XNAS:ATLO Ames National Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
[Mark One]
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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

For the transition period from ____________ to ____________

Commission File Number 0-32637

AMES NATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

IOWA
42-1039071
(State or Other Jurisdiction of Incorporation or Organization)
(I. R. S. Employer Identification Number)

405 FIFTH STREET
AMES, IOWA 50010
(Address of Principal Executive Offices)

Registrant's Telephone Number, Including Area Code: (515) 232-6251

NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 T 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 (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

COMMON STOCK, $2.00 PAR VALUE
9,310,913
(Class)
(Shares Outstanding at April 26, 2012)
 


 
 

 

AMES NATIONAL CORPORATION

INDEX

   
Page
       
PART I.
FINANCIAL INFORMATION
   
       
Item 1.
3
 
       
 
3
 
       
 
4
 
       
 
5
 
       
 
6
 
       
 
7
 
       
 
9
 
       
Item 2.
23
 
       
Item 3.
39
 
       
Item 4.
40
 
       
PART II.
OTHER INFORMATION
   
       
Item 1.
40
 
       
Item 1.A.
40
 
       
Item 2.
40
 
       
Item 3.
41
 
       
Item 4.
41
 
       
Item 5.
41
 
       
Item 6.
41
 
       
42
 

 
2


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(unaudited)
   
March 31,
   
December 31,
 
ASSETS
 
2012
   
2011
 
             
Cash and due from banks
  $ 21,294,949     $ 22,829,291  
Federal funds sold
    700,000       -  
Interest bearing deposits in financial institutions
    70,938,771       33,741,406  
Securities available-for-sale
    525,763,643       508,624,622  
Loans receivable, net
    444,257,174       438,650,837  
Loans held for sale
    1,380,851       1,212,620  
Bank premises and equipment, net
    11,300,567       11,362,626  
Accrued income receivable
    6,433,889       6,467,509  
Other real estate owned
    9,553,325       9,538,440  
Other assets
    3,033,207       3,136,482  
                 
Total assets
  $ 1,094,656,376     $ 1,035,563,833  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
LIABILITIES
               
Deposits
               
Demand, noninterest bearing
  $ 138,444,091     $ 126,059,239  
NOW accounts
    264,137,920       229,810,463  
Savings and money market
    236,578,147       216,768,048  
Time, $100,000 and over
    104,103,749       107,944,525  
Other time
    136,467,623       138,123,116  
Total deposits
    879,731,530       818,705,391  
                 
Securities sold under agreements to repurchase
    36,084,532       41,696,585  
Federal Home Loan Bank (FHLB) advances
    14,662,463       15,179,335  
Other long-term borrowings
    20,000,000       20,000,000  
Dividend payable
    1,396,637       1,210,419  
Deferred income taxes
    973,612       885,433  
Accrued expenses and other liabilities
    4,693,381       3,329,285  
Total liabilities
    957,542,155       901,006,448  
                 
STOCKHOLDERS' EQUITY
               
Common stock, $2 par value, authorized 18,000,000 shares; issued 9,432,915 shares; outstanding 9,310,913 shares as of March 31, 2012 and December 31, 2011
    18,865,830       18,865,830  
Additional paid-in capital
    22,651,222       22,651,222  
Retained earnings
    87,710,599       85,564,078  
Accumulated other comprehensive income-net unrealized gain on securities available-for-sale
    9,903,068       9,492,753  
Treasury stock, at cost; 122,002 shares at March 31, 2012 and December 31, 2011, respectively
    (2,016,498 )     (2,016,498 )
Total stockholders' equity
    137,114,221       134,557,385  
                 
Total liabilities and stockholders' equity
  $ 1,094,656,376     $ 1,035,563,833  

See Notes to Consolidated Financial Statements.

