasury Bill auction (discount) rate and resets weekly.

Derivatives with a positive fair value are reflected as other assets in the balance sheet while those with a negative fair value are reflected as other liabilities. The swaps added $390 thousand to interest expense in 2008 compared to $41 thousand in 2007 and $38 thousand in 2006. As short-term interest rates decrease, the net expense of the swap increases.

Fair Value of Derivative Instruments in the Consolidated Balance Sheets were as follows as of March 31, 2009:

Fair Value of Derivative Instruments Designated
as Hedging Instruments Under Statement 133
		Liability Derivatives
		3/31/2009
		Balance
(Dollars in thousands)		Sheet				Fair
Type		Location				Value
Interest rate contracts		Other liabilities				$	2,197

The Effect of Derivative Instruments on the Statement of Financial Performance for the Year Ended March 31, 2009 follows:

Derivatives in Statement 133 Cash Flow Hedging Relationships

Amount of Gain

or (Loss)

Location of

Recognized in

Gain or (Loss)

Income on

Amount of Gain

Recognized in

Derivatives

Amount of Gain

Location of

or (Loss)

Income on

(Ineffective Portion

or (Loss)

Gain or (Loss)

Reclassified from

Derivative (Ineffective

and Amount

Recognized in

Reclassified from

Accumulated OCI

Portion and Amount

Excluded from

OCI on Derivative

Accumulated OCI

into Income

Excluded from

Effectiveness

(Dollars in thousands)

(Effective Portion)

into Income

(Effective Portion)

Effectiveness

Testing

Type

3/31/2009

(Effective Portion)

3/31/2009

Testing

3/31/2009

Interest rate contracts

$

186

Interest Expense

$

(173

)

Other income (expense)

$

—

Note 8 — Reclassifications

Certain prior period amounts may have been reclassified to conform to the current year presentation. Such reclassifications did not affect reported net income.

Part I, Item 2

Management’s Discussion and Analysis of Results of Operations and Financial Condition
For the Three Month Periods Ended March 31, 2009 and 2008

Forward Looking Statements

Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements refer to a future period or periods, reflecting management’s current views as to likely future developments, and use words such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” or similar terms. Because forward-looking statements involve certain risks, uncertainties and other factors over which the Corporation has no direct control, actual results could differ materially from those contemplated in such statements. These factors include (but are not limited to) the following: general economic conditions, changes in interest rates, changes in the Corporation’s cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation’s market area, and other similar factors.

Critical Accounting Policies

Management has identified critical accounting policies for the Corporation to include Allowance for Loan Losses, Mortgage Servicing Rights, Financial Derivatives, Temporary Investment Impairment and Stock-based Compensation. There were no changes to the critical accounting policies disclosed in the 2008 Annual Report on Form 10-K in regards to application or related judgements and estimates used. Please refer to Item 7 of the Corporation’s 2008 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.

Results of Operations

Summary

The Corporation reported net income for the three months ended March 31, 2009 of $2.1 million. This is a 17% decrease versus net income of $2.5 million for the same period in 2008. Total revenue (interest income and noninterest income) decreased $586 thousand year-over-year, due primarily to the lower interest rate environment and its negative effect on interest income. The provision for loan losses was $593 thousand for the period, $378 thousand more than in 2008. Diluted earnings per share decreased from $.66 in 2008 to $.55 in 2009. Total assets were $915.3 million at March 31, 2009, an increase of $12.8 million from year-end 2008. Net loans grew during the quarter with an ending balance of $688.9 million, while total deposits grew to $654.4 million.

