UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-Q





(Mark One)

|x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011



| ̈ | Transition report under Section 13 or l5(d) of the Exchange Act
|- | ---------------------------------------------------------------

For the transition period from  to

Commission file number 000-49736





First
Community Financial Corporation

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 23-2321079                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

2 N. Main St., Mifflintown, PA
17059

(Address of Principal Executive Offices)

(717) 436-2144

(Registrants telephone number, including area code)





Indicate by check mark whether
the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.    x  Yes     ̈  No

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     ̈  No

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

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

Indicate the number of shares outstanding of each class of issuers classes of common stock, as of the last practicable date:



|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at April 30, 2011
|Common Stock, par value $5.00 |  | 1,404,774 Shares             









---

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements





FIRST COMMUNITY FINANCIAL
CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands, Except Share Data)



|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                    |  | March 31, 2011 |         |   | December 31, 2010 |  
|                                                                                                                                                                    |  | (unaudited)    |         |   | (audited)         |  
|ASSETS                                                                                                                                                              |  |                |         |   |                   |   |         |  
|Cash & due from banks                                                                                                                                               |  | $              | 6,103   |   |                   | $ | 10,280  |  
|Interest bearing deposits with banks                                                                                                                                |  |                | 1,629   |   |                   |   | 264     |  
|Federal funds sold                                                                                                                                                  |  |                | 2,031   |   |                   |   | 10      |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|Cash & cash equivalents                                                                                                                                             |  |                | 9,763   |   |                   |   | 10,554  |  
|Time certificates of deposit                                                                                                                                        |  |                | 198     |   |                   |   | 198     |  
|Securities available for sale                                                                                                                                       |  |                | 70,423  |   |                   |   | 75,627  |  
|Securities held to maturity, fair value 2011 $ 31,373; 2010 $ 30,976                                                                                                |  |                | 31,956  |   |                   |   | 31,872  |  
|Loans                                                                                                                                                               |  |                | 240,817 |   |                   |   | 238,596 |  
|Less: Allowance for loan losses                                                                                                                                     |  |                | (2,187  | ) |                   |   | (2,154  | )
|Less: Deferred loan fees and costs, net                                                                                                                             |  |                | (234    | ) |                   |   | (211    | )
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|Net loans                                                                                                                                                           |  |                | 238,396 |   |                   |   | 236,231 |  
|Premises and equipment, net                                                                                                                                         |  |                | 5,748   |   |                   |   | 5,802   |  
|Restricted investment in bank stocks                                                                                                                                |  |                | 2,428   |   |                   |   | 2,541   |  
|Investment in life insurance                                                                                                                                        |  |                | 7,194   |   |                   |   | 7,109   |  
|Other assets                                                                                                                                                        |  |                | 4,659   |   |                   |   | 4,221   |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                        |  | $              | 370,765 |   |                   | $ | 374,155 |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|                                                                                                                                                                    |  |               
|LIABILITIES                                                                                                                                                         |  |                |         |   |                   |   |         |  
|Deposits:                                                                                                                                                           |  |                |         |   |                   |   |         |  
|Non-interest bearing                                                                                                                                                |  | $              | 31,951  |   |                   | $ | 31,910  |  
|Interest bearing                                                                                                                                                    |  |                | 283,692 |   |                   |   | 285,939 |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|Total deposits                                                                                                                                                      |  |                | 315,643 |   |                   |   | 317,849 |  
|Short-term borrowings                                                                                                                                               |  |                | 3,199   |   |                   |   | 4,030   |  
|Long-term borrowings                                                                                                                                                |  |                | 15,000  |   |                   |   | 16,000  |  
|Junior subordinated debt                                                                                                                                            |  |                | 5,155   |   |                   |   | 5,155   |  
|Other liabilities                                                                                                                                                   |  |                | 2,863   |   |                   |   | 2,839   |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|                                                                                                                                                                    |  |               
|TOTAL LIABILITIES                                                                                                                                                   |  |                | 341,860 |   |                   |   | 345,873 |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|                                                                                                                                                                    |  |               
|SHAREHOLDERS EQUITY                                                                                                                                                |  |                |         |   |                   |   |         |  
|Preferred stock, without par value; 10,000,000 shares authorized and unissued                                                                                       |  |                |        |   |                   |   |        |  
|Common stock, $ 5.00 par value; 10,000,000 shares authorized Shares issued; 2011 -1,408,425; 2010  1,407,412 Shares
outstanding; 2011- 1,404,774; 2010  1,403,761 |  |                | 7,042   |   |                   |   | 7,037   |  
|Capital in excess of par value                                                                                                                                      |  |                | 439     |   |                   |   | 415     |  
|Retained earnings                                                                                                                                                   |  |                | 20,297  |   |                   |   | 19,560  |  
|Treasury stock, at cost 2011  3,651 shares; 2010 3,651 shares                                                                                                     |  |                | (110    | ) |                   |   | (110    | )
|Accumulated other comprehensive income                                                                                                                              |  |                | 1,237   |   |                   |   | 1,380   |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                          |  |                | 28,905  |   |                   |   | 28,282  |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  
|TOTAL LIABILITIES & SHAREHOLDERS EQUITY                                                                                                                            |  | $              | 370,765 |   |                   | $ | 374,155 |  
|                                                                                                                                                                    |  |                |         |   |                   |   |         |  

See accompanying notes.



2



---

PART I  FINANCIAL INFORMATION, CONTINUED

Item 1. Financial Statements, continued







FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(Dollars In Thousands, Except Per Share Data)



|                                                    |  |                             |       |  |      |   |       | 
|--------------------------------------------------- |  | --------------------------- | ----- |  | ---- | - | ----- | 
|                                                    |  | Three Months EndedMarch 31, |      
|                                                    |  | 2011                        |       |  | 2010 |  
|INTEREST INCOME                                     |  |                             |       |  |      |   |       | 
|Interest & fees on loans                            |  | $                           | 3,633 |  |      | $ | 3,444 | 
|Interest on taxable securities                      |  |                             | 558   |  |      |   | 632   | 
|Interest on tax-exempt securities                   |  |                             | 338   |  |      |   | 319   | 
|Other interest & dividends                          |  |                             | 7     |  |      |   | 10    | 
|                                                    |  |                             |       |  |      |   |       | 
|TOTAL INTEREST INCOME                               |  |                             | 4,536 |  |      |   | 4,405 | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|INTEREST EXPENSE                                    |  |                             |       |  |      |   |       | 
|Interest on deposits                                |  |                             | 1,319 |  |      |   | 1,619 | 
|Interest on short-term borrowings                   |  |                             | 10    |  |      |   | 16    | 
|Interest on long-term borrowings                    |  |                             | 204   |  |      |   | 274   | 
|                                                    |  |                             |       |  |      |   |       | 
|TOTAL INTEREST EXPENSE                              |  |                             | 1,533 |  |      |   | 1,909 | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|NET INTEREST INCOME                                 |  |                             | 3,003 |  |      |   | 2,496 | 
|Provision for loan losses                           |  |                             | 24    |  |      |   | 20    | 
|                                                    |  |                             |       |  |      |   |       | 
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                             | 2,979 |  |      |   | 2,476 | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|NON-INTEREST INCOME                                 |  |                             |       |  |      |   |       | 
|Service charges on deposits                         |  |                             | 177   |  |      |   | 195   | 
|Fiduciary activities                                |  |                             | 134   |  |      |   | 162   | 
|Earnings on investment in life insurance            |  |                             | 97    |  |      |   | 56    | 
|ATM and debit card fees                             |  |                             | 161   |  |      |   | 145   | 
|Realized gains on sales of securities               |  |                             | 4     |  |      |   | 182   | 
|Gain on sale of assets                              |  |                             | 6     |  |      |   |      | 
|Other income                                        |  |                             | 69    |  |      |   | 55    | 
|                                                    |  |                             |       |  |      |   |       | 
|TOTAL OTHER INCOME                                  |  |                             | 648   |  |      |   | 795   | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|NON-INTEREST EXPENSES                               |  |                             |       |  |      |   |       | 
|Employee compensation & benefits                    |  |                             | 1,246 |  |      |   | 1,144 | 
|Net occupancy & equipment                           |  |                             | 281   |  |      |   | 284   | 
|ATM expense                                         |  |                             | 81    |  |      |   | 93    | 
|Professional fees                                   |  |                             | 89    |  |      |   | 111   | 
|Regulatory fees                                     |  |                             | 129   |  |      |   | 139   | 
|Director & advisory boards compensation             |  |                             | 71    |  |      |   | 108   | 
|Supplies & postage                                  |  |                             | 98    |  |      |   | 76    | 
|Other non-interest expense                          |  |                             | 390   |  |      |   | 317   | 
|                                                    |  |                             |       |  |      |   |       | 
|TOTAL NON-INTEREST EXPENSES                         |  |                             | 2,385 |  |      |   | 2,272 | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|Income before income taxes                          |  |                             | 1,242 |  |      |   | 999   | 
|Applicable income taxes                             |  |                             | 252   |  |      |   | 207   | 
|                                                    |  |                             |       |  |      |   |       | 
|NET INCOME                                          |  | $                           | 990   |  |      | $ | 792   | 
|                                                    |  |                             |       |  |      |   |       | 
|                                                    |  |                            
|Basic Earnings Per Share                            |  | $                           | 0.71  |  |      | $ | 0.57  | 
|                                                    |  |                             |       |  |      |   |       | 

See accompanying notes.



