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FIRST OTTAWA BANCSHARES, INC - Quarter Report: 2011 March (Form 10-Q)

firstottawa-10q_033111.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
 
OR
 
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ____________ to ______________
 
Commission file number 005-57237
 
FIRST OTTAWA BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
   
Delaware
36-4331185
(State or other jurisdiction
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
701 LaSalle Street
61350
Ottawa, Illinois
(ZIP Code)
(Address of principal executive offices)
 
 
(815) 434-0044
(Registrant’s telephone number,
including area code)
 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                                                                                     Yes  x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  o  No o
                                                                                                    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o  Accelerated filer  o  Non-accelerated filer  o  Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)                                         Yes  o  No x
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:  As of May 13, 2011, the registrant had outstanding 645,988 shares of common stock, $1.00 par value per share.
 


 
 
 
 
 
FIRST OTTAWA BANCSHARES, INC.
 

 
Form 10-Q Quarterly Report
 
Table of Contents
       
 
PART I
   
       
 
4
 
25
 
34
 
35
       
     
       
 
36
 
36
 
36
 
36
 
36
 
36
 
36
   
37
 
 

 
3.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) 

   
 
   
 
 
   
March 31,
2011
   
December 31,
2010
 
ASSETS
           
Cash and due from banks
  $ 10,118     $ 17,087  
Interest-bearing time deposits in financial institutions
    49,668       54,837  
Securities available for sale
    53,760       50,749  
Loans held for sale
    320       895  
Loans, net of allowance for loan losses of $3,551 and $3,363
    135,936       137,417  
Premises and equipment, net
    7,681       7,771  
Goodwill
    2,446       2,446  
Core deposit intangible
    324       361  
Other real estate owned, net
    2,597       3,005  
Cash surrender value of life insurance
    3,744       3,679  
Accrued interest receivable and other assets
    7,554       7,548  
                 
Total assets
  $ 274,148     $ 285,795  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Liabilities
               
Deposits
               
Noninterest-bearing demand
  $ 35,782     $ 36,206  
Interest-bearing demand
    89,968       101,890  
Money market savings
    19,316       19,147  
Savings
    29,436       26,559  
Certificates and other time deposits of $100,000 or more
    29,694       31,523  
Other certificates and time deposits
    44,749       43,270  
Total deposits
    248,945       258,595  
                 
Borrowings
          2,000  
Other liabilities
    2,208       2,233  
Total liabilities
    251,153       262,828  
                 
Commitments and contingencies
               
                 
Shareholders’ equity
               
Preferred stock, $1 par value authorized and
unissued – 20,000 shares
           
Common stock –  $1 par value, 1,000,000 shares
authorized and 753,734 issued
    754       754  
Additional paid-in capital
    4,764       4,736  
Retained earnings
    24,384       24,253  
Treasury stock, at cost – 107,746 shares
    (6,299 )     (6,299 )
Accumulated other comprehensive loss
    (608 )     (477 )
Total shareholders’ equity
    22,995       22,967  
                 
Total liabilities and shareholders’ equity
  $ 274,148     $ 285,795  
 

 
See accompanying notes to condensed consolidated financial statements.
 
4.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 2011 and 2010
(In thousands, except share and per share data)
(Unaudited) 

             
   
2011
   
2010
 
Interest and Dividend Income
           
Loans, including fees
  $ 2,064     $ 2,197  
Securities available for sale
               
Taxable
    218       204  
Exempt from federal income tax
    113       198  
Interest-bearing deposits with financial institutions
    258       255  
Other
    9       6  
Total interest and dividend income
    2,662       2,860  
                 
Interest Expense
               
Interest-bearing demand deposits
    26       53  
Money market savings accounts
    6       14  
Savings deposits
    7       16  
Time deposits
    393       511  
Borrowings
    5       21  
Total interest expense
    437       615  
                 
NET INTEREST INCOME
    2,225       2,245  
Provision for loan losses
    300       270  
                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    1,925       1,975  
                 
Noninterest Income
               
Service fees
    144       195  
Trust and farm management fees
    135       135  
Mortgage servicing income, net
    51       62  
Net realized gains (losses) on available for sale securities
    (10 )     26  
Other
    182       181  
Total noninterest income
    502       599  
                 
Noninterest Expense
               
Salaries and employee benefits
    1,164       1,154  
Occupancy and equipment
    311       306  
Data processing fees
    132       125  
Insurance
    138       171  
Professional fees
    112       125  
Amortization of core deposit intangible
    37       37  
Other real estate owned, net
    206       72  
Other
    243       223  
Total noninterest expense
    2,343       2,213  
                 
INCOME BEFORE INCOME TAXES
    84       361  
                 
Income tax expense (benefit)
    (47 )     53  
                 
NET INCOME
  $ 131     $ 308  
                 
Earnings per share – basic
  $ 0.20     $ 0.48  
Earnings per share – diluted
  $ 0.20     $ 0.48  
                 
Average shares outstanding
    645,988       645,988  
 

 
See accompanying notes to condensed consolidated financial statements.
 
 
5.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three Months ended March 31, 2011 and 2010
(In thousands, except per share data)
(Unaudited) 

                                     
   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Share-
holders’
Equity
 
                                     
Balance at January 1, 2011
  $ 754     $ 4,736     $ 24,253     $ (6,299 )   $ (477 )   $ 22,967  
                                                 
Net income
                131                   131  
                                                 
Unrealized net loss on securities available for sale, net of reclassifications and tax effects
                            (131 )     (131 )
                                                 
Comprehensive income
                                             
                                                 
Stock options vested
          28                         28  
                                                 
Balance at March 31, 2011
  $ 754     $ 4,764     $ 24,384     $ (6,299 )   $ (608 )   $ 22,995  
                                                 
Balance at January 1, 2010
  $ 754     $ 4,603     $ 26,871     $ (6,299 )   $ 49     $ 25,978  
                                                 
Net income
                308                   308  
                                                 
Unrealized net loss on securities available for sale, net of reclassifications and tax effects
                            (160 )     (160 )
                                                 
Comprehensive income
                                            148  
                                                 
Stock options vested
          31                         31  
                                                 
Balance at March 31, 2010
  $ 754     $ 4,634     $ 27,179     $ (6,299 )   $ (111 )   $ 26,157  
 

 
See accompanying notes to condensed consolidated financial statements.
 