Other key performance ratios as of, or for the three months ended March 31, 2009 (on an annualized basis) are listed below:

		2009				2008
Return on average equity (ROE)			11.42	%			12.74	%
Return on average assets (ROA)			.94	%			1.22	%
Return on average tangible average equity(1)			14.10	%			15.50	%
Return on average tangible average assets(1)			.98	%			1.29	%

GAAP Measurement		Calculation
Return on Average Assets		Net Income / Average Assets
Return on Average Equity		Net Income / Average Equity

Non- GAAP Measurement		Calculation
Return on Average Tangible Assets		Net Income plus Intangible Amortization / Average Assets less Average Intangible Assets
Return on Average Tangible Equity		Net Income plus Intangible Amortization / Average Equity less Average Intangible Assets

A more detailed discussion of the operating results for the three months ended March 31, 2009 follows:

Comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008:

Net Interest Income

The most important source of the Corporation’s earnings is net interest income, which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets. Principal categories of interest-earning assets are loans and securities, while deposits, securities sold under agreements to repurchase (Repos), short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities. Demand deposits enhance net interest income because they are noninterest-bearing deposits. All balance sheet amounts in the discussion of net interest income refer to either year-to-date or quarterly average balances.

Interest income for the first quarter of 2009 decreased to $10.8 million from $11.7 million during the first quarter of 2009. Average interest-earning assets increased by $83.6 million from the first quarter of 2008, however the yield on these assets decreased by 104 basis points. The average balance on investment securities decreased $14.4 million quarter over quarter due to pay downs and maturities in the portfolio. Total average loans increased $101.2 million (17.5%) quarter over quarter. Average commercial loans increased $111.7 million during the first quarter of 2009, but the increase was partially offset by a decrease of $12.4 million in average outstanding mortgage loans, as the mortgage portfolio continues to runoff. Average consumer loans increased only slightly, $1.8 million, as consumers reacted to the adverse changes in the economy.

Interest expense was $3.6 million for the quarter, a decrease of $575 thousand from the first quarter of 2008 total of $4.2 million. Average interest-bearing liabilities increased to $734.2 million in the first quarter of 2009 compared to an average balance of $648.0 million during the same period in 2008, an increase of $86.1 million. The average cost of these liabilities decreased from 2.58% to 1.98%. Average interest-bearing deposits increased $42.2 million and the cost decreased from 2.26% to 1.83%. Securities sold under agreements to repurchase (Repos) have decreased $5.1 million on average over the prior year quarter and the average rate has decreased from 3.15% to .25%. The average balance of long-term debt increased over $44 million due to the Bank taking additional advances from the Federal Home Loan Bank of Pittsburgh (FHLB) and was the primary reason for the increase in interest expense for this liability.

The changes in the balance sheet and interest rates resulted in a decrease in net interest income of $295 thousand to $7.2 million for the first quarter of 2009 compared to $7.5 million for the first quarter of 2008. The Bank’s net interest margin decreased from 4.17% for the first quarter of 2008 to 3.60% in the first quarter of 2009. The decrease in the net interest margin is due to the yield on interest-bearing assets decreasing 104 basis points, while the yield on interest-earning liabilities only decreased 60 basis point.

The following table shows a comparative analysis of average balances, asset yields and funding costs for the three months ended March 31, 2009 and 2008. These components drive changes in net interest income.

		For the Three Months Ended March 31
		2009												2008
						Tax												Tax
		Average				Equivalent				Average				Average				Equivalent				Average
(Dollars in thousands)		balance				Interest				yield/rate				balance				Interest				yield/rate
Interest-earning assets
Federal funds sold and interest bearing balances		$	626			$	—			$	—			$	3,727			$	36				3.82	%
Investment securities			151,855				1,809				4.83	%			166,276				2,251				5.43	%
Loans			678,951				9,191				5.49	%			577,780				9,666				6.71	%
Total interest-earning assets		$	831,432				11,000				5.37	%		$	747,783				11,953				6.41	%
Interest-bearing liabilities
Interest-bearing deposits		$	549,381				2,482				1.83	%		$	507,217				2,856				2.26	%
Securities sold under agreements to repurchase			72,297				45				0.25	%			77,395				608				3.15	%
Short-term borrowings			6,684				11				0.67	%			1,785				13				2.92	%
Long-term debt			105,790				1,055				4.04	%			61,650				691				4.50	%
Total interest-bearing liabilities		$	734,152				3,593				1.98	%		$	648,047				4,168				2.58	%
Interest spread											3.39	%											3.83	%
Net interest income/Net interest margin							7,407				3.60	%							7,785				4.17	%
Tax equivalent adjustment							(188	)											(271	)
Net interest income						$	7,219											$	7,514