3



---

PART I  FINANCIAL INFORMATION, CONTINUED

Item 1. Financial Statements, continued







FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Three Months Ended March 31, 2011 and 2010

(Unaudited)

(Dollars In Thousands, Except Per Share Data)



|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | --------------------------- | - | --- | ---------------- |  | - | ------------- | - |  | ----------------------------------- | ---- | - | ----- | - | ----- | - |  | - | ------ | -
|                                                                                                                    |  | CommonStock |       |  | CapitalIn ExcessofPar Value |   |     | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome |      |   | Total |  
|                                                                                                                    |  |             |       |  |                             |  
|Balance - January 1, 2010                                                                                           |  | $           | 7,022 |  |                             | $ | 350 |                  |  | $ | 16,820        |   |  | $                                   | (110 | ) |       | $ | 1,276 |   |  | $ | 25,358 |  
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|                                                                                                                    |  |             |       |  |                             |  
|Comprehensive income:                                                                                               |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|Net income                                                                                                          |  |             |       |  |                             |   |     |                  |  |   | 792           |   |  |                                     |      |   |       |   |       |   |  |   | 792    |  
|Change in net unrealized losses on securities available for sale, net of deferred income taxes                      |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   | (152  | ) |  |   | (152   | )
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                                                          |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   | 640    |  
|                                                                                                                    |  |             |       |  |                             |  
|Issuance of stock in connection with dividend reinvestment plan 713 shares                                          |  |             | 3     |  |                             |   | 15  |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   | 18     |  
|                                                                                                                    |  |             |       |  |                             |  
|Cash dividends, $0.16 per share                                                                                     |  |             |       |  |                             |   |     |                  |  |   | (224          | ) |  |                                     |      |   |       |   |       |   |  |   | (224   | )
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|                                                                                                                    |  |             |       |  |                             |  
|Balance, March 31, 2010                                                                                             |  | $           | 7,025 |  |                             | $ | 365 |                  |  | $ | 17,388        |   |  | $                                   | (110 | ) |       | $ | 1,124 |   |  | $ | 25,792 |  
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|                                                                                                                    |  |             |       |  |                             |  
|Balance - January 1, 2011                                                                                           |  | $           | 7,037 |  |                             | $ | 415 |                  |  | $ | 19,560        |   |  | $                                   | (110 | ) |       | $ | 1,380 |   |  | $ | 28,282 |  
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|                                                                                                                    |  |             |       |  |                             |  
|Comprehensive income:                                                                                               |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|Net income                                                                                                          |  |             |       |  |                             |   |     |                  |  |   | 990           |   |  |                                     |      |   |       |   |       |   |  |   | 990    |  
|Change in net unrealized gains on securities available for sale, net of deferred income taxes and
reclassifications |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   | (143  | ) |  |   | (143   | )
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                                                          |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   | 847    |  
|                                                                                                                    |  |             |       |  |                             |  
|Issuance of stock in connection with dividend reinvestment plan 1,013 shares                                        |  |             | 5     |  |                             |   | 24  |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   | 29     |  
|                                                                                                                    |  |             |       |  |                             |  
|Cash dividends, $0.18 per share                                                                                     |  |             |       |  |                             |   |     |                  |  |   | (253          | ) |  |                                     |      |   |       |   |       |   |  |   | (253   | )
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  
|                                                                                                                    |  |             |       |  |                             |  
|Balance, March 31, 2011                                                                                             |  | $           | 7,042 |  |                             | $ | 439 |                  |  | $ | 20,297        |   |  | $                                   | (110 | ) |       | $ | 1,237 |   |  | $ | 28,905 |  
|                                                                                                                    |  |             |       |  |                             |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |   |  |   |        |  

See accompanying notes.



4



---

PART I  FINANCIAL INFORMATION, CONTINUED

Item 1. Financial Statements, continued







FIRST COMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars In Thousands)



|                                                                                  |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                  |  | 2011                        |        |   | 2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                             |        |   |      |   |        |  
|Net income                                                                        |  | $                           | 990    |   |      | $ | 792    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Provision for loan losses                                                         |  |                             | 24     |   |      |   | 20     |  
|Depreciation and amortization                                                     |  |                             | 110    |   |      |   | 126    |  
|Net amortization of securities premium                                            |  |                             | 90     |   |      |   | 124    |  
|Net realized gains on sales of securities                                         |  |                             | (4     | ) |      |   | (182   | )
|Net gain on disposition of other assets                                           |  |                             | (6     | ) |      |   |       |  
|Earnings on life insurance                                                        |  |                             | (98    | ) |      |   | (56    | )
|Increase in other assets                                                          |  |                             | (345   | ) |      |   | (3,457 | )
|Increase (decrease) in other liabilities                                          |  |                             | 24     |   |      |   | 293    |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Net cash provided by (used in) operating activities                               |  |                             | 785    |   |      |   | (2,340 | )
|                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                  |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                             |        |   |      |   |        |  
|Securities held to maturity:                                                      |  |                             |        |   |      |   |        |  
|Maturities, calls and principal repayments                                        |  |                             | 670    |   |      |   | 696    |  
|Purchases                                                                         |  |                             | (650   | ) |      |   |       |  
|Securities available for sale:                                                    |  |                             |        |   |      |   |        |  
|Maturities, calls and principal repayments                                        |  |                             | 6,776  |   |      |   | 10,624 |  
|Purchases                                                                         |  |                             | (2,163 | ) |      |   | (7,048 | )
|Proceeds from sales                                                               |  |                             | 184    |   |      |   | 3,614  |  
|Net increase in loans receivable                                                  |  |                             | (2,189 | ) |      |   | (3,563 | )
|Net decrease in Federal Home Loan Bank stock                                      |  |                             | 113    |   |      |   |       |  
|Purchases of premises and equipment                                               |  |                             | (56    | ) |      |   | (61    | )
|Net maturities of interest bearing time deposits                                  |  |                             |       |   |      |   | 99     |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Net cash provided by investing activities                                         |  |                             | 2,685  |   |      |   | 4,361  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                  |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                             |        |   |      |   |        |  
|Net increase in non-interest bearing demand and savings deposits                  |  |                             | 41     |   |      |   | 554    |  
|Net increase (decrease) in time deposits                                          |  |                             | (2,247 | ) |      |   | 4,481  |  
|Net decrease in short-term borrowings                                             |  |                             | (831   | ) |      |   | (737   | )
|Repayment of long-term borrowings                                                 |  |                             | (1,000 | ) |      |   | (3,000 | )
|Proceeds from issuance of common stock                                            |  |                             | 29     |   |      |   | 18     |  
|Acquisition of treasury stock                                                     |  |                             |       |   |      |   |       |  
|Dividends paid                                                                    |  |                             | (253   | ) |      |   | (224   | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Net cash provided by (used by) financing activities                               |  |                             | (4,261 | ) |      |   | 1,092  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|                                                                                  |  |                            
|Net increase (decrease) in cash and cash equivalents                              |  |                             | (791   | ) |      |   | 3,113  |  
|Cash and cash equivalents:                                                        |  |                             |        |   |      |   |        |  
|Beginning of year                                                                 |  |                             | 10,554 |   |      |   | 8,633  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|End of period                                                                     |  | $                           | 9,763  |   |      | $ | 11,746 |  
|                                                                                  |  |                             |        |   |      |   |        |  
|SUPPLEMENTAL DISCLOSURES:                                                         |  |                             |        |   |      |   |        |  
|Cash payments for interest                                                        |  | $                           | 1,544  |   |      | $ | 1,952  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Cash payments for income taxes                                                    |  | $                           | 15     |   |      | $ | 10     |  
|                                                                                  |  |                             |        |   |      |   |        |  
|NON CASH INVESTING:                                                               |  |                             |        |   |      |   |        |  
|Transfer of loans to foreclosed real estate                                       |  | $                           |       |   |      | $ | 24     |  
|                                                                                  |  |                             |        |   |      |   |        |  

See accompanying notes.



5



---

PART I  FINANCIAL INFORMATION, CONTINUED

Item 1. Financial Statements, continued







FIRST COMMUNITY FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

March 31, 2011

Note A - Basis of Presentation

The consolidated financial statements include the accounts
of First Community Financial Corporation (the Corporation) and its wholly-owned subsidiaries, The First National Bank of Mifflintown (the Bank) and First Community Financial Capital Trust I (the Trust). All
material inter-company transactions have been eliminated. The Corporation was organized on November 13, 1984 and is subject to regulation by the Board of Governors of the Federal Reserve System.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim
financial information and are presented in accordance with the instructions to Form 10-Q and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results
for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The consolidated financial statements presented in this report should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2010,
included in the Corporations Form 10-K filed with the Securities and Exchange Commission on March 10, 2011.

The Corporation has
evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2011, for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through May 13,
2011, the date these financial statements were issued.

Note B - Accounting Policies

The accounting policies of the Corporation as applied in the interim financial statements presented are substantially the same as those followed on an
annual basis as presented in the Corporations Form 10-K.



6



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Note C - Comprehensive Income

The only other comprehensive income item that the Corporation presently has is unrealized gains on securities available for sale. The components of the change in unrealized gains are as follows (in
thousands):



|                                                            |  |                             |      |   |      |   |      |  
|----------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                                            |  | Three Months EndedMarch 31, |     
|                                                            |  | 2011                        |      |   | 2010 |  
|Unrealized holding gains (losses) arising during the period |  | $                           | (213 | ) |      | $ | (49  | )
|Reclassification of gains realized in net income            |  |                             | (4   | ) |      |   | (182 | )
|                                                            |  |                             |      |   |      |   |      |  
|                                                            |  |                             | (217 | ) |      |   | (231 | )
|Deferred income tax effect                                  |  |                             | 74   |   |      |   | 79   |  
|                                                            |  |                             |      |   |      |   |      |  
|Change in accumulated other comprehensive income            |  | $                           | (143 | ) |      | $ | (152 | )
|                                                            |  |                             |      |   |      |   |      |  

Note D - Earnings Per Share

The Corporation has a simple capital structure. Basic earnings per share represents net income divided by the weighted average number of common shares outstanding during the period. The weighted average
number of common shares outstanding was 1,403,885 and 1,400,745 as of March 31, 2011 and 2010, respectively.

Note E - 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 written are conditional commitments issued by the Corporation 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 risks involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Corporation, generally, holds collateral and/or personal guarantees supporting these commitments.
The Corporation had $175,000 of standby letters of credit outstanding as of March 31, 2011. 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 payment required under the corresponding guarantees. The current amount of the liability as of March 31, 2011 for guarantees under standby letters of credit issued is not material.



7



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Note F - Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities available for sale are those
securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell an available for sale security would be based on various factors. These securities are stated at fair value.
Unrealized gains (losses) are reported as changes in other comprehensive income, a component of shareholders equity, net of the related deferred tax effect. Premiums and discounts are recognized as interest income over the estimated lives of
the securities, using the interest method. Securities held to maturity are those securities that the Corporation has the intent and ability to hold to maturity. These securities are stated at cost adjusted for amortization of premiums and accretion
of discounts, which is recognized as interest income over their estimated lives, using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 320, Investments  Debt and Equity
Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. Management evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) for equity securities, the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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, FASB Topic 320 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.

