FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 3 – CAPITAL RATIOS
(Continued)
As of March 31, 2012, the Bank met the requirements to be categorized as “well capitalized” under the regulatory framework for prompt correction action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios (as defined by applicable regulators) as set forth in the above table. Management is not aware of any conditions or events since March 31, 2012 that would change the Bank’s category. On September 30, 2011, the Bank agreed with the Office of the Comptroller of the Currency to maintain a minimum Tier I leverage ratio of 7.25%, which is in excess of the minimum requirement of 5.00% to be well capitalized under prompt corrective action provisions. The Bank was in compliance with this heightened capital requirement at March 31, 2012.
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, 2012, the Company had $3.9 million of certificates of deposit, which mature in 2012 through 2017, 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
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair
Value
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury
|
|
$
|
2,005
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
2,008
|
|
Federal agencies
|
|
|
23,938
|
|
|
|
74
|
|
|
|
(87
|
)
|
|
|
23,925
|
|
State and municipal
|
|
|
15,669
|
|
|
|
490
|
|
|
|
(93
|
)
|
|
|
16,066
|
|
Corporate obligations
|
|
|
1,732
|
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
1,748
|
|
Asset backed securities
|
|
|
12,994
|
|
|
|
16
|
|
|
|
(13
|
)
|
|
|
12,997
|
|
Mortgage–backed securities and collateralized mortgage obligations
|
|
|
210
|
|
|
|
8
|
|
|
|
-
|
|
|
|
218
|
|
Marketable equity securities
|
|
|
5
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
2
|
|
Total investment securities
|
|
$
|
56,553
|
|
|
$
|
608
|
|
|
$
|
(197
|
)
|
|
$
|
56,964
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 5 – SECURITIES AVAILABLE FOR SALE
(Continued)
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Fair
Value
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury
|
|
$
|
2,010
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
2,017
|
|
Federal agencies
|
|
|
21,925
|
|
|
|
55
|
|
|
|
(73
|
)
|
|
|
21,907
|
|
State and municipal
|
|
|
15,681
|
|
|
|
574
|
|
|
|
(20
|
)
|
|
|
16,235
|
|
Corporate obligations
|
|
|
1,747
|
|
|
|
13
|
|
|
|
(2
|
)
|
|
|
1,758
|
|
Mortgage–backed securities and collateralized mortgage obligations
|
|
|
259
|
|
|
|
10
|
|
|
|
-
|
|
|
|
269
|
|
Marketable equity securities
|
|
|
5
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
1
|
|
Total investment securities
|
|
$
|
41,627
|
|
|
$
|
659
|
|
|
$
|
(99
|
)
|
|
$
|
42,187
|
|
As of March 31, 2012 and December 31, 2011, the Company had approximately $11.6 million and $12.2 million, respectively, invested in bonds issued by municipalities located within LaSalle County, Illinois.
Securities with an approximate carrying value of $22.6 million and $21.2 million, were pledged at March 31, 2012 and December 31, 2011, 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, 2012 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
|
|
$
|
9,334
|
|
|
$
|
9,373
|
|
One to five years
|
|
|
32,530
|
|
|
|
32,679
|
|
Five to ten years
|
|
|
11,892
|
|
|
|
12,155
|
|
After ten years
|
|
|
2,582
|
|
|
|
2,537
|
|
|
|
|
56,338
|
|
|
|
56,744
|
|
Mortgage–backed securities and collateralized mortgage obligations
|
|
|
210
|
|
|
|
218
|
|
Marketable equity securities
|
|
|
5
|
|
|
|
2
|
|
Totals
|
|
$
|
56,553
|
|
|
$
|
56,964
|
|
Information regarding realized gains and losses on sales of securities available for sale as of March 31, 2012 and 2011 follows:
|
|
2012
|
|
|
2011
|
|
Gross gains
|
|
$
|
-
|
|
|
$
|
-
|
|
Gross losses
|
|
|
-
|
|
|
|
(10
|
)
|
Tax expense
|
|
|
-
|
|
|
|
(3
|
)
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 5 – SECURITIES AVAILABLE FOR SALE
(Continued)
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, 2012 and December 31, 2011 was $26.3 million and $21.9 million, respectively, which was approximately 46.1% and 51.9% 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.
