PEOPLES FINANCIAL CORP /MS/ - Quarter Report: 2011 March (Form 10-Q)

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission File Number 001-12103

PEOPLES FINANCIAL CORPORATION

 

(Exact name of registrant as specified in its charter)

Mississippi		64-0709834
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Lameuse and Howard Avenues, Biloxi, Mississippi		39533
(Address of principal executive offices)		(Zip Code)

(228) 435-5511

(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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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. (Check one):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At April 29, 2011, there were 15,000,000 shares of $1 par value common stock authorized, with 5,136,918 shares issued and outstanding.

 

 

Part 1 — Financial Information

Item 1: Financial Statements

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition

		March 31, 2011				December 31, 2010
		(Unaudited)				(Audited)
Assets
Cash and due from banks		$	42,450,301			$	24,146,939
Available for sale securities			319,373,586				287,078,463
Held to maturity securities, fair value of $2,009,673 at March 31, 2011; $2,010,430 at December 31, 2010			1,915,578				1,914,879
Other investments			3,916,217				3,926,371
Federal Home Loan Bank Stock, at cost			2,584,700				2,281,200
Loans			406,780,872				409,898,757
Less: Allowance for loan losses			7,105,564				6,650,258
Loans, net			399,675,308				403,248,499
Bank premises and equipment, net of accumulated depreciation			29,299,029				29,756,239
Other real estate			6,937,128				5,744,150
Accrued interest receivable			3,738,821				3,292,430
Cash surrender value of life insurance			16,113,383				15,951,117
Prepaid FDIC assessments			3,300,440				3,652,972
Other assets			3,243,038				5,552,225
Total assets		$	832,547,529			$	786,545,484

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)

		March 31, 2011				December 31, 2010
		(Unaudited)				(Audited)
Liabilities & Shareholders’ Equity
Liabilities:
Deposits:
Demand, non-interest bearing		$	117,803,473			$	108,277,985
Savings and demand, interest bearing			246,826,821				193,631,209
Time, $100,000 or more			124,092,337				134,667,660
Other time deposits			46,723,419				47,562,661
Total deposits			535,446,050				484,139,515
Federal funds purchased and securities sold under agreements to repurchase			145,060,933				140,102,019
Borrowings from Federal Home Loan Bank			31,975,108				42,957,016
Other liabilities			17,546,679				17,990,072
Total liabilities			730,028,770				685,188,622
Shareholders’ Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 5,136,918 and 5,151,139 shares issued and outstanding at March 31, 2011 and December 31, 2010			5,136,918				5,151,139
Surplus			65,780,254				65,780,254
Undivided profits			33,561,586				33,302,381
Accumulated other comprehensive loss, net of tax			(1,959,999	)			(2,876,912	)
Total shareholders’ equity			102,518,759				101,356,862
Total liabilities & shareholders’ equity		$	832,547,529			$	786,545,484

See accompanying notes to unaudited consolidated financial statements.

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

		Three Months Ended March 31,
		2011				2010
Interest income:
Interest and fees on loans		$	4,906,762			$	4,987,126
Interest and dividends on securities:
U.S. Treasuries			63,863				194,262
U.S. Government agencies			1,439,362				2,299,703
Mortgage-backed securities							386,876
States and political subdivisions			369,101				356,929
Other securities			6,218				4,451
Interest on federal funds sold			1,352				3,779
Total interest income			6,786,658				8,233,126
Interest expense:
Deposits			702,711				817,489
Borrowings from FHLB			50,065				136,645
Federal funds purchased and securities sold under agreements to repurchase			172,023				286,390
Total interest expense			924,799				1,240,524
Net interest income			5,861,859				6,992,602
Provision for allowance for loan losses			641,000				1,150,000
Net interest income after provision for allowance for loan losses		$	5,220,859			$	5,842,602

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(Unaudited)

		Three Months Ended March 31,
		2011				2010
Non-interest income:
Trust department income and fees		$	346,455			$	307,296
Service charges on deposit accounts			1,419,028				1,572,503
Increase in cash surrender value of life insurance			132,300				129,600
Other income			125,127				123,734
Total non-interest income			2,022,910				2,133,133
Non-interest expense:
Salaries and employee benefits			3,376,297				3,412,275
Net occupancy			613,934				524,777
Equipment rentals, depreciation and maintenance			870,400				935,453
FDIC assessments			405,826				350,387
Other expense			1,689,768				1,706,388
Total non-interest expense			6,956,225				6,929,280
Income before income taxes			287,544				1,046,455
Income taxes (benefit)			(150,000	)			175,000
Net income		$	437,544			$	871,455
Basic and diluted earnings per share		$	.09			$	.17

See accompanying notes to unaudited consolidated financial statements.