 
6.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31, 2011 and 2010
(In thousands)
(Unaudited) 

             
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 131     $ 308  
Items not requiring (providing) cash
               
Provision for loan losses
    300       270  
Depreciation and amortization
    141       139  
Premium amortization on securities, net
    131       86  
Derivative valuation adjustment
          (3 )
Loans originated for sale
    (2,751 )     (2,741 )
Proceeds from the sale of loans
    3,389       2,490  
Gains on sales of loans held for sale
    (63 )     (78 )
(Gains) losses on sales of securities, net
    10       (26 )
Writedowns and loss on sales of other real estate owned
    146        
Stock options vested
    28       31  
Change in interest receivable and other assets
    (3 )     376  
Change in interest payable and other liabilities
    143       (140 )
Net cash provided by operating activities
    1,602       712  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from sales of securities available for sale
    422        
Proceeds from maturities, calls, and paydowns of securities available for sale
    1,527       12,860  
Purchases of securities available for sale
    (5,300 )     (4,005 )
Proceeds from maturities of interest-bearing time deposits
    5,169       3,591  
Net change in loans receivable
    985       2,822  
Proceeds from sales of other real estate owned
    458        
Net purchases of premises and equipment
    (14 )     (28 )
Net cash provided by investing activities
    3,247       15,240  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net change in deposits
    (9,650 )     (13,802 )
Repayment of borrowings
    (2,000 )     (2,000 )
Dividends paid
    (168 )     (401 )
Net cash used in financing activities
    (11,818 )     (16,203 )
                 
Net change in cash and cash equivalents
    (6,969 )     (251 )
                 
Cash and cash equivalents at beginning of period
    17,087       17,921  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 10,118     $ 17,670  
 

 
See accompanying notes to condensed consolidated financial statements.
 
 
7.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010

 
NOTE 1 – BASIS OF PRESENTATION
 
The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent with those used in the preparation of annual consolidated financial statements.  The interim condensed consolidated financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management, for a fair statement of results for the interim periods presented.  Results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.
 
The accompanying unaudited condensed consolidated financial statements of First Ottawa Bancshares, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for the interim financial period and with the instructions to Form 10-Q.  Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for 2010 filed with the Securities and Exchange Commission.  The condensed consolidated balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet as of that date.
 
The Company’s wholly-owned subsidiary, The First National Bank of Ottawa (the “Bank”), operates as a full service community bank. First Ottawa Financial Corporation, a wholly owned subsidiary of the Bank, sells insurance and investment products.
 
NOTE 2 – EARNINGS PER SHARE
 
The number of shares used to compute basic and diluted earnings per share were as follows:
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
Net income (in thousands)
  $ 131     $ 308  
Weighted average shares outstanding
    645,988       645,988  
Effect of dilutive securities:
               
Stock options
          1,627  
Shares used to compute diluted earnings per share
    645,988       647,615  
                 
Earnings per share (not stated in thousands):
               
                 
Basic
  $ 0.20     $ 0.48  
Diluted
    0.20       0.48  
 
A total of 74,440 and 53,406 options for the three month periods ended March 31, 2011 and 2010, respectively, are not included in the above calculations as they are non-dilutive.
 
 

 
8.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 3 – CAPITAL RATIOS
 
At the dates indicated, the Company’s capital ratios were:
                                     
    Actual    
Minimum
Capital
Requirement
   
To Be Well
Capitalized
Under Prompt
Corrective
Action Provisions
 
As of March 31, 2011
 
Amount
   
Ratio
   
Amount
   
Ratio
    Amount    
Ratio
 
   
(Amounts in Thousands)
 
Total capital to risk weighted assets:
                                   
Consolidated
  $ 22,249       13.0 %   $ 13,654       8.0 %     N/A       N/A  
First National Bank of Ottawa
    22,027       12.9       13,646       8.0     $ 17,057       10.0 %
                                                 
Tier I capital to risk weighted assets:
                                               
Consolidated
  $ 20,099       11.8 %   $ 6,827       4.0 %     N/A       N/A  
First National Bank of Ottawa
    19,877       11.7       6,822       4.0     $ 10,234       6.0 %
                                                 
Tier I capital to average assets:
                                               
Consolidated
  $ 20,099       7.3 %   $ 10,958       4.0 %     N/A       N/A  
First National Bank of Ottawa
    19,877       7.3       10,954       4.0     $ 13,693       5.0 %
                                                 
   
Actual
   
Minimum
Capital
Requirement
   
To Be Well
Capitalized
Under Prompt
Corrective
Action Provisions
 
As of December 31, 2010
 
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
 
   
(Amounts in Thousands)
 
Total capital to risk weighted assets:
                                               
Consolidated
  $ 22,269       12.7 %   $ 14,054       8.0 %     N/A       N/A  
First National Bank of Ottawa
    22,048       12.6       14,001       8.0     $ 17,502       10.0 %
                                                 
Tier I capital to risk weighted assets:
                                               
Consolidated
  $ 20,067       11.4 %   $ 7,027       4.0 %     N/A       N/A  
First National Bank of Ottawa
    19,846       11.3       7,001       4.0     $ 10,501       6.0 %
                                                 
Tier I capital to average assets:
                                               
Consolidated
  $ 20,067       6.6 %   $ 12,176       4.0 %     N/A       N/A  
First National Bank of Ottawa
    19,846       6.5       12,171       4.0     $ 15,214       5.0 %
 
 

 
9.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 3 – CAPITAL RATIOS (Continued)
 
At the dates indicated, the Company and the Bank met the requirements to be categorized as well capitalized under general minimum regulatory requirements, and management is not aware of any conditions or events that would change the Company’s or Bank’s categories.
 
NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS
 
Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. Fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The Company uses a fair value hedge to fix future cash flows for interest payments on some of its floating rate certificates of deposit.  In this regard, the Company has entered into an interest rate swap with the Broker Dealer Financial Services Corporation (BDFS) to fix the interest rate on a specific certificate of deposit product.  At March 31, 2011, the Company had $3.6 million of certificates of deposit, which mature in 2011 through 2016, on which it has prepaid BDFS for an interest rate swap and will receive an interest rate from BDFS based on the appreciation of the S&P 500 Index.  This interest received from BDFS will be paid to the customer.  The certificates of deposit have an embedded derivative which is a written call option. The assets and liabilities in this transaction are being netted in time deposits and the fair value adjustment recorded in other income.
 