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, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies
|
|
$
|
10,657
|
|
|
$
|
(87
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,657
|
|
|
$
|
(87
|
)
|
State and municipal
|
|
|
1,653
|
|
|
|
(67
|
)
|
|
|
4,253
|
|
|
|
(26
|
)
|
|
|
5,906
|
|
|
|
(93
|
)
|
Corporate obligations
|
|
|
314
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
314
|
|
|
|
(1
|
)
|
Asset backed securities
|
|
|
9,376
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,376
|
|
|
|
(13
|
)
|
Marketable equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
22,000
|
|
|
$
|
(168
|
)
|
|
$
|
4,255
|
|
|
$
|
(29
|
)
|
|
$
|
26,255
|
|
|
$
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agencies
|
|
$
|
15,853
|
|
|
$
|
(73
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,853
|
|
|
$
|
(73
|
)
|
State and municipal
|
|
|
5,182
|
|
|
$
|
(18
|
)
|
|
|
202
|
|
|
|
(2
|
)
|
|
|
5,384
|
|
|
$
|
(20
|
)
|
Corporate obligations
|
|
|
644
|
|
|
$
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
644
|
|
|
$
|
(2
|
)
|
Marketable equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Total temporarily impaired securities
|
|
$
|
21,679
|
|
|
$
|
(93
|
)
|
|
$
|
203
|
|
|
$
|
(6
|
)
|
|
$
|
21,882
|
|
|
$
|
(99
|
)
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of March 31, 2012 and December 31, 2011 are summarized as follows:
|
|
2012
|
|
|
2011
|
|
Commercial:
|
|
|
|
|
|
|
Real estate
|
|
$
|
40,183
|
|
|
$
|
41,902
|
|
Non-real estate
|
|
|
20,719
|
|
|
|
18,113
|
|
Construction and land development
|
|
|
5,303
|
|
|
|
5,504
|
|
Agricultural
|
|
|
21,909
|
|
|
|
26,998
|
|
Residential
|
|
|
35,397
|
|
|
|
35,542
|
|
Consumer
|
|
|
1,755
|
|
|
|
1,496
|
|
Total loans
|
|
|
125,266
|
|
|
|
129,555
|
|
Allowance for loan losses
|
|
|
(2,852
|
)
|
|
|
(2,781
|
)
|
Loans, net
|
|
$
|
122,414
|
|
|
$
|
126,774
|
|
At March 31, 2012 and December 31, 2011, respectively, the Company held $40.2 million and $42.0 million in commercial real estate and $5.3 million and $5.5 million in loans collateralized by construction and land 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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2012 and 2011.
|
|
Commercial Real Estate
|
|
|
Commercial Non-Real Estate
|
|
|
Construction and Land Development
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
loan losses:
|
|
2012
|
|
Balances, January 1
|
|
$
|
952
|
|
|
$
|
458
|
|
|
$
|
380
|
|
|
$
|
109
|
|
|
$
|
701
|
|
|
$
|
27
|
|
|
$
|
154
|
|
|
$
|
2,781
|
|
Provision for losses
|
|
|
(62
|
)
|
|
|
96
|
|
|
|
(100
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
36
|
|
|
|
154
|
|
|
|
90
|
|
Recoveries on loans
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
6
|
|
Loans charged off
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
(25
|
)
|
Balances, March 31
|
|
$
|
890
|
|
|
$
|
539
|
|
|
$
|
281
|
|
|
$
|
91
|
|
|
$
|
687
|
|
|
$
|
56
|
|
|
$
|
308
|
|
|
$
|
2,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
loan losses:
|
|
2011
|
|
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
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2012.
