In comparing the March 2011 quarter to the same quarter last year, the growth of lower cost core deposits and the allowed run-off of higher cost certificates of deposit contributed to the reduced cost of funds, while growth in lower yielding, but shorter duration investment securities coupled with lower loan balances contributed to the reduced overall asset yield.

Loans

Average loans totaled $937.1 million for the first quarter of 2011 as compared to $978.5 million for the same 2010 quarter, reflecting a decrease of $41.4 million or 4.2 percent.

The average residential mortgage loan portfolio was $429.4 million for the March 2011 quarter, reflecting a decline of $19.9 million or 4.4 percent when compared to $449.4 million in the same quarter of 2010. The decline is attributable to loan paydowns that have outpaced the originations retained in portfolio. The Corporation sells the majority of its longer-term, fixed-rate loan production as a source of noninterest income and as part of its interest rate risk management strategy in the lower rate environment.

The average commercial mortgage and commercial loan portfolio increased to $417.6 million for the first quarter of 2011, reflecting an increase of $13.9 million or 3.4 percent from $403.7 million the first quarter of 2010. Mr. Kissel commented, “Loan demand from higher quality borrowers on the commercial mortgage / commercial loan front was generally scarce through the first nine months of 2010. However, over the last few months of 2010 and into 2011, we have seen increased commercial mortgage demand from higher quality borrowers. The commercial mortgage and commercial loan pipeline stands at $51.3 million at March 31, 2011.”

The average commercial construction loan portfolio declined $36.3 million or 60.4 percent from the first quarter of 2010 to the first quarter of 2011, as the Bank has significantly decreased its exposure to construction lending.

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