NOTE 5 – SECURITIES AVAILABLE FOR SALE
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
March 31, 2011
                       
                         
U. S. Treasury
  $ 3,545     $ 17     $     $ 3,562  
Federal agencies
    25,620       172       (275 )     25,517  
State and municipal
    21,631       193       (561 )     21,263  
Corporate obligations
    1,790       31             1,821  
Mortgage–backed securities and collateralized mortgage obligations
    1,489       93             1,582  
Marketable equity securities
    16       2       (3 )     15  
                                 
Total investment securities
  $ 54,091     $ 508     $ (839 )   $ 53,760  
                                 
           
Gross
   
Gross
         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
December 31, 2010
                               
                                 
U. S. Treasury
  $ 3,564     $ 14     $     $ 3,578  
Federal agencies
    25,693       174       (322 )     25,545  
State and municipal
    18,087       275       (394 )     17,968  
Corporate obligations
    1,807       24             1,831  
Mortgage–backed securities and collateralized mortgage obligations
    1,717       96             1,813  
Marketable equity securities
    15       2       (3 )     14  
                                 
Total investment securities
  $ 50,833     $ 585     $ (719 )   $ 50,749  
 
 

 
10.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 5 – SECURITIES AVAILABLE FOR SALE (Continued)
 
As of March 31, 2011 and December 31, 2010, the Company had approximately $16.2 million and $16.1 million, respectively, invested in bonds issued by municipalities located within LaSalle County, Illinois.
 
Securities with an approximate carrying value of $31.7 million and $42.6 million, were pledged at March 31, 2011 and December 31, 2010, respectively, to secure trust and public deposits, and for other purposes as required or permitted by law.
 
The amortized cost and fair value of contractual maturities of securities available for sale at March 31, 2011 were as follows.  Securities not due at a single maturity date, primarily mortgage–backed and equity securities, are shown separately.
 
   
Amortized
Cost
   
Fair
Value
 
                 
Within one year
  $ 8,465     $ 8,510  
One to five years
    37,745       37,615  
Five to ten years
    3,336       3,323  
After ten years
    3,040       2,715  
      52,586       52,163  
Mortgage–backed securities  and collateralized mortgage obligations
    1,489       1,582  
Marketable equity securities
    16       15  
                 
Totals
  $ 54,091     $ 53,760  
 
Information regarding realized gains and losses on sales of securities available for sale as of March 31, 2011 and 2010 follows:
 
   
2011
   
2010
 
                 
Gross gains
  $     $ 26  
Gross losses
    (10 )      
Tax expense
    (3 )     9  
 
Certain investments in debt and marketable equity securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at March 31, 2011 and December 31, 2010 was $25.5 million and $20.5 million, respectively, which was approximately 47.4% and 40.4% of the Company’s available for sale investment portfolio at those dates.  These declines primarily resulted from market interest rates being greater than the coupon rates on the individual bonds.
 
Based on evaluation of available evidence, including recent changes in market interest rates, management believes the declines in fair value for these securities are temporary.   Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other–than–temporary impairment is identified. 
 
 

 
11.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 5 – SECURITIES AVAILABLE FOR SALE (Continued)
 
The following table shows our 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.
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
Description of
Securities
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
                                     
March 31, 2011
                                   
                                                 
Federal agencies
  $ 14,209     $ (275 )   $     $     $ 14,209     $ (275 )
State and municipal
    11,046       (557 )     198       (4 )     11,244       (561 )
Marketable equity securities
    3       (3 )                 3       (3 )
                                                 
Total temporarily impaired securities
  $ 25,258     $ (835 )   $ 198     $ (4 )   $ 25,456     $ (839 )
                                                 
December 31, 2010
                                               
                                                 
Federal agencies
  $ 14,189     $ (322 )   $     $     $ 14,189     $ (322 )
                                                 
            State and municipal
    6,018     $ (389 )     299     $ (5 )     6,317     $ (394 )
Marketable equity securities
    2       (3 )                 2       (3 )
                                                 
Total temporarily impaired securities
  $ 20,209     $ (714 )   $ 299     $ (5 )   $ 20,508     $ (719 )
 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
 
Major classifications of loans as of March 31, 2011 and December 31, 2010 are summarized as follows:
 
   
2011
   
2010
 
 Commercial:
           
Real estate
  $ 41,108     $ 41,970  
Non-real estate
    28,046       28,336  
Construction and land development
    10,471       10,388  
Agricultural
    26,281       26,982  
Residential
    31,303       30,669  
Consumer
    2,278       2,435  
                 
Total
  $ 139,487     $ 140,780  
 
At March 31, 2011 and December 31, 2010, respectively, the Company held $41.1 million and $42.0 million in commercial real estate and $10.5 million and $10.4 million in loans collateralized by construction and development real estate, predominantly in the northern Illinois geographic area.  Due to national, state and local economic conditions, values for commercial and development real estate have declined, and the market for these properties is depressed.
 
 

 
12.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents the allowance for loan losses by portfolio segment as of March 31, 2011 and 2010.
                                                 
   
Commercial
Real Estate
   
Commercial
Non-Real
Estate
   
Construction
and Land
Development
   
Agricultural
   
Residential
   
Consumer
   
Unallocated
   
Total
 
                                                 
 
  2011  
Allowance for loan losses:
                                               
Balances, January 1
  $ 1,515     $ 577     $ 633     $ 79     $ 497     $ 31     $ 31     $ 3,363  
Provision for losses
    113       404       (352 )     (1 )     11       (3 )     128       300  
Recoveries on loans
                            22       2             24  
Loans charged off
    (76 )     (35 )     (8 )           (16 )     (1 )           (136 )
Balances, March 31
  $ 1,552     $ 946     $ 273     $ 78     $ 514     $ 29     $ 159     $ 3,551  
                                                                 
 
  2010  
Allowance for loan losses:
                                                               
Balances, January 1
  $ 906     $ 553     $ 380     $ 83     $ 310     $ 32     $ 70     $ 2,334  
Provision for losses
    91       (20 )     (4 )     (13 )     92       (4 )     128       270  
Recoveries on loans
    89       10                         3             102  
Loans charged off
    (134 )     (6 )     (187 )           (87 )                 (414 )
Balances, March 31
  $ 952     $ 537     $ 189     $ 70     $ 315     $ 31     $ 198     $ 2,292  
 