Amortized cost and fair value at March 31, 2011 and December 31, 2010
were as follows:



8



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|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|------------------------------ |  | -------------- | ------ |  | -------------------- | - | ----- | --------------------- |  | - | --------- | - |  | - | ------ | 
|                               |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|                               |  | (In Thousands) |       
|                               |  |                |        | 
|SECURITIES AVAILABLE FOR SALE: |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|March 31, 2011:                |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|U.S. agency securities         |  | $              | 7,104  |  |                      | $ | 156   |                       |  | $ |          |   |  | $ | 7,260  | 
|Mortgage-backed securities     |  |                | 60,256 |  |                      |   | 1,455 |                       |  |   | (86       | ) |  |   | 61,625 | 
|Corporate securities           |  |                | 493    |  |                      |   |      |                       |  |   | (2        | ) |  |   | 491    | 
|Equity securities              |  |                | 661    |  |                      |   | 386   |                       |  |   |          |   |  |   | 1,047  | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | $              | 68,514 |  |                      | $ | 1,997 |                       |  | $ | (88       | ) |  | $ | 70,423 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|December 31, 2010:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|U.S. agency securities         |  | $              | 9,738  |  |                      | $ | 180   |                       |  | $ |          |   |  | $ | 9,918  | 
|Mortgage-backed securities     |  |                | 63,102 |  |                      |   | 1,599 |                       |  |   | (41       | ) |  |   | 64,660 | 
|Equity securities              |  |                | 661    |  |                      |   | 388   |                       |  |   |          |   |  |   | 1,049  | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | $              | 73,501 |  |                      | $ | 2,167 |                       |  | $ | (41       | ) |  | $ | 75,627 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|                               |  | (In Thousands) |       
|                               |  |                |        | 
|SECURITIES HELD TO MATURITY:   |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|March 31, 2011:                |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|State and municipal securities |  | $              | 31,956 |  |                      | $ | 504   |                       |  | $ | (1,087    | ) |  | $ | 31,373 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | $              | 31,956 |  |                      | $ | 504   |                       |  | $ | (1,087    | ) |  | $ | 31,373 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|December 31, 2010:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|State and municipal securities |  | $              | 31,872 |  |                      | $ | 363   |                       |  | $ | (1,259    | ) |  | $ | 30,976 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | $              | 31,872 |  |                      | $ | 363   |                       |  | $ | (1,259    | ) |  | $ | 30,976 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 



9



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The following table shows the Corporations investments gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2011 and December 31, 2010:



|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|------------------------------ |  | ------------------- | ------ |  | ----------------- | - | --- | --------- |  | - | ---------------- |  |  | --------- | --- |  | ---------------- | - | ------ |  |  | - | ----- | 
|                               |  | Less than 12 Months |        |  | 12 Months or More |   |     | Total     | 
|                               |  | FairValue           |        |  | UnrealizedLosses  |   |     | FairValue |  |   | UnrealizedLosses |  |  | FairValue |     |  | UnrealizedLosses |  
|March 31, 2011                 |  | (In Thousands)      |       
|                               |  |                     |        |  |                   |  
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|Corporate securities           |  | $                   | 491    |  |                   | $ | 2   |           |  | $ |                 |  |  | $         |    |  |                  | $ | 491    |  |  | $ | 2     | 
|Mortgage-backed securities     |  |                     | 12,032 |  |                   |   | 86  |           |  |   |                 |  |  |           |    |  |                  |   | 12,032 |  |  |   | 86    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|                               |  |                     | 12,523 |  |                   |   | 88  |           |  |   |                 |  |  |           |    |  |                  |   | 12,523 |  |  |   | 88    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|SECURITIES HELD TO MATURITY:   |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|State and municipal securities |  |                     | 12,189 |  |                   |   | 371 |           |  |   | 2,328            |  |  |           | 716 |  |                  |   | 14,517 |  |  |   | 1,087 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Total                          |  | $                   | 24,712 |  |                   | $ | 459 |           |  | $ | 2,328            |  |  | $         | 716 |  |                  | $ | 27,040 |  |  | $ | 1,175 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |       
|                               |  | Less than 12 Months |        |  | 12 Months or More |   |     | Total     | 
|                               |  | FairValue           |        |  | UnrealizedLosses  |   |     | FairValue |  |   | UnrealizedLosses |  |  | FairValue |     |  | UnrealizedLosses |  
|December 31, 2010              |  | (In Thousands)      |       
|                               |  |                     |        |  |                   |  
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|Mortgage-backed securities     |  | $                   | 8,744  |  |                   | $ | 41  |           |  | $ |                 |  |  | $         |    |  |                  | $ | 8,744  |  |  | $ | 41    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|                               |  |                     | 8,744  |  |                   |   | 41  |           |  |   |                 |  |  |           |    |  |                  |   | 8,744  |  |  |   | 41    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|SECURITIES HELD TO MATURITY:   |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|State and municipal securities |  |                     | 15,135 |  |                   |   | 530 |           |  |   | 2,280            |  |  |           | 729 |  |                  |   | 17,415 |  |  |   | 1,259 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|Total                          |  | $                   | 23,879 |  |                   | $ | 571 |           |  | $ | 2,280            |  |  | $         | 729 |  |                  | $ | 26,159 |  |  | $ | 1,300 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 

At March 31, 2011, eleven mortgage-backed securities have unrealized losses. The aggregate depreciation from the
Corporations amortized cost basis on these securities is 0.7%. In managements opinion, these unrealized losses relate to changes in interest rates. The Corporations mortgage backed security portfolio consists of only government
sponsored agencies, and contains no private label securities.

At March 31, 2011, fifty-three state and municipal securities have
unrealized losses with aggregate depreciation of 6.5% from the Corporations amortized cost basis. In managements opinion, these unrealized losses relate primarily to changes in interest rates. In analyzing the issuers financial
condition, management considers the issuers bond rating as well as the financial performance of the respective municipality.



10



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Gross realized gains and losses for the three months ending March 31, 2011 and March 31, 2010 were
as follows (in thousands):



|                           |  |                    |     |  |                     |   |   |                  |  |   |     | 
|-------------------------- |  | ------------------ | --- |  | ------------------- | - | - | ---------------- |  | - | --- | 
|                           |  | GrossRealizedGains |     |  | GrossRealizedLosses |   |   | NetGains(Losses) | 
|March 31, 2011:            |  |                    |     |  |                     |   |   |                  |  |   |     | 
|Mortgage-backed securities |  | $                  | 4   |  |                     | $ |  |                  |  | $ | 4   | 
|                           |  |                    |     |  |                     |   |   |                  |  |   |     | 
|                           |  |                    |    
|                           |  | $                  | 4   |  |                     | $ |  |                  |  | $ | 4   | 
|                           |  |                    |     |  |                     |   |   |                  |  |   |     | 
|                           |  |                    |    
|March 31, 2010:            |  |                    |     |  |                     |   |   |                  |  |   |     | 
|Mortgage-backed securities |  | $                  | 182 |  |                     | $ |  |                  |  | $ | 182 | 
|                           |  |                    |     |  |                     |   |   |                  |  |   |     | 
|                           |  |                    |    
|                           |  | $                  | 182 |  |                     | $ |  |                  |  | $ | 182 | 
|                           |  |                    |     |  |                     |   |   |                  |  |   |     | 

Amortized cost and fair value at March 31, 2011 by contractual maturity are shown below. Municipal securities with
prerefunded issues are included in the category in which payment is expected to occur. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.



|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 
|----------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------ | ------------- |  | - | --------- |  |  | - | ------ | 
|                              |  | Available for Sale |        |  | Held to Maturity |  
|                              |  | AmortizedCost      |        |  | FairValue        |   |        | AmortizedCost |  |   | FairValue | 
|                              |  | (In Thousands)     |       
|                              |  |                    |        | 
|1 year or less                |  | $                  | 503    |  |                  | $ | 511    |               |  | $ | 883       |  |  | $ | 882    | 
|Over 1 year through 5 years   |  |                    | 6,601  |  |                  |   | 6,749  |               |  |   | 6,327     |  |  |   | 6,311  | 
|Over 5 years through 10 years |  |                    | 493    |  |                  |   | 491    |               |  |   | 13,252    |  |  |   | 13,323 | 
|Over 10 years                 |  |                    |       |  |                  |   |       |               |  |   | 11,494    |  |  |   | 10,857 | 
|Mortgage-backed securities    |  |                    | 60,256 |  |                  |   | 61,625 |               |  |   |          |  |  |   |       | 
|Equity securities             |  |                    | 661    |  |                  |   | 1,047  |               |  |   |          |  |  |   |       | 
|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 
|                              |  |                    |        | 
|                              |  | $                  | 68,514 |  |                  | $ | 70,423 |               |  | $ | 31,956    |  |  | $ | 31,373 | 
|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 



11



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Note G - Loans

Allowance for loan losses at March 31, 2011 and loans receivable at March 31, 2011 and December 31, 2010 are as follows:

Allowance for Loan Losses:



|                                                               |  |                |      |   |                       |   |     |              |  |   |          |  |  |                       |    |   |       |   |     |   |  |   |       | 
|-------------------------------------------------------------- |  | -------------- | ---- | - | --------------------- | - | --- | ------------ |  | - | -------- |  |  | --------------------- | -- | - | ----- | - | --- | - |  | - | ----- | 
|                                                               |  | Commercial     |      |   | CommercialReal Estate |   |     | Agricultural |  |   | Consumer |  |  | ResidentialRealEstate |    |   | Total |  
|                                                               |  | (in Thousands) |     
|December 31, 2010 Total
Allowance for loan losses              |  | $              | 730  |   |                       | $ | 630 |              |  | $ |         |  |  | $                     | 92 |   |       | $ | 702 |   |  | $ | 2,154 | 
|                                                               |  |                |      |   |                       |  
|Provision                                                      |  |                | (274 | ) |                       |   | (31 | )            |  |   | 337      |  |  |                       | (2 | ) |       |   | (6  | ) |  |   | 24    | 
|Charge-offs                                                    |  |                |     |   |                       |   |    |              |  |   |         |  |  |                       |   |   |       |   |    |   |  |   |      | 
|Recoveries                                                     |  |                |     |   |                       |   |    |              |  |   |         |  |  |                       |   |   |       |   | 9   |   |  |   | 9     | 
|                                                               |  |                |      |   |                       |   |     |              |  |   |          |  |  |                       |    |   |       |   |     |   |  |   |       | 
|                                                               |  |                |      |   |                       |  
|March 31, 2011 Total Allowance for loan losses                 |  | $              | 456  |   |                       | $ | 599 |              |  | $ | 337      |  |  | $                     | 90 |   |       | $ | 705 |   |  | $ | 2,187 | 
|                                                               |  |                |      |   |                       |   |     |              |  |   |          |  |  |                       |    |   |       |   |     |   |  |   |       | 
|                                                               |  |                |      |   |                       |  
|Ending balance for loans individually evaluated for impairment |  | $              | 11   |   |                       | $ | 166 |              |  | $ |         |  |  | $                     |   |   |       | $ |    |   |  | $ | 177   | 
|                                                               |  |                |      |   |                       |   |     |              |  |   |          |  |  |                       |    |   |       |   |     |   |  |   |       | 
|                                                               |  |                |      |   |                       |  
|Ending balance for loans collectively evaluated for impairment |  | $              | 445  |   |                       | $ | 433 |              |  | $ | 337      |  |  | $                     | 90 |   |       | $ | 705 |   |  | $ | 2,010 | 
|                                                               |  |                |      |   |                       |   |     |              |  |   |          |  |  |                       |    |   |       |   |     |   |  |   |       | 

Loans Receivable:



|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|------------------------------------- |  | -------------- | ------ |  | --------------------- | - | ------ | ------------ |  | - | -------- |  |  | ----------- | ----- |  | ----- | - | ------- |  |  | - | ------- | 
|March 31, 2011                        |  | Commercial     |        |  | CommercialReal Estate |   |        | Agricultural |  |   | Consumer |  |  | Residential |       |  | Total |  
|                                      |  | (In Thousands) |       
|                                      |  |                |        |  |                       |  
|Individually evaluated for impairment |  | $              | 18     |  |                       | $ | 1,307  |              |  | $ |         |  |  | $           |      |  |       | $ |        |  |  | $ | 1,325   | 
|                                      |  |                |        |  |                       |  
|Collectively evaluated for impairment |  |                | 42,027 |  |                       |   | 43,346 |              |  |   | 34,588   |  |  |             | 6,311 |  |       |   | 113,220 |  |  |   | 239,492 | 
|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|                                      |  |                |        |  |                       |  
|Total loans                           |  | $              | 42,045 |  |                       | $ | 44,653 |              |  | $ | 34,588   |  |  | $           | 6,311 |  |       | $ | 113,220 |  |  | $ | 240,817 | 
|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 



12



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|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|------------------------------------- |  | -------------- | ------ |  | --------------------- | - | ------ | ------------ |  | - | -------- |  |  | ----------- | ----- |  | ----- | - | ------- |  |  | - | ------- | 
|December 31, 2010                     |  | Commercial     |        |  | CommercialReal Estate |   |        | Agricultural |  |   | Consumer |  |  | Residential |       |  | Total |  
|                                      |  | (In Thousands) |       
|                                      |  |                |        |  |                       |  
|Individually evaluated for impairment |  | $              | 111    |  |                       | $ | 186    |              |  | $ |         |  |  | $           |      |  |       | $ |        |  |  | $ | 297     | 
|                                      |  |                |        |  |                       |  
|Collectively evaluated for impairment |  |                | 74,166 |  |                       |   | 43,680 |              |  | $ |         |  |  |             | 6,655 |  |       |   | 113,798 |  |  |   | 238,299 | 
|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|                                      |  |                |        |  |                       |  
|Total loans                           |  | $              | 74,277 |  |                       | $ | 43,866 |              |  | $ |         |  |  | $           | 6,655 |  |       | $ | 113,798 |  |  | $ | 238,596 | 
|                                      |  |                |        |  |                       |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 

Analysis of credit quality indicators is as follows:



|                |  |                |        |  |                        |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|--------------- |  | -------------- | ------ |  | ---------------------- | - | ------ | ------------ |  | - | -------- |  |  | ----------- | ----- |  | ----- | - | ------- |  |  | - | ------- | 
|March 31, 2011  |  | Commercial     |        |  | Commercial
Real Estate |   |        | Agricultural |  |   | Consumer |  |  | Residential |       |  | Total |  
|                |  | (in Thousands) |       
|Pass            |  | $              | 41,578 |  |                        | $ | 41,247 |              |  | $ | 31,771   |  |  | $           | 6300  |  |       | $ | 111,318 |  |  | $ | 232,214 | 
|Special Mention |  |                | 245    |  |                        |   | 1,386  |              |  |   | 2,416    |  |  |             | 0     |  |       |   | 200     |  |  |   | 4,247   | 
|Substandard     |  |                | 242    |  |                        |   | 2,020  |              |  |   | 401      |  |  |             | 11    |  |       |   | 1,682   |  |  |   | 4,356   | 
|Doubtful        |  |                |       |  |                        |   |       |              |  |   |         |  |  |             |      |  |       |   |        |  |  |   |        | 
|Loss            |  |                |       |  |                        |   |       |              |  |   |         |  |  |             |      |  |       |   |        |  |  |   |        | 
|                |  |                |        |  |                        |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 
|                |  |                |        |  |                        |  
|Total           |  | $              | 42,065 |  |                        | $ | 44,653 |              |  | $ | 34,588   |  |  | $           | 6,311 |  |       | $ | 113,200 |  |  | $ | 240,817 | 
|                |  |                |        |  |                        |   |        |              |  |   |          |  |  |             |       |  |       |   |         |  |  |   |         | 



|                  |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|----------------- |  | -------------- | ------ |  | --------------------- | - | ------ | -------- |  | - | ----------- |  |  | ----- | ------- |  |  | - | ------- | 
|December 31, 2010 |  | Commercial     |        |  | CommercialReal Estate |   |        | Consumer |  |   | Residential |  |  | Total |        
|                  |  | (In Thousands) |       
|Pass              |  | $              | 71,419 |  |                       | $ | 40,292 |          |  | $ | 6,644       |  |  | $     | 113,139 |  |  | $ | 231,494 | 
|Special Mention   |  |                | 2,104  |  |                       |   | 1,169  |          |  |   |            |  |  |       |        |  |  |   | 3,273   | 
|Substandard       |  |                | 754    |  |                       |   | 2,405  |          |  |   | 11          |  |  |       | 659     |  |  |   | 3,829   | 
|Doubtful          |  |                |       |  |                       |   |       |          |  |   |            |  |  |       |        |  |  |   |        | 
|Loss              |  |                |       |  |                       |   |       |          |  |   |            |  |  |       |        |  |  |   |        | 
|                  |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|                  |  |                |        |  |                      
|Total loans       |  | $              | 74,277 |  |                       | $ | 43,866 |          |  | $ | 6,655       |  |  | $     | 113,798 |  |  | $ | 238,596 | 
|                  |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 



13



---

The following is a summary of impaired loans:



|                                  |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|--------------------------------- |  | ------------------ | ----- |  | ---------------------- | - | ----- | ---------------- |  | - | ------------------------- |  |  | ------------------------ | ----- |  |  | - | -- | 
|March 31, 2011                    |  | RecordedInvestment |       |  | UnpaidPrincipalBalance |   |       | RelatedAllowance |  |   | AverageRecordedInvestment |  |  | InterestIncomeRecognized |      
|                                  |  | (In Thousands)     |      
|                                  |  |                    |       |  |                       
|With no specific allowance needed |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  | $                  |      |  |                        | $ |      |                  |  | $ |                          |  |  | $                        |      |  |  | $ |   | 
|Commercial real estate            |  |                    |      |  |                        |   |      |                  |  |   |                          |  |  |                          |      |  |  |   |   | 
|                                  |  |                    |       |  |                       
|With an allowance recorded        |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  |                    | 18    |  |                        |   | 18    |                  |  |   | 11                        |  |  |                          | 18    |  |  |   |   | 
|Commercial real estate            |  |                    | 1,307 |  |                        |   | 1,307 |                  |  |   | 166                       |  |  |                          | 1,310 |  |  |   | 15 | 
|                                  |  |                    |       |  |                       
|Total                             |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  |                    | 18    |  |                        |   | 18    |                  |  |   | 11                        |  |  |                          | 18    |  |  |   |   | 
|Commercial real estate            |  |                    | 1,307 |  |                        |   | 1,307 |                  |  |   | 166                       |  |  |                          | 1,310 |  |  |   | 15 | 
|                                  |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|                                  |  |                    |       |  |                       
|Total                             |  | $                  | 1,325 |  |                        | $ | 1,325 |                  |  | $ | 177                       |  |  | $                        | 1,328 |  |  | $ | 15 | 
|                                  |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|                                  |  |                    |       |  |                       
|December 31, 2010                 |  | RecordedInvestment |       |  | UnpaidPrincipalBalance |   |       | RelatedAllowance |  |   | AverageRecordedInvestment |  |  | InterestIncomeRecognized |      
|                                  |  | (In Thousands)     |      
|                                  |  |                    |       |  |                       
|With no specific allowance needed |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  | $                  | 93    |  |                        | $ | 93    |                  |  | $ |                          |  |  | $                        | 109   |  |  | $ | 8  | 
|Commercial real estate            |  |                    | 105   |  |                        |   | 105   |                  |  |   |                          |  |  |                          | 110   |  |  |   | 6  | 
|                                  |  |                    |       |  |                       
|With an allowance recorded        |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  |                    | 18    |  |                        |   | 18    |                  |  |   | 11                        |  |  |                          | 19    |  |  |   | 1  | 
|Commercial real estate            |  |                    | 81    |  |                        |   | 81    |                  |  |   | 4                         |  |  |                          | 81    |  |  |   | 6  | 
|                                  |  |                    |       |  |                       
|Total                             |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|Commercial                        |  |                    | 111   |  |                        |   | 111   |                  |  |   | 11                        |  |  |                          | 128   |  |  |   | 9  | 
|Commercial real estate            |  |                    | 186   |  |                        |   | 186   |                  |  |   | 4                         |  |  |                          | 191   |  |  |   | 12 | 
|                                  |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 
|                                  |  |                    |       |  |                       
|Total                             |  | $                  | 297   |  |                        | $ | 297   |                  |  | $ | 15                        |  |  | $                        | 319   |  |  | $ | 21 | 
|                                  |  |                    |       |  |                        |   |       |                  |  |   |                           |  |  |                          |       |  |  |   |    | 