Peoples Financial Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity and Comprehensive Income

																		Accumulated
		Number of																Other
		Common				Common								Undivided				Comprehensive				Comprehensive
		Shares				Stock				Surplus				Profits				Loss				Income				Total
Balance, January 1, 2011			5,151,139			$	5,151,139			$	65,780,254			$	33,302,381			$	(2,876,912	)						$	101,356,862
Comprehensive income:
Net income															437,544							$	437,544				437,544
Net unrealized gain on available for sale securities, net of tax																			916,913				916,913				916,913
Total comprehensive income																						$	1,354,457
Retirement of stock			(14,221	)			(14,221	)							(178,339	)											(192,560	)
Balance, March 31, 2011			5,136,918			$	5,136,918			$	65,780,254			$	33,561,586			$	(1,959,999	)						$	102,518,759

Note: Balances as of January 1, 2011 were audited.

See accompanying notes to unaudited consolidated financial statements.

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)

		Three Months Ended March 31,
		2011				2010
Cash flows from operating activities:
Net income		$	437,544			$	871,455
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation			567,000				609,000
Provision for allowance for loan losses			641,000				1,150,000
Loss on writedown of other real estate			124,606				77,350
Loss on sales of other real estate			5,000				13,000
Loss on other investments			10,154				15,550
Gain on sales and calls of securities							(4,045	)
Accretion of held to maturity securities			(699	)			(676	)
Change in accrued interest receivable			(446,391	)			(418,653	)
Change in other assets			2,639,963				228,188
Change in other liabilities			(429,993	)			261,581
Net cash provided by operating activities			3,548,184				2,802,750
Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities			25,430,000				45,824,384
Investment in available for sale securities			(56,337,531	)			(57,083,465	)
Investment in Federal Home Loan Bank Stock			(303,500	)			(1,400	)
Proceeds from sales of other real estate			30,000				310,000
Loans, net change			1,579,607				14,773,369
Acquisition of premises and equipment			(109,790	)			(64,947	)
Investment in other assets			(162,266	)			(171,757	)
Net cash provided by (used in) investing activities		$	(29,873,480	)		$	3,586,184

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)

		Three Months Ended March 31,
		2011				2010
Cash flows from financing activities:
Demand and savings deposits, net change		$	62,721,100			$	27,581,497
Time deposits, net change			(11,414,565	)			28,684,535
Cash dividends			(462,323	)			(515,170	)
Retirement of common stock			(192,560	)
Borrowings from Federal Home Loan Bank			201,467,835				268,571,965
Repayments to Federal Home Loan Bank			(212,449,743	)			(310,043,716	)
Federal funds purchased and securities sold under agreements to repurchase, net change			4,958,914				(20,039,227	)
Net cash provided by (used in) financing activities			44,628,658				(5,760,116	)
Net increase in cash and cash equivalents			18,303,362				628,818
Cash and cash equivalents, beginning of period			24,146,939				29,155,294
Cash and cash equivalents, end of period		$	42,450,301			$	29,784,112

See accompanying notes to unaudited consolidated financial statements.

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 2011 and 2010

1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. Its two operating subsidiaries are The Peoples Bank, Biloxi, Mississippi (the “Bank”), and PFC Service Corp. Its principal subsidiary is The Peoples Bank, Biloxi, Mississippi, which provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in Harrison, Hancock, Stone and Jackson counties.

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company and its subsidiaries as of March 31, 2011 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2010 Annual Report and Form 10-K.

The results of operations for the quarter ended March 31, 2011, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Summary of Significant Accounting Policies — The accounting and reporting policies of the Company conform with GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our Form 10-K for the year ended December 31, 2010.

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 5,136,918 and 5,151,697 for the quarters ended March 31, 2011 and 2010, respectively.

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $910,344 and $1,229,166 for the quarters ended March 31, 2011 and 2010, respectively, for interest on deposits and borrowings. Income tax payments of $100,000 were made during the quarter ended March 31, 2010 and no income tax payments were made during the quarter ended March 31,

2011. Income taxes receivable of $2,130,362 as of December 31, 2010 were refunded during the first quarter of 2011. Loans transferred to other real estate amounted to $1,352,584 and $630,000 during the quarters ended March 31, 2011 and 2010, respectively. Dividends payable of $462,323 as of December 31, 2010 were paid during the first quarter of 2011.