 

 
13.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents the recorded investment in loans and the related allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2011.
                                                 
   
Commercial
Real Estate
   
Commercial
Non-Real
Estate
   
Construction
and Land
Development
   
Agricultural
   
Residential
   
Consumer
   
Unallocated
   
Total
 
Total loans:
                                               
Individually evaluated for impairment
  $ 4,501     $ 5,723     $ 7,846     $ 357     $ 2,170     $ 3           $ 20,600  
Collectively evaluated for impairment
    36,607       22,323       2,625       25,924       29,133       2,275             118,887  
                                                               
Balances, March 31
  $ 41,108     $ 28,046     $ 10,471     $ 26,281     $ 31,303     $ 2,278           $ 139,487  
                                                               
Allowance for loan loss:
                                                             
Individually evaluated for impairment
  $ 22     $ 375     $ 1     $     $ 122     $     $     $ 520  
Collectively evaluated for impairment
    1,530       571       272       78       392       29       159       3,031  
                                                                 
Balances, March 31
  $ 1,552     $ 946     $ 273     $ 78     $ 514     $ 29     $ 159     $ 3,551  
 
 

 
14.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents the recorded investment in loans and the related allowance for loan losses by portfolio segment and based on impairment method as of December 31, 2010.
 
   
Commercial
Real Estate
   
Commercial
Non-Real
Estate
   
Construction
and Land
Development
   
Agricultural
   
Residential
   
Consumer
   
Unallocated
   
Total
 
                                                 
Total loans:
                                               
Individually evaluated for impairment
  $ 4,483     $ 5,949     $ 7,922     $ 534     $ 1,486     $ 3           $ 20,377  
Collectively evaluated for impairment
    37,487       22,387       2,466       26,448       29,183       2,432             120,403  
                                                               
Balances, December 31
  $ 41,970     $ 28,336     $ 10,388     $ 26,982     $ 30,669     $ 2,435           $ 140,780  
                                                               
Allowance for loan loss:
                                                             
Individually evaluated for impairment
  $ 48     $ 4     $ 377     $     $ 97     $     $     $ 526  
Collectively evaluated for impairment
    1,467       573       256       79        400       31       31       2,837  
                                                                 
Balances, December 31
  $ 1,515     $ 577     $ 633     $ 79     $ 497     $ 31     $ 31     $ 3,363  
 
 

 
15.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2011.
 
   
Unpaid
Principal
Balance
   
Recorded
Investment
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
                               
With an allowance recorded:
                             
Commercial:
                             
Real estate
  $ 1,254     $ 604     $ 22     $ 604     $ 1  
Non-real estate
    2,095       2,045       375       2,045       5  
Construction and land development
    395       239       1       239        
Agricultural
                             
Residential
    230       230       122       230        
Consumer
           —                    
Total
  $ 3,974     $ 3,118     $ 520     $ 3,118     $ 6  
                                         
With no related allowance:
                                       
   Commercial:
                                       
Real estate
  $ 279     $ 279     $     $ 279     $ 5  
Non-real estate
                             
Construction and land development
    5,645       3,766             3,766        
Agricultural
    577       357             357        
Residential
    258       258             258       4  
Consumer
     —        —                    
Total
  $ 6,759     $ 4,660     $     $ 4,660     $ 9  
                                         
Total:
                                       
   Commercial:
                                       
Real estate
  $ 1,533     $ 883     $ 22     $ 883     $ 6  
Non-real estate
    2,095       2,045       375       2,045       5  
Construction and land development
    6,040       4,005       1       4,005        
Agricultural
    577       357             357        
Residential
    488       488       122       488       4  
Consumer
           —                    —  
Total
  $ 10,733     $ 7,778     $ 520     $ 7,778     $ 15  
 
 

 
16.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010.
 
   
Unpaid
Principal
Balance
   
Recorded
Investment
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
                               
With an allowance recorded:
                             
Commercial:
                             
Real estate
  $ 114     $ 114     $ 48     $ 53     $  
Non-real estate
    1,905       1,905       4       404       2  
Construction and land development
                377       379        
Agricultural
                             
Residential
    286       286       97       64       2  
Consumer
           —                    
Total
  $ 2,305     $ 2,305     $ 526     $ 900     $ 4  
                                         
With no related allowance:
                                       
   Commercial:
                                       
Real estate
  $ 3,631     $ 2,033     $     $ 1,278     $ 6  
Non-real estate
    206       206             129        
Construction and land development
    6,032       4,003             3,321        
Agricultural
    579       359             72        
Residential
                      65        
Consumer
     —        —                    
Total
  $ 10,448     $ 6,601     $     $ 4,865     $ 6  
                                         
Total:
                                       
   Commercial:
                                       
Real estate
  $ 3,745     $ 2,147     $ 48     $ 1,331     $ 6  
Non-real estate
    2,111       2,111       4       533       2  
Construction and land development
    6,032       4,003       377       3,700        
Agricultural
    579       359             72        
Residential
    286       286       97       129       2  
Consumer
           —                    —  
Total
  $ 12,753     $ 8,906     $ 526     $ 5,765     $ 10  
 
 

 
17.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The following table presents the recorded investment in loans by class based on current payment and accrual status as of March 31, 2011 and December 31, 2010:
 
   
30-59
Days
Past Due
   
60-89
Days
Past Due
   
Greater
than 90
Days
   
Total
Past
Due
   
Current
   
Total
Loans
   
Loans Past
Due Greater
than 90 Days,
Still Accruing
   
Loans on
Nonaccrual
 
                                                 
   
March 31, 2011
 
                                                 
Commercial:
                                               
Real estate
  $ 4     $ 935     $ 1,110     $ 2,049     $ 39,059     $ 41,108     $ 258     $ 852  
Non-real estate
    378       163       1,932       2,473       25,573       28,046             1,932  
Construction and land
development
                4,005       4,005       6,466       10,471             4,005  
Agricultural
    84             357       441       25,840       26,281             357  
Residential
    648       528       229       1,405       29,898       31,303       113       116  
Consumer
    33                   33       2,245       2,278              
                                                                 