14



---

Age analysis of past-due loans is as follows:



|                       |  |                     |     |  |                     |   |     |                  |  |   |               |  |  |         |       |  |            |   |         |                                       |  |   |                         |  |  |             |   |  |  |   |   |  |  |   |       | 
|---------------------- |  | ------------------- | --- |  | ------------------- | - | --- | ---------------- |  | - | ------------- |  |  | ------- | ----- |  | ---------- | - | ------- | ------------------------------------- |  | - | ----------------------- |  |  | ----------- | - |  |  | - | - |  |  | - | ----- | 
|March, 31, 2011        |  | 30  59DaysPast Due |     |  | 60 - 89DaysPast Due |   |     | > 90DaysPast Due |  |   | TotalPast Due |  |  | Current |       |  | TotalLoans |   |         | AllowanceForCollectivelyImpairedLoans |  |   | >90DaysAndStillAccruing |  |  | Nonaccruals |  
|                       |  | (In Thousands)      |    
|Commercial             |  | $                   | 8   |  |                     | $ |    |                  |  | $ |              |  |  | $       | 8     |  |            | $ | 42,057  |                                       |  | $ | 42,065                  |  |  | $           |  |  |  | $ |  |  |  | $ | 7     | 
|Commercial Real Estate |  |                     | 410 |  |                     |   |    |                  |  |   |              |  |  |         | 410   |  |            |   | 44,243  |                                       |  |   | 44,653                  |  |  |             |  |  |  |   |  |  |  |   | 75    | 
|Agricultural           |  |                     | 368 |  |                     |   |    |                  |  |   |              |  |  |         | 368   |  |            |   | 34,220  |                                       |  |   | 34,588                  |  |  |             |  |  |  |   |  |  |  |   |      | 
|Residential            |  |                     | 50  |  |                     |   | 69  |                  |  |   | 294           |  |  |         | 413   |  |            |   | 112,787 |                                       |  |   | 113,200                 |  |  |             |  |  |  |   |  |  |  |   | 877   | 
|Consumer               |  |                     | 51  |  |                     |   |    |                  |  |   | 6             |  |  |         | 57    |  |            |   | 6,254   |                                       |  |   | 6,311                   |  |  |             |  |  |  |   |  |  |  |   | 17    | 
|                       |  |                     |     |  |                     |   |     |                  |  |   |               |  |  |         |       |  |            |   |         |                                       |  |   |                         |  |  |             |   |  |  |   |   |  |  |   |       | 
|                       |  |                     |     |  |                     |   |     |                  | 
|Total                  |  | $                   | 887 |  |                     | $ | 69  |                  |  | $ | 300           |  |  | $       | 1,256 |  |            | $ | 239,561 |                                       |  | $ | 240,817                 |  |  | $           |  |  |  | $ |  |  |  | $ | 976   | 
|                       |  |                     |     |  |                     |   |     |                  |  |   |               |  |  |         |       |  |            |   |         |                                       |  |   |                         |  |  |             |   |  |  |   |   |  |  |   |       | 
|                       |  |                     |     |  |                     |   |     |                  | 
|December, 31, 2010     |  | 30  59DaysPast Due |     |  | 60 - 89DaysPast Due |   |     | > 90DaysPast Due |  |   | TotalPast Due |  |  | Current |       |  | TotalLoans |   |         | AllowanceForCollectivelyImpairedLoans |  |   | >90DaysAndStillAccruing |  |  | Nonaccruals |  
|                       |  | (In Thousands)      |    
|Commercial             |  | $                   | 136 |  |                     | $ |    |                  |  | $ |              |  |  | $       | 136   |  |            | $ | 74,141  |                                       |  | $ | 74,277                  |  |  | $           |  |  |  | $ |  |  |  | $ | 111   | 
|Commercial Real Estate |  |                     |    |  |                     |   |    |                  |  |   |              |  |  |         |      |  |            |   | 43,866  |                                       |  |   | 43,866                  |  |  |             |  |  |  |   |  |  |  |   | 239   | 
|Residential            |  |                     | 539 |  |                     |   | 109 |                  |  |   | 208           |  |  |         | 856   |  |            |   | 112,942 |                                       |  |   | 113,798                 |  |  |             |  |  |  |   |  |  |  |   | 649   | 
|Consumer               |  |                     | 99  |  |                     |   | 29  |                  |  |   | 17            |  |  |         | 145   |  |            |   | 6,510   |                                       |  |   | 6,655                   |  |  |             |  |  |  |   |  |  |  |   | 17    | 
|                       |  |                     |     |  |                     |   |     |                  |  |   |               |  |  |         |       |  |            |   |         |                                       |  |   |                         |  |  |             |   |  |  |   |   |  |  |   |       | 
|                       |  |                     |     |  |                     |   |     |                  | 
|Total                  |  | $                   | 774 |  |                     | $ | 138 |                  |  | $ | 225           |  |  | $       | 1,137 |  |            | $ | 237,459 |                                       |  | $ | 238,596                 |  |  | $           |  |  |  | $ |  |  |  | $ | 1,016 | 
|                       |  |                     |     |  |                     |   |     |                  |  |   |               |  |  |         |       |  |            |   |         |                                       |  |   |                         |  |  |             |   |  |  |   |   |  |  |   |       | 

NOTE H - FAIR VALUE OF FINANCIAL
INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Corporations consolidated 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 Bank could have realized in a
sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-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 may be different than the amounts reported at each period-end.

ASC Topic 820, Fair Value Measurements and Disclosure, which defines fair value, establishes a framework for measuring fair value under GAAP, expands disclosures about fair value measurements,



15



---

and applies to other accounting pronouncements that require or permit fair value measurements. The Bank adopted Fair Value Measurements effective for its fiscal year beginning
January 1, 2008.

Fair value measurement and disclosure guidance 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. Additional guidance is provided on determining when the
volume and level of activity for the asset or liability has significantly decreased. The Topic also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure 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 fair value measurement and disclosure
guidance.

ASC Topic 820 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. This Topic 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.

Fair value measurement and disclosure 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 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.



16



---

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.

The following describes the
valuation techniques used by the Corporation to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted
market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third
party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). For certain securities which are not traded in active
markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or transferability, and such adjustments are generally based on available market evidence (Level 3).

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, 2011 and December 31, 2010 are as follows (in thousands):



|                              |  |               |        |  |                                                            |   |     |                                            |  |   |                                        |  |  |   |     | 
|----------------------------- |  | ------------- | ------ |  | ---------------------------------------------------------- | - | --- | ------------------------------------------ |  | - | -------------------------------------- |  |  | - | --- | 
|Description                   |  | March 31,2011 |        |  | (Level
1)Quoted Pricesin ActiveMarkets forIdentical Assets |   |     | (Level
2)Significant OtherObservableInputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                              |  |               |        | 
|U. S. agency securities       |  | $             | 7,260  |  |                                                            | $ |    |                                            |  |   | 7,260                                  |  |  | $ |    | 
|                              |  |               |        | 
|Mortgage-backed securities    |  |               | 61,625 |  |                                                            |   |    |                                            |  |   | 61,625                                 |  |  |   |    | 
|Corporate securities          |  |               | 491    |  |                                                            |   |    |                                            |  |   | 491                                    |  |  |   |    | 
|Equity securities             |  |               | 1,047  |  |                                                            |   | 466 |                                            |  |   |                                       |  |  |   | 581 | 
|                              |  |               |        |  |                                                            |   |     |                                            |  |   |                                        |  |  |   |     | 
|                              |  |               |        | 
|Securities available for sale |  | $             | 70,423 |  |                                                            | $ | 466 |                                            |  | $ | 69,376                                 |  |  | $ | 581 | 
|                              |  |               |        |  |                                                            |   |     |                                            |  |   |                                        |  |  |   |     | 



17



---

|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|----------------------------- |  | ---------------- | ------ |  | ---------------------------------------------------------- | - | --- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | --- | 
|Description                   |  | December 31,2010 |        |  | (Level
1)Quoted Prices inActive Marketsfor IdenticalAssets |   |     | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservable Inputs | 
|                              |  |                  |        | 
|U. S. agency securities       |  | $                | 9,918  |  |                                                            | $ |    |                                             |  |   | 9,918                                   |  |  | $ |    | 
|                              |  |                  |        | 
|Mortgage-backed securities    |  |                  | 64,660 |  |                                                            |   |    |                                             |  |   | 64,660                                  |  |  |   |    | 
|Equity securities             |  |                  | 1,049  |  |                                                            |   | 460 |                                             |  |   |                                        |  |  |   | 589 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|                              |  |                  |        | 
|Securities available for sale |  | $                | 75,627 |  |                                                            | $ | 460 |                                             |  | $ | 74,578                                  |  |  | $ | 589 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 

The table below presents a reconciliation and income statement of gains and losses for available for sale securities
measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the periods ending March 31, 2011 and December 31, 2010 (in thousands).



|                                                    |  |      |     |   |      |   |     | 
|--------------------------------------------------- |  | ---- | --- | - | ---- | - | --- | 
|                                                    |  | 2011 |     |   | 2010 |  
|                                                    |  |     
|Fair Value, beginning of period                     |  | $    | 589 |   |      | $ | 508 | 
|Total losses included in other comprehensive income |  |      | (8  | ) |      |   | 81  | 
|Purchases                                           |  |      |    |   |      |   |    | 
|                                                    |  |      |     |   |      |   |     | 
|Fair Value, end of period                           |  | $    | 581 |   |      | $ | 589 | 
|                                                    |  |      |     |   |      |   |     | 

The following describes the valuation techniques used by the Corporation to measure certain financial assets recorded at
fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of
management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the
observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory,
and accounts receivable. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Corporation using observable market data
(Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based
upon an outside appraisal if deemed significant, or the net book value on the applicable business financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables
collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period
incurred as provision for loan losses on the Consolidated Statements of Income.



18



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Certain assets such as real estate owned are measured at fair value less the cost to sell. Management
believes that the fair value component in its valuation follows the provisions of ASC 820.