4. Investments:

The amortized cost and fair value of securities at March 31, 2011 and December 31, 2010, are as follows:

						Gross				Gross
						Unrealized				Unrealized
March 31, 2011		Amortized Cost				Gains				Losses				Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries		$	16,959,686			$	42,767			$	(435,163	)		$	16,567,290
U.S. Government agencies			262,622,107				1,076,711				(3,457,059	)			260,241,759
States and political subdivisions			40,501,374				1,602,290				(189,110	)			41,914,554
Total debt securities			320,083,167				2,721,768				(4,081,332	)			318,723,603
Equity securities			649,983												649,983
Total available for sale securities		$	320,733,150			$	2,721,768			$	(4,081,332	)		$	319,373,586
Held to maturity securities:
States and political subdivisions		$	1,915,578			$	94,095			$				$	2,009,673
Total held to maturity securities		$	1,915,578			$	94,095			$				$	2,009,673

						Gross				Gross
						Unrealized				Unrealized
December 31, 2010		Amortized Cost				Gains				Losses				Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries		$	26,957,061			$	51,729			$	(499,819	)		$	26,508,971
U.S. Government agencies			221,639,699				1,055,500				(4,099,256	)			218,595,943
States and political subdivisions			40,578,877				1,114,322				(369,633	)			41,323,566
Total debt securities			289,175,637				2,221,551				(4,968,708	)			286,428,480
Equity securities			649,983												649,983
Total available for sale securities		$	289,825,620			$	2,221,551			$	(4,968,708	)		$	287,078,463
Held to maturity securities:
States and political subdivisions		$	1,914,879			$	95,551			$				$	2,010,430
Total held to maturity securities		$	1,914,879			$	95,551			$				$	2,010,430

The amortized cost and fair value of debt securities at March 31, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized Cost				Fair Value
Available for sale securities:
Due in one year or less		$	2,295,956			$	2,351,453
Due after one year through five years			100,103,722				100,561,835
Due after five years through ten years			128,834,181				128,067,264
Due after ten years			88,849,308				87,743,051
Totals		$	320,083,167			$	318,723,603
Held to maturity securities:
Due after one year through five years		$	1,451,182			$	1,525,949
Due after five years through ten years			464,396				483,724
Totals		$	1,915,578			$	2,009,673

Securities with gross unrealized losses at March 31, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

		Less Than Twelve Months								Over Twelve Months								Total
						Gross								Gross								Gross
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
March 31, 2011:
U.S. Treasuries		$	15,524,830			$	435,163			$				$				$	15,524,830			$	435,163
U.S. Government agencies			161,217,706				3,457,059												161,217,706				3,457,059
States and political subdivisions			1,921,235				64,408				2,101,268				124,702				4,022,503				189,110
TOTAL		$	178,663,771			$	3,956,630			$	2,101,268			$	124,702			$	180,765,039			$	4,081,332
December 31, 2010:
U.S. Treasuries		$	15,457,980			$	499,819			$				$				$	15,457,980			$	499,819
U.S. Government agencies			138,075,993				4,099,256												138,075,993				4,099,256
States and political subdivisions			5,295,359				172,435				2,028,616				197,198				7,323,975				369,633
TOTAL		$	158,829,332			$	4,771,510			$	2,028,616			$	197,198			$	160,857,948			$	4,968,708

Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the extent to which the fair value has been less than cost, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government Agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that it will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of the evaluation of these securities, the Company has determined that the unrealized losses summarized in the tables above are not deemed to be other-than-temporary.

5. Loans:

The composition of the loan portfolio at March 31, 2011 and December 31, 2010, is as follows:

		March 31, 2011				December 31, 2010
Gaming		$	41,226,784			$	44,342,798
Residential development			29,561,634				30,063,593
Real estate, construction			60,975,452				60,982,989
Real estate, mortgage			221,417,578				222,578,080
Commercial and industrial			39,629,243				36,463,500
Other			13,970,181				15,467,797
Total		$	406,780,872			$	409,898,757

The age analysis of the loan portfolio, segregated by class of loans, as of March 31, 2011 and December 31, 2010, is as follows:

																										Loans Past
		Number of Days Past Due																								Due Greater
										Greater				Total								Total				Than 90 Days
		30 - 59				60 - 89				Than 90				Past Due				Current				Loans				& Still Accruing
March 31, 2011:
Gaming		$				$				$	3,093,409			$	3,093,409			$	38,133,375			$	41,226,784			$
Residential development			15,187,500				937,706				1,221,148				17,346,354				12,215,280				29,561,634
Real estate, construction			2,973,416				1,678,632				4,517,620				9,169,668				51,805,784				60,975,452				1,038,694
Real estate, mortgage			8,911,987				12,846,325				4,207,288				25,965,600				195,451,978				221,417,578				1,361,833
Commercial and industrial			1,652,815				21,073				475,287				2,149,175				37,480,068				39,629,243				462,615
Other			112,857				5,499				63,486				181,842				13,788,339				13,970,181				536
Total		$	28,838,575			$	15,489,235			$	13,578,238			$	57,906,048			$	348,874,824			$	406,780,872			$	2,863,678
December 31, 2010:
Gaming		$				$				$	2,808,409			$	2,808,409			$	41,534,389			$	44,342,798			$
Residential development			2,281,675								2,317,327				4,599,002				25,464,591				30,063,593
Real estate, construction			8,041,900				4,433,125				4,373,103				16,848,128				44,134,861				60,982,989				1,990,772
Real estate, mortgage			18,479,501				4,639,802				5,139,974				28,259,277				194,318,803				222,578,080				955,715
Commercial and industrial			1,558,356				98,328				41,181				1,697,865				34,765,635				36,463,500				14,099
Other			273,940				33,544				969				308,453				15,159,344				15,467,797				969
Total		$	30,635,372			$	9,204,799			$	14,680,963			$	54,521,134			$	355,377,623			$	409,898,757			$	2,961,555

The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 — 5 is assigned to the loan on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A — F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. Loans with a grade of C may be placed on the watch list if weaknesses are not resolved which could result in potential loss. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the “D” classification and in which collection or liquidation in full is questionable. All loans 90 days or more past due are rated E. A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future. All loans 180 days or more past due are rated F and charged off unless the Bank is in the process of collection.

An analysis of the loan portfolio by loan grade, segregated by class of loans, as of March 31, 2011 and December 31, 2010, is as follows:

		Loans With A Grade Of:
		A or B				C				D				E				Total
March 31, 2011:
Gaming		$	24,065,050			$				$	6,723,161			$	10,438,573			$	41,226,784
Residential development			5,260,909				19,407,500				4,221,725				671,500				29,561,634
Real estate, construction			50,434,117				1,255,577				8,942,030				343,728				60,975,452
Real estate, mortgage			183,866,199				7,477,762				25,863,446				4,210,171				221,417,578
Commercial and industrial			37,277,674				9,231				1,936,305				406,033				39,629,243
Other			13,702,220				46,221				221,740								13,970,181
Total		$	314,606,169			$	28,196,291			$	47,908,407			$	16,070,005			$	406,780,872
December 31, 2010:
Gaming		$	27,397,218			$				$	6,413,068			$	10,532,512			$	44,342,798
Residential development			25,664,590				864,342				3,102,340				432,321				30,063,593
Real estate, construction			52,417,942				314,806				7,715,653				534,588				60,982,989
Real estate, mortgage			184,963,841				8,247,627				25,669,185				3,697,427				222,578,080
Commercial and industrial			33,702,021				289,222				2,323,291				148,966				36,463,500
Other			15,232,311				39,865				195,621								15,467,797
Total		$	339,377,923			$	9,755,862			$	45,419,158			$	15,345,814			$	409,898,757

Total loans on nonaccrual as of March 31, 2011 and December 31, 2010, are as follows:

		March 31, 2011				December 31, 2010
Gaming		$	10,127,723			$	10,221,662
Residential development			632,321				632,321
Real estate, construction			386,975				386,557
Real estate, mortgage			1,983,041				3,268,778
Commercial and industrial			297,672				27,081
Other			62,950				698
Total		$	13,490,682			$	14,537,097

In 2010, the Company modified two loans by granting interest rate concessions to the borrowers. These loans, which had a balance of $697,770 and $702,494 as of March 31, 2011 and December 31, 2010, respectively, are in compliance with their modified terms and are currently accruing and the Company has classified them as troubled debt restructurings.