Total
  $ 1,147     $ 1,626     $ 7633     $ 10,406     $ 129,081     $ 139,487     $ 371     $ 7,262  
                                                                 
   
December 31, 2010
 
                                                                 
Commercial:
                                                               
Real estate
  $ 872     $     $ 1,717     $ 2,589     $ 39,381     $ 41,970     $ 143     $ 1,854  
Non-real estate
    248             2,058       2,306       26,030       28,336             2,107  
Construction and land
development
                4,363       4,363       6,025       10,388             4,363  
Agricultural
                204       204       26,778       26,982       204        
Residential
    580       313       169       1,062       29,607       30,669       169        
Consumer
    5                   5       2,430       2,435              
                                                                 
Total
  $ 1,705     $ 313     $ 8,511     $ 10,529     $ 130,251     $ 140,780     $ 516     $ 8,324  
 
 

 
18.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
 
The Company categorizes loans into performing or nonperforming categories based on relevant information about the ability of the borrowers to service their debt.  Such ability is determined based on the borrower’s current payment status.  Performing loans are less than 90 days past due on payments owed to the Company.  Nonperforming loans are loans greater than or equal to 90 days past due and still accruing interest, loans on nonaccrual, and/or loans considered to be troubled debt restructurings that are not performing under the modified terms of the loan agreement.  The following table presents total performing and nonperforming loans by class as of March 31, 2011 and December 31, 2010.
 
   
Commercial
Real Estate
   
Commercial
Non-Real
Estate
   
Construction and
Land
Development
   
Agricultural
   
Residential
   
Consumer
   
Total
 
                                           
    March 31, 2011  
                                           
Performing
  $ 39,998     $ 26,114     $ 6,466     $ 25,924     $ 31,074     $ 2,278     $ 131,854  
Nonperforming
    1,110       1,932       4,005       357       229             7,633  
                                                         
Total
  $ 41,108     $ 28,046     $ 10,471     $ 26,281     $ 31,303     $ 2,278     $ 139,487  
                                                         
     
December 31, 2010
 
                                                         
Performing
  $ 39,973     $ 26,229     $ 6,025     $ 26,778     $ 30,500     $ 2,435     $ 131,940  
Nonperforming
    1,997       2,107       4,363       204       169             8,840  
                                                         
  Total
  $ 41,970     $ 28,336     $ 10,388     $ 26,982     $ 30,669     $ 2,435     $ 140,780  
 
As of March 31, 2011 and December 31, 2010, the Company had one loan considered to be a troubled debt restructuring in the amount of $258,000.  This loan was performing as of March 31, 2011 and December 31, 2010.
 
 

 
19.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 7 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
 
FASB Accounting Standards Codification (ASC) Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1                          Quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
 
 
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
 
Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Securities Available for Sale
 
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Level 1 securities include exchange traded equities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include certain collateralized mortgage and debt obligations, government agency bonds and certain municipal securities, and corporate obligations. Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company currently holds no Level 3 securities.
 
Interest Rate Swap Agreements
 
The fair value is estimated by a third party using inputs that are observable or that can be corroborated by observable market data (such as the S&P 500 index) and, therefore, are classified within Level 2 of the valuation hierarchy.
 
Impaired Loans
 
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP.  The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  Collateral values are estimated using Level 3 inputs based on customized discounting criteria.
 
 

 
20.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 7 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
(Continued)
 
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring and non-recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at March 31, 2011:
 
         
Fair Value Measurements Using
 
   
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Recurring basis:
                       
Assets:                                
Available for sale securities:                                
U.S. Treasuries
  $ 3,562     $     $ 3,562     $  
Federal Agencies
    25,517             25,517        
State and Municipals
    21,263             21,263        
Mortgage-backed securities and collateralized mortgage obligations
    1,582             1,582        
Corporate obligations
    1,821             1,821        
Equities
    15       15              
Interest rate swap agreements – customer CDs
    1,133             1,133        
Total assets
    54,893       15       54,878        
                                 
Liabilities:                                
Written call options-customer CDs
    (1,133 )           (1,133 )      
                                 
Nonrecurring basis:
                               
Impaired loans
    2,598                  
2,598
 
 
 

 
21.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 7 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
(Continued)
 
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring and non-recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at December 31, 2010:
 
         
Fair Value Measurements Using
 
   
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Recurring basis:
                       
Assets:                        
Available for sale securities:                        
U.S. Treasuries
  $ 3,578     $     $ 3,578     $  
Federal Agencies
    25,545             25,545        
State and Municipals
    17,968             17,968        
Mortgage–backed   securities and collateralized mortgage obligations
    1,813             1,813        
Corporate obligations
    1,831             1,831        
Equities
    14       14              
Interest rate swap agreements – customer CDs
    1,093             1,093        
Total assets
    51,842       14       51,828        
                                 
Liabilities:                                
Written call options – customer CDs
    (1,093 )           (1,093 )      
                                 
Nonrecurring basis:
                               
Impaired loans
    1,779                   1,779  
 
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Financial assets and financial liabilities, excluding impaired loans, measured at fair value on a nonrecurring basis were not significant at March 31, 2011 and December 31, 2010.
 
Nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include other real estate owned (upon initial recognition or subsequent impairment) and reporting units measured at fair value in the first step of a goodwill impairment test.  At March 31, 2011 and December 31, 2010, other real estate owned measured at fair value was $2,597,000 and $3,005,000, respectively, using a combination of observable inputs, including recent appraisals and unobservable inputs based on customized discounting criteria.  Due to the significance of the unobservable inputs, all other real estate owned values have been classified as Level 3.  Goodwill was evaluated for impairment at December 31, 2010.  No impairment was identified.
 
 

 
22.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 

 
NOTE 7 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
(Continued)
 
The following methods and assumptions were used to estimate fair values for financial instruments carried on the balance sheet at other than fair value.  The carrying amount is considered to estimate fair value for cash and cash equivalents, deposits with no stated maturity such as demand, NOW, money market and savings deposits, accrued interest receivable and payable, and variable rate loans or deposits.  The fair value of loans held for sale are based on quoted market prices.  For interest-bearing time deposits, fixed rate loans and deposits, or borrowings, the fair value is estimated by discounted cash flow analysis using current market rates for the estimated life and credit risk.  The carrying amount of life insurance approximates fair value as it reflects the policies’ cash surrender values.  The fair value of off–balance–sheet items is based on the fees or cost that would currently be charged to enter into or terminate such agreements and is not material.
 