 
3


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31, 2012 and 2011

   
2012
   
2011
 
             
Interest income:
           
Loans, including fees
  $ 5,810,757     $ 5,740,432  
Securities:
               
Taxable
    1,624,644       1,662,469  
Tax-exempt
    1,650,715       1,636,965  
Interest bearing deposits and federal funds sold
    125,253       107,926  
Total interest income
    9,211,369       9,147,792  
                 
Interest expense:
               
Deposits
    1,169,318       1,370,911  
Other borrowed funds
    329,498       378,642  
Total interest expense
    1,498,816       1,749,553  
                 
Net interest income
    7,712,553       7,398,239  
                 
Provision for loan losses
    51,293       -  
                 
Net interest income after provision for loan losses
    7,661,260       7,398,239  
                 
Noninterest income:
               
Trust services income
    504,772       514,544  
Service fees
    337,439       329,558  
Securities gains, net
    307,533       421,155  
Gain on sale of loans held for sale
    285,039       220,865  
Merchant and ATM fees
    296,958       175,871  
Other noninterest income
    168,847       155,547  
Total noninterest income
    1,900,588       1,817,540  
                 
Noninterest expense:
               
Salaries and employee benefits
    2,980,619       2,766,508  
Data processing
    509,330       445,815  
Occupancy expenses
    359,684       394,158  
FDIC insurance assessments
    154,461       272,742  
Other real estate owned, net
    98,378       46,135  
Other operating expenses, net
    736,311       654,591  
Total noninterest expense
    4,838,783       4,579,949  
                 
Income before income taxes
    4,723,065       4,635,830  
                 
Provision for income taxes
    1,179,907       1,163,309  
                 
Net income
  $ 3,543,158     $ 3,472,521  
                 
Basic and diluted earnings per share
  $ 0.38     $ 0.37  
                 
Dividends declared per share
  $ 0.15     $ 0.13  

See Notes to Consolidated Financial Statements.

 
4


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
   
Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
             
             
Net income
  $ 3,543,158     $ 3,472,521  
Other comprehensive income, before tax:
               
Unrealized gains on securities without other than temporary impairment before tax:
               
Unrealized holding gains arising during the period
    958,828       2,215,638  
Less: reclassification adjustment for gains realized in net income
    307,533       421,155  
Other comprehensive income before tax
    651,295       1,794,483  
Tax expense related to other comprehensive income
    (240,980 )     (663,960 )
Other comprehensive income, net of tax:
    410,315       1,130,523  
Comprehensive income
  $ 3,953,473     $ 4,603,044  

See Notes to Consolidated Financial Statements.

 
5


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2012 and 2011
(unaudited)

   
Common
Stock
   
Additional
Paid-in-Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income,
Net of Taxes
   
Treasury Stock
   
Total
Stockholders'
Equity
 
                                     
Balance, December 31, 2010
  $ 18,865,830     $ 22,651,222     $ 76,519,493     $ 3,326,479     $ -     $ 121,363,024  
Net income
    -       -       3,472,521       -       -       3,472,521  
Other comprehensive income
    -       -       -       1,130,523       -       1,130,523  
Cash dividends declared, $0.13 per share
    -       -       (1,226,279 )     -       -       (1,226,279 )
Balance, March 31, 2011
    18,865,830       22,651,222       78,765,735       4,457,002       -       124,739,789  
                                                 
Balance, December 31, 2011
    18,865,830       22,651,222       85,564,078       9,492,753       (2,016,498 )   $ 134,557,385  
Net income
    -       -       3,543,158       -       -       3,543,158  
Other comprehensive income
    -       -       -       410,315       -       410,315  
Cash dividends declared, $0.15 per share
    -       -       (1,396,637 )     -       -       (1,396,637 )
Balance, March 31, 2012
  $ 18,865,830     $ 22,651,222     $ 87,710,599     $ 9,903,068     $ (2,016,498 )   $ 137,114,221  

See Notes to Consolidated Financial Statements.

 
6


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2012 and 2011
(unaudited)
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 3,543,158     $ 3,472,521  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    51,293       -  
Provision for off-balance sheet commitments
    6,000       5,000  
Amortization, net
    1,575,550       1,241,499  
Depreciation
    174,664       167,371  
Credit for deferred income taxes
    (152,800 )     (65,000 )
Securities gains, net
    (307,533 )     (421,155 )
Impairment of other real estate owned
    22,475       -  
Loss (gain) on sale of other real estate owned, net
    8,674       (13,224 )
Change in assets and liabilities:
               