Impaired loans, segregated by class of loans, as of March 31, 2011 and December 31, 2010, are as follows:

		Unpaid												Average
		Principal				Recorded				Related				Recorded
		Balance				Investment				Allowance				Investment
March 31, 2011:
Gaming		$	10,438,573			$	10,127,723			$				$	10,145,145
Residential development			4,313,099				632,321								632,321
Real estate, construction			572,541				572,541				319,000				572,952
Real estate, mortgage			3,425,245				2,495,245				855,618				2,463,415
Commercial and industrial			297,672				297,672				155,500				10,691
Other			62,950				62,950				9,000				20,983
Total		$	19,110,080			$	14,188,452			$	1,339,118			$	13,845,507
December 31, 2010:
Gaming		$	10,532,512			$	10,221,662			$	107,328			$	9,363,015
Residential development			4,313,098				632,321				8,220				2,692,751
Real estate, construction			573,388				573,388				179,000				199,531
Real estate, mortgage			4,762,356				3,784,441				649,392				2,366,888
Commercial and industrial			27,081				27,081				195				8,065
Other			698				698				698				590
Total		$	20,209,133			$	15,239,591			$	944,833			$	14,630,840

No material interest income was recognized on impaired loans for the quarter ended March 31, 2011 and the year ended December 31, 2010.

6. Allowance for Loan Losses:

Transactions in the allowance for loan losses for the quarters ended March 31, 2011 and 2010, and the balances of loans, individually and collectively evaluated for impairment as of March 31, 2011 and 2010, are as follows (in thousands):

						Residential				Real Estate,				Real Estate,				Commercial
		Gaming				Development				Construction				Mortgage				and Industrial				Other				Total
March 31, 2011:
Allowance for Loan Losses:
Beginning Balance		$	465			$	1,070			$	1,020			$	3,413			$	480			$	202			$	6,650
Charge-offs															(248	)			(22	)			(30	)			(300	)
Recoveries							32								46				14				22				114
Provision			(232	)			(489	)			240				1,006				220				(104	)			641
Ending Balance		$	233			$	613			$	1,260			$	4,217			$	692			$	90			$	7,105
Allowance for loan losses:
Ending balance: individually evaluated for impairment		$				$				$	527			$	2,013			$	361			$	18			$	2,919
Ending balance: collectively evaluated for impairment		$	233			$	613			$	733			$	2,204			$	331			$	72			$	4,186
Total Loans:
Ending Balance: Individually evaluated for impairment		$	17,633			$	23,563			$	23,747			$	17,202			$	1,788			$	222			$	84,155
Ending balance: collectively evaluated for impairment		$	23,594			$	5,999			$	37,228			$	204,216			$	37,841			$	13,748			$	322,626

						Residential				Real Estate,				Real Estate,				Commercial
		Gaming				Development				Construction				Mortgage				and Industrial				Other				Total
March 31, 2010:
Allowance for Loan Losses:
Beginning Balance		$	699			$	1,198			$	1,019			$	3,549			$	1,293			$	70			$	7,828
Charge-offs											(550	)			(122	)							(83	)			(755	)
Recoveries																			11				45				56
Provision			202				646				56				781				(719	)			184				1,150
Ending Balance		$	901			$	1,844			$	525			$	4,208			$	585			$	216			$	8,279
Allowance for Loan Losses:
Ending balance: individually evaluated for impairment		$	225			$	809			$	420			$	1,537			$	271			$	9			$	3,271
Ending balance: collectively evaluated for impairment		$	676			$	1,035			$	105			$	2,671			$	314			$	207			$	5,008
Total Loans:
Ending balance: individually evaluated for impairment		$	900			$	2,723			$	2,317			$	8,876			$	582			$	20			$	15,418
Ending balance: collectively evaluated for impairment		$	63,515			$	32,388			$	53,580			$	223,260			$	46,921			$	13,792			$	433,456

7. Deposits:

At March 31, 2011, time deposits of $100,000 or more include brokered deposits of $22,696,000 which mature in 2012.

8. Accumulated Other Comprehensive Loss:

At March 31, 2011, accumulated other comprehensive loss included the unrealized loss on available for sale securities of $887,554, net of tax of $444,513, and the loss from the unfunded post-retirement benefit obligation of $1,072,445, net of tax of $552,471.

9. Fair Value of Financial Instruments:

The Company reports certain assets and liabilities at their estimated fair value. These assets and liabilities are classified and disclosed in one of three categories based on the inputs used to develop the measurements. The categories, which establish a hierarchy for ranking the quality and reliability of the information used to determine fair value, are: Level 1 — Quoted market prices in active markets for identical assets or liabilities, Level 2 — Observable market based inputs or unobservable inputs or unobservable inputs that are corroborated by market data, or Level 3 — Unobservable inputs that are not corroborated by market data.