The carrying values and estimated fair values of the Company’s financial instruments as of March 31, 2011 and December 31, 2010 were as follows:
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
Carrying
Amount
   
Fair
Value
   
Carrying
Amount
   
Fair
Value
 
Assets
                       
Cash and due from banks
  $ 10,118     $ 10,118     $ 17,087     $ 17,087  
Interest-bearing time deposits in financial institutions
    49,668       50,568       54,837       55,805  
Securities available for sale
    53,760       53,760       50,749       50,749  
Loans held for sale
    320       320       895       895  
Loans, net
    135,936       136,938       137,417       136,121  
Cash surrender value of life insurance
    3,744       3,744       3,679       3,679  
Accrued interest receivable
    1,436       1,436       1,397       1,397  
                                 
Liabilities
                               
Deposits with no stated maturities
    174,502       174,502       183,802       183,802  
Time deposits
    74,443       75,635       74,793       76,499  
Borrowings
                2,000       2,005  
Accrued interest payable
    271       271       332       332  
 
NOTE 8 – RECLASSIFICATIONS
 
Certain reclassifications have been made to the December 31, 2010 and March 31, 2010  condensed consolidated financial statements in order to conform to the March 31, 2011 condensed consolidated financial statement presentation.  These reclassifications had no effect on net income.
 
NOTE 9 – SUBSEQUENT EVENTS
 
Subsequent events have been evaluated through May 13, 2011, which is the date the financial statements were  issued.
 
 

 
23.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2011 and 2010
 
 
NOTE 10 – NEW ACCOUNTING PRONOUNCEMENTS
 
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2010-06, Fair Value Measurements and Disclosures (Topic 820); Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires new disclosures on transfers into and out of Level 1 and 2 measurements of the fair value hierarchy and requires separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures relating to the level of disaggregation and inputs and valuation techniques used to measure fair value. It was effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchase, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.
 
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires significant new disclosures about the allowance for credit losses (also known as the “allowance for loan and lease losses”) and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance.  This ASU is effective for interim and annual reporting periods ending on or after December 15, 2010 for publicly-held companies.  Disclosures that relate to activity during a reporting period will be required for reporting periods beginning January 1, 2011.  The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
 
ASC Topic 310 “Receivables.”  New authoritative accounting guidance under ASC Topic 310, “Receivables,” amended prior guidance to provide a greater level of disaggregated information about the credit quality of loans and leases and the Allowance for Loan and Lease Losses (the “allowance”).  The new authoritative guidance also requires additional disclosures related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring.  The new authoritative guidance amends only the disclosure requirements for loans and leases and the allowance.  The Company adopted the period end disclosure provisions of the new authoritative guidance under ASC Topic 310 in the reporting period ending December 31, 2010; the adoption did not have a material impact on the Company’s financial position or results of operations.  The Company adopted the disclosure provisions of the new authoritative guidance about activity that occurs during a reporting period on January 1, 2011; the adoption did not have a material impact on the Company’s financial position or results of operations.  The disclosures related to loans modified in a troubled debt restructuring will be effective for the reporting periods after June 15, 2011, and Management believes the new disclosure requirements will not have a material impact on the Company’s financial position or results of operations.
 
ASC Topic 310 “Receivables,” Subtopic 310-40 “Troubled Debt Restructurings by Creditors.”  New authoritative accounting guidance under Subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors” amended prior guidance to provide assistance in determining whether a modification of the terms of a receivable meets the definition of a troubled debt restructuring.  The new authoritative guidance provides clarification for evaluating whether a concession has been granted and whether a debtor is experiencing financial difficulties.  The new authoritative guidance will be effective for the reporting periods after June 15, 2011 and should be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.  Management believes that adoption of the new guidance will not have a material impact on the Company’s financial position or results of operations.
 
 

 
24.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
 
The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of the Company for the periods indicated.  The discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes.  In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.  The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed elsewhere in this report.
 
OVERVIEW
 
The Company is the holding company for the Bank. The Company is headquartered in Ottawa, Illinois and operates four offices in Ottawa, two branches in Streator, a branch in Yorkville, a branch in Morris, and a loan production office in Minooka, Illinois. The Company continues to explore expansion opportunities within its existing market area and in surrounding areas.
 
The Company’s principal business is conducted by the Bank, which provides a full range of community-based financial services, including commercial and retail banking to its customers.  The profitability of the Company’s operations depends primarily on its net interest income, provision for loan losses, other income, and other expenses.  Net interest income is the difference between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings.  The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio.  Noninterest income consists of service charges on deposit accounts, trust and farm management fee income, securities gains (losses), net mortgage servicing income, and other income.  Noninterest expenses include salaries and employee benefits, as well as occupancy and equipment expenses and other noninterest expenses.
 
Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts of and rates on interest-bearing liabilities.  Net interest income is sensitive to changes in market rates of interest and the Company’s asset/liability management procedures in coping with such changes.  The provision for loan losses is dependent upon management’s assessment of the collectibility of the loan portfolio under current economic conditions.
 
The Company’s net income for the three months ended March 31, 2011, was $131,000, or $.20 per common share, compared to net income of $308,000, or $.48 per common share,  for the three months ended March 31, 2010.  The decrease in net income was due primarily to an increase in noninterest expense and a decrease in noninterest income.
 
The Company’s assets at March 31, 2011 were $274.1 million contrasted to $285.8 million at December 31, 2010, a decrease of $11.7 million, or 4.1%.
 
 

 
25.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
CRITICAL ACCOUNTING POLICIES
 
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry.  The Company’s significant accounting policies are described in detail in the notes to the Company’s consolidated financial statements for the year ended December 31, 2010. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, or complex.
 
Allowance for Loan Losses:  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.  Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.
 
The allowance consists of specific, general, and unallocated components.  The specific component relates to loans that are classified as either doubtful, substandard, or special mention.  For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan.  The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
 
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the original contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial/agricultural and
 
 

 
26.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
 
Impairment of Long-Lived Assets:  The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of carrying amount or fair value less estimated costs to sell.
 