Decrease (increase) in loans held for sale
    (168,231 )     1,017,812  
Decrease (increase) in accrued income receivable
    33,620       (627,641 )
Decrease (increase) in other assets
    101,016       (643,534 )
Increase in accrued expenses and other liabilities
    1,358,096       1,132,708  
Net cash provided by operating activities
    6,245,982       5,266,357  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of securities available-for-sale
    (58,422,193 )     (72,419,765 )
Proceeds from sale of securities available-for-sale
    8,648,317       13,083,096  
Proceeds from maturities and calls of securities available-for-sale
    32,018,132       35,919,373  
Net increase in interest bearing deposits in financial institutions
    (37,197,365 )     (16,713,338 )
Net decrease (increase) in federal funds sold
    (700,000 )     1,900,000  
Net decrease (increase) in loans
    (5,810,130 )     882,614  
Net proceeds from the sale of other real estate owned
    106,466       230,606  
Purchase of bank premises and equipment, net
    (110,346 )     (35,311 )
Other changes in other real estate owned
    -       (26,986 )
Net cash used in investing activities
    (61,467,119 )     (37,179,711 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Increase in deposits
    61,026,139       36,000,917  
Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
    (5,612,053 )     2,213,363  
Payments from other short-term borrowings, net
    -       (1,644,619 )
Payments on FHLB borrowings
    (516,872 )     (516,344 )
Dividends paid
    (1,210,419 )     (1,037,621 )
Net cash provided by financing activities
    53,686,795       35,015,696  
                 
Net increase (decrease) in cash and due from banks
    (1,534,342 )     3,102,342  
                 
CASH AND DUE FROM BANKS
               
Beginning
    22,829,291       15,478,133  
Ending
  $ 21,294,949     $ 18,580,475  

 
7


AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31, 2012 and 2011
(unaudited)
   
2012
   
2011
 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           
Cash payments for:
           
Interest
  $ 1,508,085     $ 1,759,140  
Income taxes
    272,147       167,716  
                 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
               
Transfer of loans to other real estate owned
  $ 152,500     $ 123,869  

See Notes to Consolidated Financial Statements.

 
8


AMES NATIONAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.
Significant Accounting Policies

The consolidated financial statements for the three month periods ended March 31, 2012 and 2011 are unaudited. In the opinion of the management of Ames National Corporation (the "Company"), these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results which may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the requirements for interim financial statements. The interim financial statements and notes thereto should be read in conjunction with the year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”). The consolidated financial statements include the accounts of the Company and its wholly-owned banking subsidiaries (the “Banks”). All significant intercompany balances and transactions have been eliminated in consolidation.

Fair value of financial instruments: The following methods and assumptions were used by the Company in estimating fair value disclosures:

Cash and due from banks, federal funds sold and interest bearing deposits in financial institutions: The recorded amount of these assets approximates fair value.

Securities available-for-sale: Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securities credit rating, prepayment assumptions and other factors such as credit loss assumptions.

Loans receivable: The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates, which reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the historical experience, with repayments for each loan classification modified, as required, by an estimate of the effect of current economic and lending conditions. The effect of nonperforming loans is considered in assessing the credit risk inherent in the fair value estimate.

Loans held for sale: The fair value of loans held for sale is based on prevailing market prices.

Deposit liabilities: Fair values of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW and money market accounts, are equal to the amount payable on demand as of the respective balance sheet date. Fair values of certificates of deposit are based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Securities sold under agreements to repurchase: The carrying amounts of securities sold under agreements to repurchase approximate fair value because of the generally short-term nature of the instruments.

 
9

 
FHLB advances and other long-term borrowings: Fair values of FHLB advances and other long-term borrowings are estimated using discounted cash flow analysis based on interest rates currently being offered with similar terms.

Accrued income receivable and accrued interest payable: The carrying amounts of accrued income receivable and interest payable approximate fair value.

New Accounting Pronouncements

In June, 2011, the FASB issued guidance on comprehensive income to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, the guidance requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The guidance is effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s financial statements.

In April, 2011, the FASB issued guidance which modifies certain aspects contained in the Receivables topic of FASB ASC 310. The standard clarifies the guidance on evaluating whether a receivable term modification constitutes a troubled debt restructuring. The amendments in this guidance were effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The adoption did not have a material impact on the Company's consolidated financial statements.