Provision for Loan Losses

The Corporation recorded $593 thousand in provision expense during the first three months of 2009 versus $215 thousand for the same period in 2008. For more information concerning loan quality and the allowance for loan losses, refer to the Asset Quality discussion.

Noninterest Income

Noninterest income was $2.3 million in the first quarter of 2009, $284 thousand more than the first quarter of 2008 total of $2.0 million. Investment and trust service fees decreased $21 thousand due primarily to a decrease in estate settlement fees. Loan fees increased by $100 thousand due to a high volume of mortgage refinancing spurred by the low rate environment. Mortgage banking fees increased $81 thousand due to a mortgage servicing rights (MSR) impairment charge of $172 thousand taken in the first quarter of 2008 versus no impairment charges in 2009. Deposit fees decreased $12 thousand due to lower usage of the Bank’s overdraft protection product; however, this decrease was partially offset by an increase in commercial account analysis fees. During 2008, the Corporation had an investment in American Home Bank, N.A (AHB) that was accounted for using the equity method of accounting. This investment produced a loss of $166 thousand in the first quarter of 2008. On December 31, 2008, First Chester County Corporation (FCEC) completed its acquisition of AHB. The Corporation discontinued the equity method of accounting on this investment and no income was recognized in 2009. At December 31, 2008 the Corporation recorded its investment in FCEC common stock in its investment portfolio. Other income increased $273 thousand due to income from the surrender of a life insurance policy in the first quarter of 2009. Net securities losses and impairment charges of $197 thousand were recognized in the first quarter of 2009 compared to gains of $107 thousand recognized in 2008. The Corporation took an impairment charge of $209 thousand on three banks stocks in its equity portfolio in the first quarter of 2009 compared to an impairment charge of $222 thousand in the first quarter of 2008 on four bank stocks. The price of bank stocks continues to be very volatile and Management is closely monitoring the value of its equity portfolio. It is possible that additional write-downs may be required during 2009.

The following table provides more information about noninterest income:

		For the Three Months Ended
		March 31								Change
		2009				2008				Amount				%
Noninterest Income
Investment and trust services fees		$	894			$	915			$	(21	)			(2.3	)
Loan service charges and fees			277				177				100				56.5
Mortgage banking activities			(28	)			(109	)			81				(74.3	)
Deposit service charges and fees			580				592				(12	)			(2.0	)
Other service charges and fees			302				299				3				1.0
Increase in cash surrender value of life insurance			164				166				(2	)			(1.2	)
Equity method investment			—				(166	)			166				(100.0	)
Other			295				22				273				1,240.9
Impairment writedown on equity securities			(209	)			(222	)			13				(5.9	)
Gains (losses) on sale of securities, net			12				329				(317	)			(96.4	)
Total noninterest income		$	2,287			$	2,003			$	284				14.2

Noninterest Expense

During the first quarter of 2009, noninterest expense increased $301 thousand to $6.2 million from $5.8 million in 2008. Salaries and benefits increased $52 thousand, with $104 thousand of the increase due to increased staff and pay increases in 2008 that have affected 2009. The expense of an incentive compensation program decreased $130 thousand, while pension expense increased $144 thousand, due to the low rate environment and its affect on the pension plan performance. During the first quarter of 2009, the Corporation awarded 14,900 stock options under its Incentive Stock Option Plan with a fair value of approximately $29 thousand. These options have a 6-month vesting period and will be fully expensed in 2009. For the first quarter of 2009, the Corporation recorded stock option compensation of $5 thousand, down from $28 thousand in 2008. Advertising expense remained flat, while net occupancy expense was up $22 thousand due to additional depreciation from renovations to an existing office completed in late 2008. Data processing expenses were up $44 thousand due to the implementation of remote deposit capture and electronic check presentment services. Intangible amortization increased $27 thousand from amortization of the customer list booked with the acquisition of Community Financial Inc. in the fourth quarter of 2008. Other noninterest expense decreased $37 thousand during the quarter due to decreases in expenses for postage and loan collection expense.