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell.  This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.  Due to potential changes in conditions, it is at least reasonably possible that changes in fair values will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.  Revenue and expenses from operations are included in net expenses from foreclosed assets.
 
Mortgage Servicing Rights:  Servicing rights are recognized as assets for the allocated value of servicing rights retained on loans sold and are classified with interest receivable and other assets in the consolidated balance sheets.  Servicing rights are expensed in proportion to and over the period of estimated net servicing revenues.  Impairment is evaluated based on the fair value of the rights using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics.  Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market–based assumptions.  Any impairment of a grouping is reported as a valuation allowance.  There was no such valuation allowance recorded at March 31, 2011 or December 31, 2010.
 
Intangible Assets:  Core deposit intangibles are being amortized on an accelerated basis over 11 years and are periodically evaluated as to the recoverability of their carrying value.  The remaining core deposit intangible will be fully amortized in the year 2014.
 
Goodwill:   Goodwill represents the excess of the original cost over fair value of assets acquired and liabilities assumed and related acquisition costs.  Goodwill is reviewed for impairment annually with any loss recognized through the income statement.
 
 

 
27.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
Stock Options:  The Company has a stock–based compensation plan. Grants under the Company’s stock incentive plan are accounted for by applying the fair value method and the use of an option pricing model to estimate the value of the options granted. The stock options are granted with an exercise price equal to the market price at the date of grant. Resulting compensation expense relating to the stock options is measured and recorded based on the estimated value of the options. The value of options granted under this plan is charged to expense over the vesting period of the grants.
 
Earnings (Loss) Per Share:  Basic earnings (loss) per share is calculated based on the weighted-average common shares outstanding during the year.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to net income that would result from the assumed issuance.  Potential common shares that may be issued by the Company relate to outstanding stock options.
 
Fair Values of Financial Instruments:  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately.  Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.  Changes in assumptions or in market conditions could significantly affect the estimates.  The fair value estimates of existing on– and off–balance–sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments.
 
Derivatives:  All derivative instruments are recorded at their fair values and the change in the fair value of a derivative is included in interest income.  If derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged item are included in current earnings.  Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and reclassified to earnings when the hedged transaction is reflected in earnings.  Ineffective portions of hedges are reflected in earnings as they occur.
 
 

 
28.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
CONSOLIDATED FINANCIAL CONDITION
 
Total assets at March 31, 2011 were $274.1 million contrasted to $285.8 million at December 31, 2010, a decrease of $11.7 million, or 4.1%.  This decrease in total assets was the result of a $6.9 million decrease in cash and due from banks, a $5.2 million decrease in interest-bearing time deposits in financial institutions, a $575,000 decrease in loans held for sale, a $408,000 decrease in other real estate owned, a $1.5 million decrease in loans due to current economic trends and a decline in demand, and a modest decrease in premises and equipment of $90,000.  These decreases were partially offset by a $3.0 million increase in securities available for sale and a nominal increase of $65,000 in cash surrender value of life insurance. The $11.7 million decrease in total assets corresponded to a decrease of $2.0 million in borrowings as well as a $9.7 million decrease in deposits.
 
Total liabilities at March 31, 2011 were $251.2 million compared to $262.8 million at December 31, 2010, a decrease of $11.7 million, or 4.5%. This decrease in total liabilities was primarily the  result of an $11.6 million decrease in interest-bearing demand accounts, a $350,000 decrease in time deposit accounts, a $424,000 decrease in noninterest-bearing demand accounts, a $2.0 million decrease in borrowings, and a $25,000 decrease in other liabilities. These decreases were partially offset by increases in savings deposits of $2.9 million and money market accounts of $169,000. Decreases in interest-bearing demand accounts were attributable to local municipalities drawing down balances for operations and other seasonal payments. The decrease in borrowings was due to a Federal Home Loan Bank advance maturing without renewal.
 
Total shareholders’ equity was $23.0 million at March 31, 2011 and December 31, 2010. Total shareholders’ equity remained unchanged as a result of $131,000 of additional retained earnings from net income for the quarter ended March 31, 2011 being offset by a decrease of $131,000, net of tax, in the valuation of the Company’s investment portfolio.
 
CONSOLIDATED RESULTS OF OPERATIONS
 
Net income for the first quarter of 2011 was $131,000, or $0.20 per share, a 57.5% decrease compared to $308,000, or $0.48 per share, in the first quarter of 2010.  The decrease in net income for the quarter was primarily the result of a decrease in noninterest income of $97,000 and an increase in noninterest expense of $130,000. The provision for income taxes decreased by $100,000 to a $47,000 benefit in the first quarter of 2011 as compared to 2010, due to a taxable loss in the first quarter.
 
The annualized return on average assets was 0.19% in the first quarter of 2011 compared to 0.45% in the first quarter of 2010.   The annualized return on average equity decreased to 2.23% in the first quarter of 2011 from 4.84% the first quarter of 2010.
 
NET INTEREST INCOME
 
Net interest income before the provision for loan losses was $2.2 million for the three months ended March 31, 2011 and 2010. Total interest  and dividend income decreased $198,000 to $2.7
 
 

 
29.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
million for the three months ended March 31, 2011, compared to the same period in 2010.  The decrease in total interest income for the three months ended March 31, 2011 reflected a decrease in interest income and fees from loans of $133,000 to $2.1 million, compared to the same period in 2010, and a decrease in tax exempt investment income of $85,000 to $113,000, compared to the same period in 2010. These decreases were partially offset by an increase in the first quarter of 2011 in income on interest-bearing deposits with financial institutions of $3,000 to $258,000, compared to the same period in 2010, and an increase in taxable investment income of $14,000 to $218,000, compared to the same period in 2010. Decreased interest income was a result of decreases in interest rates on investments, volume of tax exempt investments and average loans outstanding during the first quarter of 2011. Increased income on interest-bearing deposits was attributable to increases in principal balances of interest-bearing deposits in financial institutions compared to the end of the first quarter of 2010.
 
The Company’s net interest margin was 3.64% for the three months ended March 31, 2011 compared to 3.88% for the same period in 2010.  The yield on average earning assets decreased to 4.37% for the three months ended March 31, 2011 from 4.92% for the same period in 2010, a 55 basis point decrease.  This decrease was offset by a similar decrease in the cost of funds from 1.04% to .73% paid for the same period ended March 31, 2011, a 31 basis point decrease. The decrease in interest expense was significantly affected by a $118,000 decrease in interest paid on time deposit accounts. This reduction was due primarily to rate factors.
 