In May, 2011, the FASB issued amended guidance which eliminates terminology difference between U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”) on the measurement of fair value and the related fair value disclosures. While largely consistent with existing fair value measurement principles and disclosures, the changes were made as part of the continuing efforts to converge GAAP and IFRS. The adoption of this guidance was effective for annual periods beginning after December 15, 2011, and did not have a significant impact on the Company’s financial statements.

2.
Dividends

On February 8, 2012, the Company declared a cash dividend on its common stock, payable on May 15, 2012 to stockholders of record as of May 1, 2012, equal to $0.15 per share.

3.
Earnings Per Share

Earnings per share amounts were calculated using the weighted average shares outstanding during the periods presented. The weighted average outstanding shares for the three months ended March 31, 2012 and 2011 were 9,310,913 and 9,432,915, respectively. The Company had no potentially dilutive securities outstanding during the periods presented.

 
10


4.
Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. No material changes in the Company’s off-balance sheet arrangements have occurred since December 31, 2011.

5.
Fair Value of Financial Instruments

The estimated fair values of the Company’s financial instruments (as described in Note 1) were as follows:

   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
                         
Financial assets:
                       
Cash and due from banks
  $ 21,294,949     $ 21,295,000     $ 22,829,291     $ 22,829,000  
Federal funds sold
    700,000       700,000       -       -  
Interest bearing deposits
    70,938,771       70,939,000       33,741,406       33,741,000  
Securities available-for-sale
    525,763,643       525,764,000       508,624,622       508,625,000  
Loans receivable, net
    444,257,174       447,786,000       438,650,837       445,240,000  
Loans held for sale
    1,380,851       1,381,000       1,212,620       1,213,000  
Accrued income receivable
    6,433,889       6,434,000       6,467,509       6,468,000  
Financial liabilities:
                               
Deposits
  $ 879,731,530     $ 882,580,000     $ 818,705,391     $ 821,979,000  
Federal funds purchased and securities sold under agreements to repurchase
    36,084,532       36,085,000       41,696,585       41,697,000  
FHLB and other long-term borrowings
    34,662,463       37,967,000       35,179,335       38,705,000  
Accrued interest payable
    793,578       794,000       802,847       803,000  

The methodology used to determine fair value as of March 31, 2012 did not change from the methodology used in the December 31, 2011 Annual Report.

6. 
Fair Value Measurements

Assets and liabilities carried at fair value are required to be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

 
Level 1:
Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

 
Level 2:
Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatility, prepayment speeds, credit risk); or inputs derived principally from or can be corroborated by observable market data by correlation or other means.

 
11


 
Level 3:
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The following table presents the balances of assets measured at fair value on a recurring basis by level as of March 31, 2012 and December 31, 2011:

Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
2012
                       
                         
U.S. government agencies
  $ 50,195,000     $ -     $ 50,195,000     $ -  
U.S. government mortgage-backed securities
    183,693,000       -       183,693,000       -  
State and political subdivisions
    265,789,000       -       265,789,000       -  
Corporate bonds
    22,699,000       -       22,699,000       -  
Equity securities, financial industry common stock
    602,000       602,000       -       -  
Equity securities, other
    2,786,000       -       2,786,000       -  
                                 
    $ 525,764,000     $ 602,000     $ 525,162,000     $ -  
                                 
2011
                               
                                 
U.S. government agencies
  $ 63,200,000     $ -     $ 63,200,000     $ -  
U.S. government mortgage-backed securities
    159,855,000       -       159,855,000       -  
State and political subdivisions
    259,393,000       -       259,393,000       -  
Corporate bonds
    20,387,000       -       20,387,000       -  
Equity securities, financial industry common stock
    2,810,000       2,810,000       -       -  
Equity securities, other
    2,980,000       -       2,980,000       -  
                                 
    $ 508,625,000     $ 2,810,000     $ 505,815,000     $ -  

Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Other securities available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

 
12


Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the balance sheet (after specific reserves) by caption and by level with the valuation hierarchy as of March 31, 2012 and December 31, 2011:

Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
2012
                       
                         
Loans receivable
  $ 2,366,000     $ -     $ -     $ 2,366,000  
Other real estate owned
    9,553,000       -       -       9,553,000  
                                 
Total
  $ 11,919,000     $ -     $ -     $ 11,919,000  
                                 
2011
                               
                                 
Loans receivable
  $ 2,453,000     $ -     $ -     $ 2,453,000  
Other real estate owned
    9,538,000       -       -       9,538,000  
                                 