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-Real
|
|
|
and Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Estate
|
|
|
Development
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,036
|
|
|
$
|
1,090
|
|
|
$
|
2,982
|
|
|
$
|
800
|
|
|
$
|
966
|
|
|
$
|
28
|
|
|
|
|
|
$
|
6,902
|
|
Collectively evaluated for impairment
|
|
|
39,147
|
|
|
|
19,629
|
|
|
|
2,321
|
|
|
|
21,109
|
|
|
|
34,431
|
|
|
|
1,727
|
|
|
|
|
|
|
118,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31
|
|
$
|
40,183
|
|
|
$
|
20,719
|
|
|
$
|
5,303
|
|
|
$
|
21,909
|
|
|
$
|
35,397
|
|
|
$
|
1,755
|
|
|
|
|
|
$
|
125,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
191
|
|
|
$
|
20
|
|
|
$
|
-
|
|
|
$
|
326
|
|
|
$
|
28
|
|
|
$
|
-
|
|
|
$
|
565
|
|
Collectively evaluated for impairment
|
|
|
890
|
|
|
|
348
|
|
|
|
261
|
|
|
|
91
|
|
|
|
361
|
|
|
|
28
|
|
|
|
308
|
|
|
|
2,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31
|
|
$
|
890
|
|
|
$
|
539
|
|
|
$
|
281
|
|
|
$
|
91
|
|
|
$
|
687
|
|
|
$
|
56
|
|
|
$
|
308
|
|
|
$
|
2,852
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2011.
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-Real
|
|
|
and Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Estate
|
|
|
Development
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,020
|
|
|
$
|
1,060
|
|
|
$
|
2,995
|
|
|
$
|
800
|
|
|
$
|
1,051
|
|
|
$
|
9
|
|
|
|
|
|
$
|
6,935
|
|
Collectively evaluated for impairment
|
|
|
40,882
|
|
|
|
17,053
|
|
|
|
2,509
|
|
|
|
26,198
|
|
|
|
34,491
|
|
|
|
1,487
|
|
|
|
|
|
|
122,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31
|
|
$
|
41,902
|
|
|
$
|
18,113
|
|
|
$
|
5,504
|
|
|
$
|
26,998
|
|
|
$
|
35,542
|
|
|
$
|
1,496
|
|
|
|
|
|
$
|
129,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
160
|
|
|
$
|
21
|
|
|
$
|
-
|
|
|
$
|
326
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
515
|
|
Collectively evaluated for impairment
|
|
|
952
|
|
|
|
298
|
|
|
|
359
|
|
|
|
109
|
|
|
|
375
|
|
|
|
19
|
|
|
|
154
|
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31
|
|
$
|
952
|
|
|
$
|
458
|
|
|
$
|
380
|
|
|
$
|
109
|
|
|
$
|
701
|
|
|
$
|
27
|
|
|
$
|
154
|
|
|
$
|
2,781
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2012.
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
252
|
|
|
|
240
|
|
|
|
191
|
|
|
|
241
|
|
|
|
2
|
|
Construction and land development
|
|
|
2,426
|
|
|
|
2,398
|
|
|
|
20
|
|
|
|
2,413
|
|
|
|
12
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential
|
|
|
686
|
|
|
|
685
|
|
|
|
326
|
|
|
|
686
|
|
|
|
1
|
|
Consumer
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
-
|
|
Total
|
|
$
|
3,392
|
|
|
$
|
3,351
|
|
|
$
|
565
|
|
|
$
|
3,367
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
1,318
|
|
|
$
|
1,036
|
|
|
$
|
-
|
|
|
$
|
1,037
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
850
|
|
|
|
850
|
|
|
|
-
|
|
|
|
850
|
|
|
|
2
|
|
Construction and land development
|
|
|
2,764
|
|
|
|
584
|
|
|
|
-
|
|
|
|
585
|
|
|
|
-
|
|
Agricultural
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
14
|
|
Residential
|
|
|
379
|
|
|
|
281
|
|
|
|
-
|
|
|
|
281
|
|
|
|
-
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,111
|
|
|
$
|
3,551
|
|
|
$
|
-
|
|
|
$
|
3,553
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
1,318
|
|
|
$
|
1,036
|
|
|
$
|
-
|
|
|
$
|
1,037
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
1,102
|
|
|
|
1,090
|
|
|
|
191
|
|
|
|
1,091
|
|
|
|
4
|
|
Construction and land development
|
|
|
5,190
|
|
|
|
2,982
|
|
|
|
20
|
|
|
|
2,998
|
|
|
|
12
|
|
Agricultural
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
14
|
|
Residential
|
|
|
1,065
|
|
|
|
966
|
|
|
|
326
|
|
|
|
966
|
|
|
|
1
|
|
Consumer
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
-
|
|
Total
|
|
$
|
9,503
|
|
|
$
|
6,902
|
|
|
$
|
565
|
|
|
$
|
6,920
|
|
|
$
|
31
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2011.