PROVISION FOR LOAN LOSSES
 
The provision for loan losses was $300,000 in the first quarter of 2011, and $270,000 in the first quarter of 2010. This increased provision level, which is high compared to historical periods, was a result of ongoing national and local economic issues, including uncertainties regarding the economic downturn and recovery that could have a negative impact on the ability of borrowers to repay loans during 2011. As of March 31, 2011, the allowance for loan losses totaled $3.6 million, or 2.55% of total loans, which has increased from 2.39% as of December 31, 2010.  Nonaccrual loans decreased from $8.3 million at December 31, 2010 to $7.3 million at March 31, 2011. Nonperforming loans, including nonaccrual loans, decreased $1.2 million to $7.6 million over the same period. Management believes that these nonperforming loans are well collateralized, which significantly reduces the Company’s exposure to losses on the credits.
 
The amounts of the provision and allowance for loan losses are influenced by current economic conditions, actual loss experience, industry trends and other factors, including real estate values in the Company’s market area and management’s assessment of current collection risks within the loan portfolio. While the general economy has shown signs of improvement, borrowers may continue to experience difficulties, and the level of nonperforming loans, charge- offs, and delinquencies could rise and require increases in the provision for loan losses. The allowance for loan losses represents management’s estimate of probable incurred losses based on information available as of the date of the financial statements.  The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, and economic conditions.
 
 

 
30.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
Management concluded that the allowance for loan losses was adequate at March 31, 2011 to cover probable losses inherent in our loan portfolio. However, there can be no assurance that the allowance for loan losses will be adequate to cover all losses.
 
NONINTEREST INCOME
 
The Company’s noninterest income totaled $502,000 for the three months ended March 31, 2011 compared to $599,000 for the same period in 2010, a decrease of $97,000 or 16.2%. The decrease in noninterest income was primarily due to a $51,000 decrease in service fees on deposit accounts compared to the same period in the prior year. Also contributing to the decrease in noninterest income was a $36,000 decrease in security gains resulting from a net loss of $10,000 on the sale of investment securities in 2011 compared to a $26,000 net gain in 2010. Mortgage servicing income decreased $11,000 to $51,000 in the first quarter of 2011 due to decreased mortgage refinancing activity occurring during the first three months of 2011.
 
NONINTEREST EXPENSE
 
The Company’s noninterest expense was $2.3 million for the three months ended March 31, 2011 and $2.2 million for the same period in 2010. Salaries and employee benefits, the largest component of noninterest expense, increased $10,000, or .87%, to $1.2 million.  Other real estate owned expenses increased $134,000 to $206,000 in the first quarter of 2011 compared to 2010 due to increased expenses related to properties held and losses on the sale of other real estate in 2011. Modest increases in occupancy and equipment expense of $5,000, other expenses of $20,000, and data processing fees of $7,000, were offset by decreases in insurance expense of $33,000, and professional fees of $13,000. Insurance expense decreased primarily due to expected decreases in FDIC insurance for the current year. In addition, income tax expense decreased $100,000 to a $47,000 benefit in the first quarter of 2011 compared to a $53,000 expense in 2010.
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Company’s primary sources of funds are deposits and proceeds from principal and interest payments on loans and securities.  While maturities and scheduled amortization of loans and securities and calls of securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition.  The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships.
 
Liquidity management is both a daily and long-term responsibility of management.  The Company adjusts its investments in liquid assets based upon management’s assessment of  (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of its asset/liability management program.  Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term United States government and agency obligations. The Company’s most liquid assets are cash and short-term investments.  The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given year.  At
 
 

 
31.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
March 31, 2011, cash and due from banks and certificates of deposit held at other financial institutions maturing in less than 1 year totaled $28.2 million.  The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans.  The Company may also utilize the sale of securities available for sale, federal funds lines of credit from correspondent banks, and borrowings from the Federal Home Loan Bank of Chicago.
 
The following table discloses contractual obligations and commercial commitments of the Company as of March 31, 2011:
 
         
Less Than
               
After
 
   
Total
   
1 Year
   
1 – 3 Years
   
4 – 5 Years
   
5 Years
 
                               
Lines of credit(1)
  $ 23,178     $ 13,755     $ 4,137     $ 2,042     $ 3,244  
Data processing contract payable
    575       223       352              
Standby letters of credit(1)
    293       271       22              
                                         
    $ 24,046     $ 14,249     $ 4,511     $ 2,042     $ 3,244  
 
(1)  Represents amounts committed to customers.
 
IMPACT OF INFLATION AND CHANGING PRICES
 
The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.  The primary impact of inflation on the operations of the Company is reflected in increased operating costs.  Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
 
 

 
32.

 

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 
SAFE HARBOR STATEMENT
 
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company.  Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions.  Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
 
 

 
33.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 

ITEM 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.
 
 

 
34.

 
 
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONTROLS AND PROCEDURES
 
 
ITEM 4:   CONTROLS AND PROCEDURES
 
As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, 2011 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.  These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
During the first quarter of 2011, there have been no changes in the Company’s internal controls or disclosure controls or in other factors that have materially affected, or are reasonably likely to materially affect internal controls over financial reporting or disclosure controls.
 
 

 
35.

 
 
PART II
 
ITEM 1.          LEGAL PROCEEDINGS
 
There are no material pending legal proceedings to which the Company or its subsidiaries are a party other than ordinary routine litigation incidental to their respective businesses.
 
ITEM 1.A.     RISK FACTORS
 
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.
 
ITEM 2.
 
None
 
ITEM 3.          DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 4.          REMOVED AND RESERVED
 
 
ITEM 5.         OTHER INFORMATION
 
None
 
ITEM 6.          EXHIBITS
 
Exhibits
 
 
     
 
     
 
     
 
 
 
36

 
 
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 OTTAWA BANCSHARES, INC.
 
(Registrant)
   
 
/S/ Joachim J. Brown
 
Date: May 13, 2011
Joachim J. Brown
 
President and Chief Executive Officer
 
(Principal Executive Officer)
   
 
/S/ Vincent G. Easi
 
Date: May 13, 2011
Vincent G. Easi
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
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