Total
  $ 11,991,000     $ -     $ -     $ 11,991,000  

Loans: Loans in the tables above consist of impaired credits held for investment. In accordance with the loan impairment guidance, impairment was measured based on the fair value of collateral less estimated selling costs for collateral dependent loans. Fair value for impaired loans is based upon appraised values adjusted for trends observed in the market. A valuation allowance was recorded for the excess of the loan’s recorded investment over the amounts determined by the collateral value method. This valuation is a component of the allowance for loan losses. The Company considers these fair values level 3.

Other Real Estate Owned: Other real estate owned in the table above consists of real estate obtained through foreclosure. Other real estate owned is recorded at fair value less estimated selling costs, at the date of transfer. Subsequent to the transfer, other real estate owned is carried at the lower of cost or fair value, less estimated selling costs. The carrying value of other real estate owned is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value less estimated selling costs. Management uses appraised values and adjusts for trends observed in the market and for disposition costs in determining the value of other real estate owned. A valuation allowance was recorded for the excess of the asset’s recorded investment over the amount determined by the fair value, less estimated selling costs. This valuation allowance is a component of the allowance for other real estate owned. The Company considers these fair values level 3.

 
13


7.
Debt and Equity Securities

The amortized cost of securities available for sale and their fair values are summarized below:

         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
March 31, 2012:
                       
U.S. government agencies
  $ 47,943,203     $ 2,265,247     $ (13,180 )   $ 50,195,270  
U.S. government mortgage-backed securities
    179,424,738       4,442,423       (173,937 )     183,693,224  
State and political subdivisions
    256,998,272       9,203,388       (413,212 )     265,788,448  
Corporate bonds
    22,002,821       752,253       (56,374 )     22,698,700  
Equity securities, financial industry common stock
    889,552       -       (287,451 )     602,101  
Equity securities, other
    2,785,900       -       -       2,785,900  
    $ 510,044,486     $ 16,663,311     $ (944,154 )   $ 525,763,643  


         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
December 31, 2011:
                       
U.S. government agencies
  $ 60,868,023     $ 2,341,093     $ (8,720 )   $ 63,200,396  
U.S. government mortgage-backed securities
    156,310,052       3,643,552       (99,143 )     159,854,461  
State and political subdivisions
    249,707,887       9,788,715       (103,279 )     259,393,323  
Corporate bonds
    20,288,210       465,331       (366,798 )     20,386,743  
Equity securities, financial industry common stock
    3,402,389       -       (592,889 )     2,809,500  
Equity securities, other
    2,980,199       -       -       2,980,199  
    $ 493,556,760     $ 16,238,691     $ (1,170,829 )   $ 508,624,622  

The proceeds, gains and losses from securities available-for-sale for the three months ended March 31, 2012 and 2011 are summarized below:

   
2012
   
2011
 
Proceeds from sales of securities available-for-sale
  $ 8,648,317     $ 13,083,096  
Gross realized gains on securities available-for-sale
    307,763       421,655  
Gross realized losses on securities available-for-sale
    230       500  
Tax provision applicable to net realized gains on securities available-for-sale
    115,000       157,000  

 
14


Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2012 and December 31, 2011, are summarized as follows:

   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
2012:
                                   
                                     
Securities available-for-sale:
                                   
U.S. government agencies
  $ 1,475,864     $ (13,180 )   $ -     $ -     $ 1,475,864     $ (13,180 )
U.S. government mortgage-backed securities
    36,485,036       (173,937 )     -       -       36,485,036       (173,937 )
State and political subdivisions
    18,301,204       (401,755 )     356,824       (11,457 )     18,658,028       (413,212 )
Corporate obligations
    3,323,594       (56,374 )     -       -       3,323,594       (56,374 )
Equity securities, financial industry common stock
    -       -       889,552       (287,451 )     889,552       (287,451 )
    $ 59,585,698     $ (645,246 )   $ 1,246,376     $ (298,908 )   $ 60,832,074     $ (944,154 )


   
Less than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
2011:
                                   
                                     
Securities available-for-sale:
                                   