All entities are required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the statement of condition, for which it is practical to estimate its fair value. Certain financial instruments and all nonfinancial instruments are excluded from these

disclosure requirements. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and bank premises and equipment. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. In preparing these disclosures, Management made highly sensitive estimates and assumptions in developing the methodology to be utilized in the computation of fair value. These estimates and assumptions were formulated based on judgments regarding economic conditions and risk characteristics of the financial instruments that were present at the time the computations were made. Events may occur that alter these conditions and may change the assumptions as well. A change in the assumptions might affect the fair value of the financial instruments disclosed in this footnote. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax consequences related to the realization of the unrealized gains and losses have not been computed or disclosed herein. These methods and assumptions are set forth below.

Cash and Due from Banks

The carrying amount shown as cash and due from banks approximates fair value.

Federal Funds Sold

The carrying amount shown as federal funds sold approximates fair value.

Available for Sale Securities

The fair value of available for sale securities is based on quoted market prices. The Company’s available for sale securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary based on asset class and include available trade, bid and other market information and whose methodology includes broker quotes, proprietary models and vast descriptive databases. The other source for determining fair value is matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark securities. All of the Company’s available for sale securities are Level 2 assets.

Held to Maturity Securities

The fair value of held to maturity securities is based on quoted market prices.

Other Investments

The carrying amount shown as other investments approximates fair value.

Federal Home Loan Bank Stock

The carrying amount shown as Federal Home Loan Bank Stock approximates fair value.

Loans

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect probable credit losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are impaired. Accordingly, the Company’s impaired loans are reported at their estimated fair value on a non-recurring basis. An allowance for each impaired loan, which are generally collateral-dependent, is calculated based on the fair value of its collateral. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as a non-recurring Level 2 asset. When an appraised value is not available or Management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as a non-recurring Level 3 asset.

Other real estate

When Management determines that it has sustained a loss on a loan, it may be necessary to foreclose on the related collateral. Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the current appraisal is more than one year old and/or the loan balance is more than $200,000, a new appraisal is obtained. Otherwise, the Bank’s in-house property evaluator and Management will determine the fair value of the collateral, based on comparable sales, market conditions, Management’s plans for disposition and other estimates of fair value obtained from principally independent sources, adjusted for estimated selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the other real estate as a non-recurring Level 2 asset. When an appraised value is not available or Management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the other real estate as a non-recurring Level 3 asset.

Cash Surrender Value of Life Insurance

The carrying amount of cash surrender value of bank-owned life insurance approximates fair value.

Deposits

The fair value of non-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The fair value of time deposits is estimated by discounting the cash flows using current rates of time deposits with similar remaining maturities.

The cash flows considered in computing the fair value of such deposits are based on contractual maturities, since approximately 98% of time deposits provide for automatic renewal at current interest rates.

Federal Funds Purchased and Securities Sold under Agreements to Repurchase

The carrying amount shown as federal funds purchased and securities sold under agreements to repurchase approximates fair value.

Borrowings from Federal Home Loan Bank

The fair value of FHLB fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements. The Company has no FHLB variable rate borrowings.

Commitments to Extend Credit and Standby Letters of Credit

Because commitments to extend credit and standby letters of credit are generally short-term and at variable rates, the contract value and estimated value associated with these instruments are immaterial.

The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy and by investment type, as of March 31, 2011 and December 31, 2010 are as follows:

						Fair Value Measurement Using
		Total				Level 1				Level 2				Level 3
March 31, 2011:
U.S. Treasuries		$	16,567,290			$				$	16,567,290			$
U.S. Government agencies			260,241,759								260,241,759
States and political subdivisions			41,914,554								41,914,554
Equity securities			649,983								649,983
Total		$	319,373,586			$				$	319,373,586			$
						Fair Value Measurement Using
		Total				Level 1				Level 2				Level 3
December 31, 2010:
U.S. Treasuries		$	26,508,971			$				$	26,508,971			$
U.S. Government agencies			218,595,943								218,595,943
States and political subdivisions			41,323,566								41,323,566
Equity securities			649,983								649,983
Total		$	287,078,463			$				$	287,078,463			$
Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of March 31, 2011 and December 31, 2010 are as follows:
						Fair Value Measurement Using
		Total				Level 1				Level 2				Level 3
March 31, 2011		$	12,849,332			$				$				$	12,849,332
December 31, 2010			14,294,758												14,294,758