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
215
|
|
|
|
163
|
|
|
|
160
|
|
|
|
189
|
|
|
|
1
|
|
Construction and land development
|
|
|
2,427
|
|
|
|
2,410
|
|
|
|
21
|
|
|
|
2,415
|
|
|
|
126
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential
|
|
|
686
|
|
|
|
686
|
|
|
|
326
|
|
|
|
665
|
|
|
|
30
|
|
Consumer
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
|
|
9
|
|
|
|
-
|
|
Total
|
|
$
|
3,337
|
|
|
$
|
3,268
|
|
|
$
|
515
|
|
|
$
|
3,278
|
|
|
$
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
1,301
|
|
|
$
|
1,020
|
|
|
$
|
-
|
|
|
$
|
1,298
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
949
|
|
|
|
897
|
|
|
|
-
|
|
|
|
923
|
|
|
|
5
|
|
Construction and land development
|
|
|
2,764
|
|
|
|
585
|
|
|
|
-
|
|
|
|
813
|
|
|
|
-
|
|
Agricultural
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
899
|
|
|
|
49
|
|
Residential
|
|
|
461
|
|
|
|
365
|
|
|
|
-
|
|
|
|
413
|
|
|
|
13
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
6,275
|
|
|
$
|
3,667
|
|
|
$
|
-
|
|
|
$
|
4,346
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
1,301
|
|
|
$
|
1,020
|
|
|
$
|
-
|
|
|
$
|
1,298
|
|
|
$
|
-
|
|
Non-real estate
|
|
|
1,164
|
|
|
|
1,060
|
|
|
|
160
|
|
|
|
1,112
|
|
|
|
6
|
|
Construction and land development
|
|
|
5,191
|
|
|
|
2995
|
|
|
|
21
|
|
|
|
3,228
|
|
|
|
126
|
|
Agricultural
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
899
|
|
|
|
49
|
|
Residential
|
|
|
1,147
|
|
|
|
1,051
|
|
|
|
326
|
|
|
|
1,078
|
|
|
|
43
|
|
Consumer
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
|
|
9
|
|
|
|
-
|
|
Total
|
|
$
|
9,612
|
|
|
$
|
6,935
|
|
|
$
|
515
|
|
|
$
|
7,624
|
|
|
$
|
224
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2012 and December 31, 2011:
|
|
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, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
288
|
|
|
$
|
772
|
|
|
$
|
1,217
|
|
|
$
|
2,277
|
|
|
$
|
37,906
|
|
|
$
|
40,183
|
|
|
$
|
200
|
|
|
$
|
1,017
|
|
Non-real estate
|
|
|
490
|
|
|
|
26
|
|
|
|
2,160
|
|
|
|
2,676
|
|
|
|
18,043
|
|
|
|
20,719
|
|
|
|
1,276
|
|
|
|
884
|
|
Construction and land
development
|
|
|
157
|
|
|
|
-
|
|
|
|
2,982
|
|
|
|
3,139
|
|
|
|
2,164
|
|
|
|
5,303
|
|
|
|
-
|
|
|
|
2,982
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,909
|
|
|
|
21,909
|
|
|
|
-
|
|
|
|
-
|
|
Residential
|
|
|
426
|
|
|
|
444
|
|
|
|
1,022
|
|
|
|
1,892
|
|
|
|
33,505
|
|
|
|
35,397
|
|
|
|
56
|
|
|
|
966
|
|
Consumer
|
|
|
23
|
|
|
|
-
|
|
|
|
28
|
|
|
|
51
|
|
|
|
1,704
|
|
|
|
1,755
|
|
|
|
28
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,384
|
|
|
$
|
1,242
|
|
|
$
|
7,409
|
|
|
$
|
10,035
|
|
|
$
|
115,231
|
|
|
$
|
125,266
|
|
|
$
|
1,560
|
|
|
$
|
5,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
222
|
|
|
$
|
-
|
|
|
$
|
1,928
|
|
|
$
|
2,150
|
|
|
$
|
39,752
|
|
|
$
|
41,902
|
|
|
$
|
908
|
|
|
$
|
1,020
|
|
Non-real estate
|
|
|
244
|
|
|
|
1,141
|
|
|
|
1,002
|
|
|
|
2,387
|
|
|
|
15,726
|
|
|
|
18,113
|
|
|
|
-
|
|
|
|
1,002
|
|
Construction and land
development
|
|
|
-
|
|
|
|
-
|
|
|
|
2,995
|
|
|
|
2,995
|
|
|
|
2,509
|
|
|
|
5,504
|
|
|
|
-
|
|
|
|
2,995
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,998
|
|
|
|
26,998
|
|
|
|
-
|
|
|
|
-
|
|
Residential
|
|
|
369
|
|
|
|
73
|
|
|
|
1,161
|
|
|
|
1,603
|
|
|
|
33,939
|
|
|
|
35,542
|
|
|
|
110
|
|
|
|
1,051
|
|
Consumer
|
|
|
5
|
|
|
|
-
|
|
|
|
9
|
|
|
|
14
|
|
|
|
1,482
|
|
|
|
1,496
|
|
|
|
-
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
840
|
|
|
$
|
1,214
|
|
|
$
|
7,095
|
|
|
$
|
9,149
|
|
|
$
|
120,406
|
|
|
$
|
129,555
|
|
|
$
|
1,018
|
|
|
$
|
6,077
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
(Continued)
The Company utilizes an internal asset classification system as a means of reporting loans based on credit quality as follows:
Satisfactory:
Loans classified as Satisfactory are supported by financial statements that indicate average risk. The loans have exhibited two or more years of satisfactory repayment with a reasonable reduction of principal.
Satisfactory/Monitored:
Loans classified as Satisfactory/Monitored are considered to be of acceptable credit quality so long as they are given the proper level of management supervision.
Special Mention:
Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard:
Loans classified as Substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as Substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies arc not corrected.
Doubtful:
Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss:
Loans classified as Loss are considered uncollectible and charged off immediately.
The Company categorizes homogenous loans (residential and consumer) possessing similar risk and loss characteristics 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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
(Continued)
The following tables present loans by class based on their assigned classifications determined by management as of March 31, 2012 and December 31, 2011:
|
|
Commercial
Real Estate
|
|
|
Commercial
Non-Real Estate
|
|
|
Construction
and Land
Development
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
Satisfactory
|
|
$
|
5,410
|
|
|
$
|
1,773
|
|
|
$
|
58
|
|
|
$
|
985
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,226
|
|
Satisfactory/Monitored
|
|
|
30,862
|
|
|
|
15,725
|
|
|
|
1,840
|
|
|
|
16,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,073
|
|
Special Mention
|
|
|
1,342
|
|
|
|
638
|
|
|
|
1,144
|
|
|
|
1,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,204
|
|
Substandard
|
|
|
2,569
|
|
|
|
2,437
|
|
|
|
2,261
|
|
|
|
3,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,465
|
|
Doubtful
|
|
|
-
|
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
146
|
|
Performing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,375
|
|
|
|
1,727
|
|
|
|
36,102
|
|
Nonperforming
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,022
|
|
|
|
28
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,183
|
|
|
$
|
20,719
|
|
|
$
|
5,303
|
|
|
$
|
21,909
|
|
|
$
|
35,397
|
|
|
$
|
1,755
|
|
|
$
|
125,266
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Satisfactory
|
|
$
|
5,535
|
|
|
$
|
913
|
|
|
$
|
60
|
|
|
$
|
1,703
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,211
|
|
Satisfactory/Monitored
|
|
|
32,268
|
|
|
|
14,279
|
|
|
|
1,976
|
|
|
|
20,419
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,942
|
|
Special Mention
|
|
|
1,398
|
|
|
|
219
|
|
|
|
1,205
|
|
|
|
1,536
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,358
|
|
Substandard
|
|
|
2,701
|
|
|
|
2,549
|
|
|
|
2,263
|
|
|
|
3,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,853
|
|
Doubtful
|
|
|
-
|
|
|
|
153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
Performing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,381
|
|
|
|
1,487
|
|
|
|
35,868
|
|
Nonperforming
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,161
|
|
|
|
9
|
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,902
|
|
|
$
|
18,113
|
|
|
$
|
5,504
|
|
|
$
|
26,998
|
|
|
$
|
35,542
|
|
|
$
|
1,496
|
|
|
$
|
129,555
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 6 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
(Continued)
The following tables present information related to troubled debt restructurings as of March 31, 2012 and December 31, 2011:
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Number of Loans
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
Number of Loans