U.S. government agencies
  $ 4,256,053     $ (8,720 )   $ -     $ -     $ 4,256,053     $ (8,720 )
U.S. government mortgage-backed securities
    20,579,759       (99,143 )     -       -       20,579,759       (99,143 )
State and political subdivisions
    6,838,342       (102,718 )     454,850       (561 )     7,293,192       (103,279 )
Corporate obligations
    6,571,481       (366,798 )     -       -       6,571,481       (366,798 )
Equity securities, financial industry common stock
    -       -       2,809,500       (592,889 )     2,809,500       (592,889 )
    $ 38,245,635     $ (577,379 )   $ 3,264,350     $ (593,450 )   $ 41,509,985     $ (1,170,829 )

At March 31, 2012, debt securities have gross unrealized losses of $656,703. These unrealized losses are generally due to changes in interest rates or general market conditions. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management concluded that the gross unrealized losses on debt securities were temporary. Gross unrealized losses on equity securities totaled $287,451 as of March 31, 2012. Management analyzed the financial condition of the equity issuers and considered the general market conditions and other factors in concluding that the gross unrealized losses on equity securities were temporary. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values and management’s assessments will occur in the near term and that such changes could materially affect the amounts reported in the Company’s financial statements.

 
15


8.
Loan Receivable and Credit Disclosures

Activity in the allowance for loan losses, on a disaggregated basis, for the three months ended March 31, 2012 and 2011 is as follows:

2012
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Balance, December 31, 2011
  $ 793,000     $ 1,402,000     $ 2,859,000     $ 501,000     $ 1,352,000     $ 764,000     $ 234,000     $ 7,905,000  
Provision (credit) for loan losses
    24,000       (10,000 )     (42,000 )     15,000       61,000       40,000       (37,000 )     51,000  
Recoveries of loans charged-off
    -       3,000       -       -       4,000       -       22,000       29,000  
Loans charged-off
    -       (10,000 )     -       -       -       -       (9,000 )     (19,000 )
Balance, March 31, 2012
  $ 817,000     $ 1,385,000     $ 2,817,000     $ 516,000     $ 1,417,000     $ 804,000     $ 210,000     $ 7,966,000  

2011
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Balance, December 31, 2010
  $ 731,000     $ 1,404,000     $ 2,720,000     $ 486,000     $ 1,152,000     $ 735,000     $ 293,000     $ 7,521,000  
Provision (credit) for loan losses
    35,000       17,000       8,000       30,000       (46,000 )     (33,000 )     (11,000 )     -  
Recoveries of loans charged-off
    -       -       -       -       14,000       -       6,000       20,000  
Loans charged-off
    -       -       -       -       -       -       (14,000 )     (14,000 )
Balance, March 31, 2011
  $ 766,000     $ 1,421,000     $ 2,728,000     $ 516,000     $ 1,120,000     $ 702,000     $ 274,000     $ 7,527,000  

Allowance for loan losses disaggregated on the basis of impairment analysis method as of March 31, 2012 and December 31, 2011 is as follows:

2012
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Individually evaluated for impairment
  $ 165,000     $ 112,000     $ 168,000     $ -     $ 409,000     $ -     $ -     $ 854,000  
Collectively evaluated for impairment
    652,000       1,273,000       2,649,000       516,000       1,008,000       804,000       210,000       7,112,000  
Balance March 31, 2012
  $ 817,000     $ 1,385,000     $ 2,817,000     $ 516,000     $ 1,417,000     $ 804,000     $ 210,000     $ 7,966,000  

2011
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Individually evaluated for impairment
  $ 165,000     $ 111,000     $ 199,000     $ -     $ 400,000     $ -     $ 1,000     $ 876,000  
Collectively evaluated for impairment
    628,000       1,291,000       2,660,000       501,000       952,000       764,000       233,000       7,029,000  
Balance December 31, 2011
  $ 793,000     $ 1,402,000     $ 2,859,000     $ 501,000     $ 1,352,000     $ 764,000     $ 234,000     $ 7,905,000  

 
16


Loans receivable disaggregated on the basis of impairment analysis method as of March 31, 2012 and December 31, 2011 is as follows:

2012
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Individually evaluated for impairment
  $ 2,420,000     $ 2,213,000     $ 2,656,000     $ -     $ 588,000     $ -     $ -     $ 7,877,000  
Collectively evaluated for impairment
    24,092,000       89,254,000       149,204,000       32,324,000       80,764,000       50,508,000       18,263,000       444,409,000  
                                                                 
Balance March 31, 2012
  $ 26,512,000     $ 91,467,000     $ 151,860,000     $ 32,324,000     $ 81,352,000     $ 50,508,000     $ 18,263,000     $ 452,286,000  

2011
         
1-4 Family
                                     
   
Construction
   
Residential
   
Commercial
   
Agricultural
               
Consumer
       
   
Real Estate
   
Real Estate
   
Real Estate
   
Real Estate
   
Commercial
   
Agricultural
   
and Other
   
Total
 
Individually evaluated for impairment
  $ 2,163,000     $ 2,346,000     $ 2,703,000     $ -     $ 590,000     $ -     $ 1,000     $ 7,803,000  
Collectively evaluated for impairment
    21,468,000       91,916,000       144,797,000       32,503,000       75,368,000       52,179,000       20,753,000       438,984,000  
                                                                 
Balance December 31, 2011
  $ 23,631,000     $ 94,262,000     $ 147,500,000     $ 32,503,000     $ 75,958,000     $ 52,179,000     $ 20,754,000     $ 446,787,000  

 
17


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 payment of principal and interest when due according to the 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. The Company will apply its normal loan review procedures to identify loans that should be evaluated for impairment. The following is a recap of impaired loans, on a disaggregated basis, at March 31, 2012 and December 31, 2011:

2012
     
         
Unpaid
       
   
Recorded
   
Principal
   
Related
 
   
Investment
   
Balance
   
Allowance
 
With no specific reserve recorded:
                 
Real estate - construction
  $ 1,826,000     $ 1,826,000     $ -  
Real estate - 1 to 4 family residential
    1,900,000       1,900,000       -  
Real estate - commercial
    931,000       931,000       -  
Real estate - agricultural
    -       -       -  
Commercial
    -       -       -  
Agricultural
    -       -       -  
Consumer and other
    -       -       -  
Total loans with no specific reserve:
    4,657,000       4,657,000       -  
                         
With an allowance recorded:
                       
Real estate - construction
    594,000       594,000       165,000  
Real estate - 1 to 4 family residential
    313,000       313,000       112,000  
Real estate - commercial
    1,725,000       1,725,000       168,000  
Real estate - agricultural
    -       -       -  
Commercial
    588,000       588,000       409,000  
Agricultural
    -       -       -  
Consumer and other
    -       -       -  
Total loans with specific reserve:
    3,220,000       3,220,000       854,000  
                         
Total
                       
Real estate - construction
    2,420,000       2,420,000       165,000  
Real estate - 1 to 4 family residential
    2,213,000       2,213,000       112,000  
Real estate - commercial
    2,656,000       2,656,000       168,000  
Real estate - agricultural
    -       -       -  
Commercial
    588,000       588,000       409,000  
Agricultural
    -       -       -  
Consumer and other
    -       -       -  
                         
    $ 7,877,000     $ 7,877,000     $ 854,000  

 
18


2011
     
         
Unpaid
       
   
Recorded
   
Principal
   
Related
 
   
Investment
   
Balance
   
Allowance
 
                   
With no specific reserve recorded:
                 
Real estate - construction
  $ 1,493,000     $ 1,493,000     $ -  
Real estate - 1 to 4 family residential
    2,030,000       2,030,000       -  
Real estate - commercial
    951,000       951,000       -  
Real estate - agricultural
    -       -       -  
Commercial
    -       -       -  
Agricultural
    -       -       -  
Consumer and other
    -       -       -  
Total loans with no specific reserve:
    4,474,000       4,474,000       -  
                         
With an allowance recorded:
                       
Real estate - construction
    670,000       670,000       165,000  
Real estate - 1 to 4 family residential
    316,000       316,000       111,000  
Real estate - commercial
    1,752,000       1,752,000       199,000  
Real estate - agricultural
    -       -       -  
Commercial
    590,000       590,000       400,000  
Agricultural
    -       -       -  
Consumer and other
    1,000       1,000       1,000  
Total loans with specific reserve:
    3,329,000       3,329,000       876,000