Assets measured at fair value on a non-recurring
basis at March 31, 2011 and December 31, 2010 are summarized below (in thousands):



|                       |  |                  |       |  |                                                             |   |   |                                           |  |   |                                        |  |  |   |       | 
|---------------------- |  | ---------------- | ----- |  | ----------------------------------------------------------- | - | - | ----------------------------------------- |  | - | -------------------------------------- |  |  | - | ----- | 
|Description            |  | March 31,2011    |       |  | (Level
1)Quoted Prices inActive Marketsfor Identical Assets |   |   | (Level
2)SignificantOtherObservableInputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                       |  |                  |       | 
|Impaired loans, net    |  | $                | 1,148 |  |                                                             | $ |  |                                           |  | $ |                                       |  |  | $ | 1,148 | 
|Foreclosed real estate |  |                  | 109   |  |                                                             |   |  |                                           |  |   |                                       |  |  |   | 109   | 
|                       |  |                  |       | 
|Description            |  | December 31,2010 |       |  | (Level 1)Quoted Prices inActive Markets
forIdentical Assets |   |   | (Level
2)SignificantOtherObservableInputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                       |  |                  |       | 
|Impaired loans, net    |  | $                | 84    |  |                                                             | $ |  |                                           |  | $ |                                       |  |  | $ | 84    | 
|Foreclosed real estate |  |                  | 133   |  |                                                             |   |  |                                           |  |   |                                       |  |  |   | 133   | 

Total impaired loans had a carrying
amount of $1,148,000 and $99,000, net of the valuation allowances of $177,000 and $15,000 as of March 31, 2011 and December 31, 2010, respectively. This resulted in additional provision for loan losses of $0 for the period ending
March 31, 2011 and December 31, 2010.

ASC Topic 825, Financial Instruments, requires disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements.

The following
information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporations assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporations disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair
values of the Corporations financial instruments at March 31, 2011 and December 31, 2010.



19



---

Cash and cash equivalents:

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets fair values.

Time certificates of deposit:

The carrying amount of time certificates of deposit
approximate their fair value.

Securities:

For securities and marketable equity securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals
quoted market price, if available. If a quoted market price is not available, fair values are based on quoted market prices for similar securities. For securities which are not traded in active markets or are subject to transfer restrictions,
valuations are generally based on available market evidence.

Loans receivable:

For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values
of fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated
using discounted cash flow analyses or underlying collateral values, where applicable.

Restricted investment in bank stock:

The carrying amount of restricted investment in bank stock approximates fair value.

Accrued interest receivable and payable:

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities:

The fair values disclosed for demand deposits (e.g., interest
and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.



20



---

Short-term borrowings:

The carrying amounts of short-term borrowings approximate their fair values.

Long-term
debt:

Fair values of long-term debt are estimated using discounted cash flow analysis, based on rates currently available to the
Corporation for advances from the FHLB with similar terms and remaining maturities.

Junior Subordinated debt:

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on rates currently offered on such debt, with similar
terms and remaining maturities. As the Corporation has the ability to redeem the junior subordinated debt at any time, the fair value approximates its carrying value.

Off-balance sheet financial instruments:

Fair values for the Corporations
off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties credit
standing.



21



---

The estimated fair values of the Corporations financial instruments were as follows at March 31,
2011 and December 31, 2010.



|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|--------------------------------------- |  | -------------- | ------- |  | --------- | - | ------- | -------------- |  | - | --------- |  |  | - | ------- | 
|                                        |  | 2011           |         |  | 2010      |  
|                                        |  | CarryingAmount |         |  | FairValue |   |         | CarryingAmount |  |   | FairValue | 
|                                        |  | (In Thousands) |        
|                                        |  |                |         | 
|Financial assets:                       |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Cash and cash equivalents               |  | $              | 9,763   |  |           | $ | 9,763   |                |  | $ | 10,554    |  |  | $ | 10,554  | 
|Time certificates of deposit            |  |                | 198     |  |           |   | 198     |                |  |   | 198       |  |  |   | 198     | 
|Investment securities:                  |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Available for sale                      |  |                | 70,423  |  |           |   | 70,423  |                |  |   | 75,627    |  |  |   | 75,627  | 
|Held to maturity                        |  |                | 31,956  |  |           |   | 31,373  |                |  |   | 31,872    |  |  |   | 30,976  | 
|Loans, net                              |  |                | 238,396 |  |           |   | 239,412 |                |  |   | 236,231   |  |  |   | 237,323 | 
|Accrued interest receivable             |  |                | 1,278   |  |           |   | 1,278   |                |  |   | 1,337     |  |  |   | 1,337   | 
|Restricted investment in bank stocks    |  |                | 2,428   |  |           |   | 2,428   |                |  |   | 2,541     |  |  |   | 2,541   | 
|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|                                        |  |                |         | 
|Total financial assets                  |  | $              | 354,442 |  |           | $ | 354,875 |                |  | $ | 358,360   |  |  | $ | 358,556 | 
|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|                                        |  |                |         | 
|Financial liabilities:                  |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Deposits                                |  | $              | 315,643 |  |           | $ | 323,477 |                |  | $ | 317,849   |  |  | $ | 322,934 | 
|Short-term borrowings                   |  |                | 3,199   |  |           |   | 3,199   |                |  |   | 4,030     |  |  |   | 4,030   | 
|Long-term debt                          |  |                | 15,000  |  |           |   | 16,390  |                |  |   | 16,000    |  |  |   | 17,561  | 
|Junior subordinated debt                |  |                | 5,155   |  |           |   | 5,155   |                |  |   | 5,155     |  |  |   | 5,155   | 
|Accrued interest payable                |  |                | 318     |  |           |   | 318     |                |  |   | 329       |  |  |   | 329     | 
|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|                                        |  |                |         | 
|Total financial liabilities             |  | $              | 339,315 |  |           | $ | 348,539 |                |  | $ | 343,363   |  |  | $ | 350,009 | 
|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|                                        |  |                |         | 
|Off-balance sheet financial instruments |  | $              |        |  |           | $ |        |                |  | $ |          |  |  | $ |        | 
|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 

Note H - New and Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.
ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim
and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.



22



---

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. The new disclosure guidance significantly expands the existing requirements and will lead to greater transparency into a companys exposure to credit losses from lending
arrangements. The extensive new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding
activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures, will be required for periods beginning on or after December 15, 2010. The Company has included the required disclosures
in its consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations. The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the
year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the
current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2010. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this ASU
modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of the new guidance did not have
a material impact on the Companys consolidated financial statements.

The Securities Exchange Commission (SEC) has issued Final Rule
No. 33-9002, Interactive Data to Improve Financial Reporting, which requires companies to submit financial statements in XBRL (extensible business reporting language) format with their SEC filings on a phased-in schedule. Large
accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010.



23



---

All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011.

In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance included in the
codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASBs Codification. The principal
changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 is March 28, 2011. The adoption of the new guidance
did not have a material impact on the Companys consolidated financial statements.

In April 2011, the FASB issued ASU 2011-02, A
Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this ASU clarify the guidance on a creditors evaluation of whether it has granted a concession to a debtor. They also clarify
the guidance on a creditors evaluation of whether a debtor is experiencing financial difficulty. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is
permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify
receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The
Company is currently assessing the impact that ASU 2011-02 will have on its consolidated financial statements.

Item 2-
Managements Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Except for historical information, this report may be deemed to contain forward-looking statements regarding the Corporation. Examples of
forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital
structure and other financial terms, (b) statements of plans and objectives of management or the board of directors, and (c) statements of assumptions, such as economic conditions in the Corporations market areas. Such
forward-looking statements can be identified by the use of forward-looking terminology such as believes, expects, may, intends, will, should, anticipates, or the
negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.



24



---

No assurance can be given that the future results covered by forward-looking statements will be achieved.
Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact the
Corporations operating results include, but are not limited to, (i) the effects of changing economic conditions in the Corporations market areas and nationally, (ii) credit risks of commercial, real estate, consumer and other
lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact the Corporations operations, (v) funding costs, and (vi) other external
developments which could materially affect the Corporations business and operations.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which
require the Corporation to make estimates and assumptions (see footnote 1 to the consolidated financial statements included in Form 10-K for the year ended December 31, 2010). The Corporation believes that of its significant accounting
estimates, the allowance for loan losses and valuation of its securities may involve a higher degree of judgement and complexity.

The
allowance for loan losses is established through a charge to the provision for loan losses. In determining the balance in the allowance for loan losses, consideration is given to a variety of factors in establishing this estimate. In estimating the
allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers perceived financial and managerial strengths, the adequacy
of the underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. The use of different estimates or assumptions could produce different provisions for loan losses. Additional information is
provided in the discussion below about the provision for loan losses under Results of Operations.

Declines in the fair value of
securities held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses if the impairment is due to credit concerns; if the impairment is due to other
conditions the losses are recognized through other comprehensive income. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition



25



---

and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value. No securities were deemed to be other than temporarily impaired as of March 31, 2011.

Financial Condition

Total assets of the Corporation decreased $3,390,000 or 0.9% during the first three months of 2011. Net loans increased $2,165,000 or
0.9%, cash and cash equivalents decreased $791,000 or 7.5%, and securities decreased $5,120,000 or 4.8% from December 31, 2010 to March 31, 2011. The decrease in securities is due to maturities as well as principal payments on
mortgage-backed securities.

Total deposits decreased by $2,206,000 or 0.7% since year-end 2010. Short-term borrowings decreased by $831,000
or 20.6% and long-term borrowings decreased by $1,000,000 or 6.3% during the same time period due to the payoff of a FHLB advance.

Non-Performing Assets

Non-performing
assets include loans on a non-accrual basis, loans past due more than ninety days and still accruing, troubled debt restructurings and foreclosed real estate. These groups of assets represent the asset categories posing the greatest risk of loss to
the Corporation. Non-accruing loans are loans no longer accruing interest due to apparent financial difficulties of the borrower. The Corporation generally discontinues accrual of interest when principal or interest becomes doubtful based on
prevailing economic conditions and collection efforts. Loans are returned to accrual status only when all factors indicating doubtful collectibility cease to exist. Foreclosed real estate is acquired through foreclosure or in lieu of foreclosure and
is recorded at fair value less costs to dispose at the date of foreclosure establishing a new cost basis. Gains on the sale of foreclosed real estate are included in other income, while losses and writedowns resulting from periodic revaluations are
included in other expenses.