Federal Deposit Insurance Corporation (FDIC) Premiums

FDIC insurance expense increased $213 thousand during the first three months of 2009 to $231 thousand compared to $18 thousand for the same period in 2008. The FDIC insurance expense in the first quarter of 2008 was partially offset by the use of FDIC premium credits. These credits were completely used in 2008.

The Bank is a member of the Deposit Insurance Fund (the “DIF”), which is administered by the FDIC. Deposit accounts at the Bank are insured by the FDIC, generally up to a maximum of $100,000 for each separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. However, the FDIC increased the deposit insurance available on all deposit accounts to $250,000, effective until December 31, 2009. In addition, certain noninterest-bearing transaction accounts maintained with financial institutions participating in the FDIC’s Transaction Account Guarantee Program (TAG) are fully insured regardless of the dollar amount until December 31, 2009. Under the TAG, an annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed on a quarterly basis to insured depository institutions that have not opted out of this component of the Temporary Liquidity Guarantee Program. The Bank has opted to participate in the Transaction Account Guaranteed Program.

The FDIC imposes an assessment against all depository institutions for deposit insurance. This assessment is based on the risk category of the institution and, prior to 2009, ranged from 5 to 43 basis points of the institution’s deposits. On February 27, 2009, the FDIC published a final rule raising the current deposit insurance assessment rates uniformly for all institutions by seven basis points (to a range from 12 to 45 basis points) for the second quarter of 2009. This action also changed the way that the FDIC’s assessment system differentiates for risk, extended the time frame to restore the DIF from 5 years to 7 years and imposes a special assessment on insured institutions of up to 20 basis points. As of March 31, 2009 the final charge for the special assessment had not been determined. The special assessment is payable September 30, 2009 based on deposits as of June 30, 2009. If the special assessment is 20 basis points, the Bank expects to recognize an additional expense of approximately $1.3 million during the second quarter of 2009. The ruling also allows the FDIC to impose an emergency assessment of 10 basis points, each quarter, after June 30, 2009 if necessary to maintain public confidence in federal deposit insurance.

The following table provides more information about noninterest expense:

		For the Three Months Ended
		March 31								Change
		2009				2008				Amount				%
Noninterest Expense
Salaries and benefits		$	3,153			$	3,101			$	52				1.7
Net occupancy expense			480				458				22				4.8
Furniture and equipment expense			217				216				1				0.5
Advertising			315				314				1				0.3
Legal & professional fees			251				248				3				1.2
Data processing			401				357				44				12.3
Pennsylvania bank shares tax			145				170				(25	)			(14.7	)
Intangible amortization			117				90				27				30.0
FDIC insurance			231				18				213				1,183.3
Other			840				877				(37	)			(4.2	)
Total noninterest expense		$	6,150			$	5,849			$	301				5.1

Income taxes

Federal income tax expense was $662 thousand in 2009 and $921 thousand for 2008. This expense resulted in an effective tax rate for 2009 of 24.0% and 26.7% for 2008. The ratio of tax-exempt income to pre-tax income in 2009 was greater than in 2008; therefore, the effective tax rate was lower in 2009. All taxable income for the Corporation is taxed at a rate of 34%.