26



---

The following table sets forth the Corporations non-performing assets as of the dates indicated:



|                                                                |  |                                              |       |   |            |   |       |  
|--------------------------------------------------------------- |  | -------------------------------------------- | ----- | - | ---------- | - | ----- | -
|                                                                |  | Non-Performing Assets
(Dollars in Thousands) |      
|                                                                |  | 3/31/2011                                    |       |   | 12/31/2010 |  
|                                                                |  |                                             
|Non-accrual loans                                               |  | $                                            | 976   |   |            | $ | 1,016 |  
|Accruing loans 90 days past due                                 |  |                                              |      |   |            |   |      |  
|                                                                |  |                                              |       |   |            |   |       |  
|                                                                |  |                                             
|Total Non-Performing Loans                                      |  |                                              | 976   |   |            |   | 1,016 |  
|                                                                |  |                                             
|Foreclosed real estate                                          |  |                                              | 109   |   |            |   | 133   |  
|                                                                |  |                                              |       |   |            |   |       |  
|                                                                |  |                                             
|Total Non-Performing Assets                                     |  | $                                            | 1,085 |   |            | $ | 1,149 |  
|                                                                |  |                                              |       |   |            |   |       |  
|                                                                |  |                                             
|Ratios:                                                         |  |                                              |       |   |            |   |       |  
|Non-performing loans to total loans                             |  |                                              | 0.41  | % |            |   | 0.43  | %
|Non-performing assets to total loans and foreclosed real estate |  |                                              | 0.45  | % |            |   | 0.49  | %
|Non-performing loans to allowance for loan losses               |  |                                              | 44.63 | % |            |   | 47.17 | %

Total non-performing assets at
March 31, 2011 decreased $64,000 since December 31, 2010 as a result of the decrease in loans in non-accrual status and the decrease in foreclosed real estate.

Results of Operations

Net income for the three month period ending March 31, 2011 was
$990,000 or $0.71 per share compared to $792,000 or $0.57 per share for the same period in 2010. Annualized return on average equity was 14.00% for the first three months of 2011 and 12.36% for the same period in 2010. Annualized return on average
assets was 1.08% for the first three months of 2011 and 0.90% for the same period in 2010. The following table includes average balances for the quarters ending March 31, 2011 and March 31, 2010, rates and interest income and expense
adjusted to an FTE basis, the interest rate spread, the net interest margin and the cost of funds:



27



---

Average Balances, Rates and Interest Income and Expense

(Dollars in Thousands)



|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|------------------------------------------ |  | -------------- | ------- |  | -------- | - | ----- | ---------- |  |  | -------------- | - |  | -------- | ------- |  | ---------- | - | ----- |  |  |  | ---- | -
|                                           |  | 2011           |         |  | 2010     |  
|                                           |  | AverageBalance |         |  | Interest |   |       | Yield/Rate |  |  | AverageBalance |   |  | Interest |         |  | Yield/Rate |  
|ASSETS                                     |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|INTEREST EARNING ASSETS                    |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Securities:                                |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Taxable                                    |  | $              | 72,106  |  |          | $ | 558   |            |  |  | 3.14           | % |  | $        | 77,715  |  |            | $ | 632   |  |  |  | 3.30 | %
|Tax-exempt                                 |  |                | 32,088  |  |          |   | 512   |            |  |  | 6.47           | % |  |          | 29,473  |  |            |   | 483   |  |  |  | 6.65 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Securities                           |  |                | 104,194 |  |          |   | 1,070 |            |  |  | 4.16           | % |  |          | 107,188 |  |            |   | 1,115 |  |  |  | 4.22 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Other                                      |  |                | 4,442   |  |          |   | 7     |            |  |  | 0.64           | % |  |          | 7,403   |  |            |   | 10    |  |  |  | 0.55 | %
|Loans:                                     |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Taxable                                    |  |                | 226,674 |  |          |   | 3,526 |            |  |  | 6.31           | % |  |          | 212,464 |  |            |   | 3,384 |  |  |  | 6.46 | %
|Tax-exempt                                 |  |                | 10,446  |  |          |   | 162   |            |  |  | 6.29           | % |  |          | 5,792   |  |            |   | 91    |  |  |  | 6.37 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Loans                                |  |                | 237,120 |  |          |   | 3,688 |            |  |  | 6.31           | % |  |          | 218,256 |  |            |   | 3,475 |  |  |  | 6.46 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Interest Earning Assets              |  |                | 345,756 |  |          |   | 4,765 |            |  |  | 5.59           | % |  |          | 332,847 |  |            |   | 4,600 |  |  |  | 5.60 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Non-interest earnings assets               |  |                | 25,142  |  |          |   |       |            |  |  |                |   |  |          | 22,506  |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Assets                               |  | $              | 370,898 |  |          |   |       |            |  |  |                |   |  | $        | 355,353 |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |  
|LIABILITIES AND SHAREHOLDERS
EQUITY       |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|INTEREST BEARING LIABILITIES               |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Demand deposits, interest bearing          |  | $              | 26,947  |  |          | $ | 11    |            |  |  | 0.17           | % |  | $        | 24,112  |  |            | $ | 10    |  |  |  | 0.17 | %
|Savings deposits                           |  |                | 97,532  |  |          |   | 214   |            |  |  | 0.89           | % |  |          | 70,622  |  |            |   | 212   |  |  |  | 1.22 | %
|Time deposits                              |  |                | 160,459 |  |          |   | 1,094 |            |  |  | 2.77           | % |  |          | 173,101 |  |            |   | 1,397 |  |  |  | 3.27 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Interest BearingDeposits             |  |                | 284,938 |  |          |   | 1,319 |            |  |  | 1.88           | % |  |          | 267,835 |  |            |   | 1,619 |  |  |  | 2.45 | %
|Short-term borrowings                      |  |                | 3,533   |  |          |   | 10    |            |  |  | 1.15           | % |  |          | 5,631   |  |            |   | 16    |  |  |  | 1.15 | %
|Long-term debt                             |  |                | 21,055  |  |          |   | 204   |            |  |  | 3.93           | % |  |          | 27,827  |  |            |   | 274   |  |  |  | 3.99 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Interest BearingLiabilities          |  |                | 309,526 |  |          |   | 1,533 |            |  |  | 2.01           | % |  |          | 301,293 |  |            |   | 1,909 |  |  |  | 2.57 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Demand deposits, non-interest bearing      |  |                | 29,886  |  |          |   |       |            |  |  |                |   |  |          | 26,542  |  |            |   |       |  |  |  |      |  
|Other liabilities                          |  |                | 2,815   |  |          |   |       |            |  |  |                |   |  |          | 1,536   |  |            |   |       |  |  |  |      |  
|Shareholders equity                       |  |                | 28,671  |  |          |   |       |            |  |  |                |   |  |          | 25,982  |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|Total Liabilities and Shareholders Equity |  | $              | 370,898 |  |          |   |       |            |  |  |                |   |  | $        | 355,353 |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|                                           |  |                |         |  |          |  
|NET INTEREST INCOME                        |  |                |         |  |          | $ | 3,232 |            |  |  |                |   |  |          |         |  |            | $ | 2,691 |  |  |  |      |  
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|INTEREST RATE SPREAD                       |  |                |         |  |          |   |       |            |  |  | 3.58           | % |  |          |         |  |            |   |       |  |  |  | 3.04 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|NET INTEREST MARGIN                        |  |                |         |  |          |   |       |            |  |  | 3.79           | % |  |          |         |  |            |   |       |  |  |  | 3.28 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  
|COST OF FUNDS                              |  |                |         |  |          |   |       |            |  |  | 1.80           | % |  |          |         |  |            |   |       |  |  |  | 2.33 | %
|                                           |  |                |         |  |          |   |       |            |  |  |                |   |  |          |         |  |            |   |       |  |  |  |      |  



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Rate / Volume Analysis

2011 versus 2010



|                                 |  |               |      |   |        |   |     |       |  |   |      |  
|-------------------------------- |  | ------------- | ---- | - | ------ | - | --- | ----- |  | - | ---- | -
|                                 |  | Change Due to |      |   |        |  
|                                 |  | Rate          |      |   | Volume |   |     | Total | 
|                                 |  |               |     
|Interest Earning Assets          |  |               |      |   |        |   |     |       |  |   |      |  
|Securities                       |  |               |      |   |        |   |     |       |  |   |      |  
|Taxable                          |  | $             | (30  | ) |        | $ | (44 | )     |  | $ | (74  | )
|Tax exempt                       |  |               | (13  | ) |        |   | 42  |       |  |   | 29   |  
|Other                            |  |               | -    |   |        |   | (3  | )     |  |   | (3   | )
|Total loans                      |  |               | (80  | ) |        |   | 293 |       |  |   | 213  |  
|                                 |  |               |      |   |        |   |     |       |  |   |      |  
|                                 |  |               |     
|Total                            |  |               | (123 | ) |        |   | 288 |       |  |   | 165  |  
|                                 |  |               |      |   |        |   |     |       |  |   |      |  
|                                 |  |               |     
|Interest Bearing Liabilities     |  |               |      |   |        |   |     |       |  |   |      |  
|Demand deposits interest bearing |  |               | -    |   |        |   | 1   |       |  |   | 1    |  
|Savings deposits                 |  |               | (57  | ) |        |   | 59  |       |  |   | 2    |  
|Time deposits                    |  |               | (217 | ) |        |   | (86 | )     |  |   | (303 | )
|Short  term borrowings          |  |               | -    |   |        |   | (6  | )     |  |   | (6   | )
|Long  term debt                 |  |               | (4   | ) |        |   | (66 | )     |  |   | (70  | )
|                                 |  |               |      |   |        |   |     |       |  |   |      |  
|                                 |  |               |     
|Total                            |  |               | (278 | ) |        |   | (98 | )     |  |   | (376 | )
|                                 |  |               |      |   |        |   |     |       |  |   |      |  
|                                 |  |               |     
|Net Interest Income              |  | $             | 155  |   |        | $ | 386 |       |  | $ | 541  |  
|                                 |  |               |      |   |        |   |     |       |  |   |      |  

Net interest income for the first three months of 2011 increased by $507,000 or 20.3% compared to the same period in 2010.
For the first three months of 2011, the net interest margin on a fully tax equivalent (FTE) basis was 3.79% compared to 3.28% for the same period in 2010. The FTE basis is calculated by grossing up the yield on tax-exempt securities and loans by the
federal tax rate of 34%, in order that the yield on tax-exempt assets may be comparable to interest earned on taxable assets. The primary drivers of the increase in the net interest margin were the decrease in the cost of funds of 0.53% from 2.33%
in 2010 to 1.80% in 2011 partially offset by a decrease in the yield on earning assets of 0.01% from 5.60% in 2010 to 5.59% in 2011.

Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. The Corporation
recorded a provision for loan losses of $24,000 for the first three months of 2011 compared to $20,000 for the same time period in 2010. As a percentage of loans, the allowance for loan losses was 0.91% at March 31, 2011, compared to 0.90% at
year-end 2010 and 0.85% at March 31, 2010. Impaired loans were $1,325,000 at March 31, 2011 compared to $297,000 at December 31, 2010. The increase in impaired loans is the result of one loan to a manufacturer of construction
material. At this time, no losses in excess of valuation allowance are anticipated. The Banks evaluation of the adequacy of the allowance for loan losses includes a review of all loans on at least a quarterly basis. For residential mortgage
loans and consumer loans, the primary factors used to determine the adequacy of the allowance are delinquency, collateral value, general economic conditions and, where applicable, individual borrower information that is known to the Bank. For
commercial loans and commercial real estate loans, the review includes financial performance of the borrower, payment history, collateral value, general economic conditions and more specific economic conditions affecting specific industries or
business activities of the borrowers within the portfolio agreements. Management believes the allowance is presently adequate to cover the inherent risks associated with the Corporations loan portfolio.



29



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Non-interest income in the first three months of 2011 decreased by $147,000 or 18.5% compared to the same
period in 2010. Gains on sale of securities decreased $178,000, income from fiduciary activities decreased $28,000 and service charges on deposit accounts decreased $18,000. These decreases were offset by an increase in earnings on investment in
life insurance of $41,000 and an increase in ATM card fees of $16,000 during the first three months of 2011 compared to the same period in 2010.

Total non-interest expense increased in the first three months of 2011 by $113,000 compared to the first three months of 2010. Employee compensation and benefits increased by $102,000 or 8.9% compared to
the same period in 2010 as a result of merit increases and the addition of new personnel. Professional fees decreased by $22,000. Director and advisory board fees decreased $37,000. As the Corporation continues to add new loan and deposit accounts,
as well as new services, additional operating costs will be generated. It is anticipated that, over time, these costs will be offset by the additional income generated through the expansion of services to our customers and community and new business
development.

Income tax expense was $252,000 for the three month period ended March 31, 2011 compared to $207,000 for the same period in
2010. Income tax expense as a percentage of income before income taxes was 20.3% for the period compared to 20.7% for 2010. Tax exempt income comprised a larger portion of pre-tax income in 2011 than 2010, resulting in a lower effective tax rate in
2011. The reason the Corporations effective tax rate is below the statutory rate of 34.0% is a result of tax-exempt income on loans, securities and bank-owned life insurance.

Liquidity

Liquidity represents the Corporations ability to efficiently manage cash
flows to support customers loan demand, withdrawals by depositors, the payment of operating expenses, as well as the ability to take advantage of business and investment opportunities as they arise. One of the Corporations sources of
liquidity is $315,643,000 in deposits at March 31, 2011, which decreased $2,206,000 over total deposits of $317,849,000 at year-end 2010. Other sources of liquidity at March 31, 2011 are available from the



30



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following: (1) investments in interest-bearing deposits with banks and federal funds sold, which totaled $3,660,000, (2) securities maturing in one year or less, which totaled
$1,386,000, and (3) investments in mortgage-backed securities, which supply income and principal cash flow streams on an ongoing basis. In addition, the Corporation has established federal funds lines of credit with Atlantic Central Bankers
Bank and with the Federal Home Loan Bank of Pittsburgh, which can be drawn upon if needed as a source of liquidity. Management is of the opinion that the Corporations liquidity is sufficient to meet its anticipated needs.

Capital

Total shareholders equity
was $28,905,000 as of March 31, 2011, representing a $623,000 increase from December 31, 2010. The growth in capital was a result of net earnings retention of $737,000, a decrease in accumulated other comprehensive income of $143,000 and
an increase in common stock and surplus of $29,000 as a result of the Corporations dividend reinvestment plan. The decrease in other comprehensive income is due to the decrease in value of the Corporations available for sale securities.

At March 31, 2011, the Bank had a Tier I leverage ratio of 8.66%, a Tier I capital to risk-based assets ratio of 15.96% and a total
capital to risk-based assets ratio of 17.11%. These ratios indicate the Bank exceeds the federal regulatory minimum requirements for a well capitalized bank. The Corporations ratios are not materially different than those of the
Bank.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

(Not required of a smaller reporting company)

Item 4. Controls and Procedures

We maintain a system of controls and procedures
designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Corporations President
(Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011. Based upon that evaluation, our President and Chief
Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting management to information required to be included in our periodic Securities and Exchange Commission filings. There was no significant change in
our internal control over financial reporting that occurred during the quarter ended March 31, 2011 that materially affected, or is reasonably likely to materially affect, the Corporations internal control over financial reporting.



31



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PART II  OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending or threatened legal proceedings to
which the Corporation or its subsidiaries is a party or to which the property of either the Corporation or its subsidiaries is subject to that, in the opinion of management, may materially impact the financial condition of either the Corporation or
its subsidiaries.

Item 1A. Risk Factors

(Not required of a smaller reporting company)

Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds



| | (a) | On January 8, 2008, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company is authorized to purchase up to 7.1%
of its outstanding shares or 100,000 shares. Share repurchases will be made from time to time and may be effected through open market purchases, block trades, or in privately negotiated transactions.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The table below sets forth the information with respect to purchases made by or on behalf of First Community Financial Corporation or any affiliated purchaser as
defined in Rule 240-10b-18(a) (3) under Regulation S-K of common stock during the quarter ended March 31, 2011.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  |                               |   |  |                           |   |      |                                                                              |  |  |                                                                             |  |  |  |        | 
|------------------------------ |  | ----------------------------- | - |  | ------------------------- | - | ---- | ---------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------- |  |  |  | ------ | 
|                               |  | TotalNumberof SharesPurchased |   |  | AveragePricePaidPer Share |   |      | Total Number ofShares 
Purchased asPartof a PubliclyAnnounced Plan orProgram |  |  | Maximum Number of SharesThat 
May Yet be Purchased Underthe Plan or Program | 
|                               |  |                               |   | 
|January 1 through January 31   |  |                               | 0 |  |                           | $ | 0.00 |                                                                              |  |  | 0                                                                           |  |  |  | 96,349 | 
|                               |  |                               |   | 
|February 1 through February 28 |  |                               | 0 |  |                           | $ | 0.00 |                                                                              |  |  | 0                                                                           |  |  |  | 96,349 | 
|                               |  |                               |   | 
|March 1 through March 31       |  |                               | 0 |  |                           | $ | 0.00 |                                                                              |  |  | 0                                                                           |  |  |  | 96,349 | 
|                               |  |                               |   |  |                           |   |      |                                                                              |  |  |                                                                             |  |  |  |        | 
|                               |  |                               |   | 
|Total for the period           |  |                               | 0 |  |                           |   |      |                                                                              |  |  | 0                                                                           |  |  |  |        | 
|                               |  |                               |   |  |                           |   |      |                                                                              |  |  |                                                                             |  |  |  |        | 



32



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Item 3. Defaults Upon Senior Securities

None

Item 4. Removed
and Reserved

Item 5. Other Information

None

Item 6. Exhibits



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 
|3.1     |  | Articles of Incorporation of the Corporation. (Incorporated by reference to Exhibit 2(a) to the Corporations December 31, 2001 Registration Statement on Form 10-SB, as filed
with the Securities and Exchange Commission on April 17, 2002.)                                                                                                                                                                                                                                                 
|        | 
|3.2     |  | Bylaws of the Corporation. (Incorporated by reference to Exhibit 2(b) to the Corporations Registration Statement on Form 10-SB, as filed with the Securities and Exchange
Commission on April 17, 2002.)                                                                                                                                                                                                                                                                                      
|        | 
|4.1     |  | Certain instruments defining the rights of the holders of long-term debt of the Corporation and certain of its Subsidiaries, none of which authorize a total amount of indebtedness
in excess of 10% of the total assets of the Corporation and its Subsidiaries on a consolidated basis, have not been filed as Exhibits in accordance with Item 601(b)(4)(iii) of Regulation S-K. The Corporation hereby agrees to furnish a copy of any of
these instruments to the Commission upon request.
|        | 
|31.1    |  | Certification of Principal Executive Officer of First Community Financial Corporation Pursuant to Securities and Exchange Commission Rule 13a-14(a) / 15d-14(a).                                                                                                                                                                                                                                                                                                                               
|        | 
|31.2    |  | Certification of Principal Financial Officer of First Community Financial Corporation Pursuant to Securities and Exchange Commission Rule 13a-14(a) / 15d-14(a).                                                                                                                                                                                                                                                                                                                               
|        | 
|32.1    |  | Certification of Principal Executive Officer of First Community Financial Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|        | 
|32.2    |  | Certification of Principal Financial Officer of First Community Financial Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               



33



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                                       |  |     |  |                                      
|------------------ |  | ------------------------------------- |  | --- |  | -------------------------------------
|                   |  | FIRST COMMUNITY FINANCIAL CORPORATION
|                   |  | (Registrant)                         
|                   |  |                                       | 
|Date: May 13, 2011 |  |                                       |  | BY: |  | /s/ Jody D. Graybill                 
|                   |  |                                       |  |     |  | Jody D. Graybill                     
|                   |  |                                       |  |     |  | President and Chief Executive Officer
|                   |  |                                       |  |     |  | (Principal Executive Officer)        
|                   |  |                                       | 
|Date: May 13, 2011 |  |                                       |  | BY: |  | /s/ Richard R. Leitzel               
|                   |  |                                       |  |     |  | Richard R. Leitzel                   
|                   |  |                                       |  |     |  | Vice President and                   
|                   |  |                                       |  |     |  | Chief Financial Officer              
|                   |  |                                       |  |     |  | (Principal Financial and             
|                   |  |                                       |  |     |  | Accounting Officer)                  



34