Financial Condition

At March 31, 2009, assets totaled $915.3 million, an increase of $12.8 million from the 2008 year-end balance of $902.5 million. The investment portfolio has decreased by $7.3 million, due to maturities and pay downs, and the funds have been reinvested in the loan portfolio. The Bank held $6.5 million of restricted stock at March 31, 2009. Except for $30 thousand, this investment represents stock in the Federal Home Loan Bank of Pittsburgh, which the Bank is required to hold to be a member of FHLB, and is carried at cost of $100 per share. In December 2008, FHLB announced it would suspend the repurchase of excess capital stock from its members due to deterioration in its financial condition. At March 31, 2009, the Bank held approximately $1.1 million in excess FHLB stock that it would not have been required to hold prior to the suspension of the stock repurchase program.

Net loans have increased $20.1 million since year-end. Commercial lending activity continues to be good and these balances have increased more than $28.1 million. However, the growth in commercial loans was partially offset by a decrease of approximately $3.5 million in the residential mortgage loan portfolio and $4.1 million in the consumer portfolio. The mortgage portfolio is expected to continue to run-off as the Corporation is originating mortgages, but is not funding, servicing or retaining the loans. The decrease in the consumer loan portfolio is primarily from pay downs on home equity loans, much of which was a result of refinancing a first mortgage.

The following table presents a summary of loans outstanding at:

										Change
(Amounts in thousands)		3/31/2009				12/31/2008				Amount				%
Residential mortgage loans		$	74,596			$	78,061			$	(3,465	)			(4.4	)
Residential construction loans			419				408				11				2.7
Commercial construction and land development			101,798				99,027				2,771				2.8
Commercial, industrial and agricultural			391,618				366,261				25,357				6.9
Consumer — home equity loans and lines of credit			100,722				103,523				(2,801	)			(2.7	)
Consumer — other			27,620				28,937				(1,317	)			(4.6	)
			696,773				676,217				20,556				3.0
Less: Allowance for loan losses			(7,843	)			(7,357	)			(486	)			6.6
Net Loans		$	688,930			$	668,860			$	20,070				3.0
Included in the loan balances are the following:
Net unamortized deferred loan costs		$	637			$	646
Unamortized (discount) premium on purchased loans		$	(281	)		$	(295	)

Other intangible assets are comprised of a core deposit intangible and a customer list and are being amortized over the estimated useful life of the asset.

Total deposits increased $27.1 million during the first quarter of 2009 to $654.4 million from year-end 2008. Non-interest bearing deposits decreased $8.6 million, but were offset by increases in interest-bearing deposits. Savings and interest-bearing checking deposits increased $12.1 million and time deposits increased $23.6 million, as the Bank took out brokered deposits in the amount of $23.5 million. During the first quarter of 2009, the Bank became a member of the Promontory Network and began offering CDs through CDARS. CDARS places large deposits into CDs with other network member banks in increments less than the FDIC insurance maximum, thereby providing insurance coverage on the entire balance. As of March 31, 2009, the Bank had $880 thousand in CDARS deposits and this has grown to $7.5 million during April 2009. The Corporation’s Money Management product decreased, $3.3 million due to a decrease in municipal funds.

The following table presents a summary of deposits outstanding at:

										Change
(Amounts in thousands)		3/31/2009				12/31/2008				Amount				%
Demand, noninterest-bearing		$	78,322			$	86,954			$	(8,632	)			(9.9	)
Interest-bearing checking			98,455				86,241				12,214				14.2
Savings:
Money market accounts			200,313				203,171				(2,858	)			(1.4	)
Passbook and statement savings			48,763				46,006				2,757				6.0
Total savings and interest checking			347,531				335,418				12,113				3.6
Time:
Deposits of $100,000 and over			61,810				50,510				11,300				22.4
Brokered time deposits (includes CDARS)			24,386				16,504				7,882				47.8
Other time deposits			142,356				137,955				4,401				3.2
			228,552				204,969				23,583				11.5
Total deposits		$	654,405			$	627,341			$	27,064				4.3
Overdrawn deposit accounts reclassified as loan balances		$	191			$	181