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
1
|
|
|
$
|
1,030
|
|
|
$
|
766
|
|
|
|
1
|
|
|
$
|
1,030
|
|
|
$
|
766
|
|
Non-real estate
|
|
|
3
|
|
|
|
179
|
|
|
|
179
|
|
|
|
1
|
|
|
|
57
|
|
|
|
57
|
|
Construction and
land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Agricultural
|
|
|
1
|
|
|
|
800
|
|
|
|
800
|
|
|
|
1
|
|
|
|
800
|
|
|
|
800
|
|
Residential
|
|
|
1
|
|
|
|
258
|
|
|
|
160
|
|
|
|
1
|
|
|
|
258
|
|
|
|
160
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
|
|
|
6
|
|
|
$
|
2,267
|
|
|
$
|
1,905
|
|
|
|
4
|
|
|
$
|
2,145
|
|
|
$
|
1,783
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Number of Loans
|
|
|
Recorded Investment
|
|
|
Number of Loans
|
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
1
|
|
|
$
|
766
|
|
|
|
1
|
|
|
$
|
766
|
|
Non-real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Agricultural
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Residential
|
|
|
1
|
|
|
|
160
|
|
|
|
1
|
|
|
|
160
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total troubled debt restructurings
that subsequently defaulted
|
|
|
2
|
|
|
$
|
926
|
|
|
|
2
|
|
|
$
|
926
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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 generally accepted accounting principles (“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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2012:
|
|
|
|
|
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
|
|
$
|
2,008
|
|
|
$
|
-
|
|
|
$
|
2,008
|
|
|
$
|
-
|
|
Federal agencies
|
|
|
23,925
|
|
|
|
-
|
|
|
|
23,925
|
|
|
|
-
|
|
State and municipals
|
|
|
16,066
|
|
|
|
-
|
|
|
|
16,066
|
|
|
|
-
|
|
Asset backed securities
|
|
|
12,997
|
|
|
|
-
|
|
|
|
12,997
|
|
|
|
-
|
|
Mortgage–backed securities and collateralized mortgage obligations
|
|
|
218
|
|
|
|
-
|
|
|
|
218
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,748
|
|
|
|
-
|
|
|
|
1,748
|
|
|
|
-
|
|
Equities
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap agreements – customer CDs
|
|
|
1,364
|
|
|
|
-
|
|
|
|
1,364
|
|
|
|
-
|
|
Total assets
|
|
$
|
58,328
|
|
|
$
|
2
|
|
|
$
|
58,326
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written call options- customer CDs
|
|
$
|
(1,364
|
)
|
|
$
|
-
|
|
|
$
|
(1,364
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,786
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,786
|
|
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
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, 2011:
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
2,017
|
|
|
$
|
-
|
|
|
$
|
2,017
|
|
|
$
|
-
|
|
Federal agencies
|
|
|
21,907
|
|
|
|
-
|
|
|
|
21,907
|
|
|
|
-
|
|
State and municipals
|
|
|
16,235
|
|
|
|
-
|
|
|
|
16,235
|
|
|
|
-
|
|
Mortgage–backed securities and collateralized mortgage obligations
|
|
|
269
|
|
|
|
-
|
|
|
|
269
|
|
|
|
-
|
|
Corporate obligations
|
|
|
1,758
|
|
|
|
-
|
|
|
|
1,758
|
|
|
|
-
|
|
Equities
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap agreements –customer CDs
|
|
|
1,079
|
|
|
|
-
|
|
|
|
1,079
|
|
|
|
-
|
|
Total assets
|
|
$
|
43,266
|
|
|
$
|
1
|
|
|
$
|
43,265
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written call options –customer CDs
|
|
$
|
(1,079
|
)
|
|
$
|
-
|
|
|
$
|
(1,079
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
2,753
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,753
|
|
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, 2012 and December 31, 2011.
Nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring 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, 2012 and December 31, 2011, other real estate owned measured at fair value was $4.7 and $4.9 million, respectively, using a combination of observable inputs, including recent appraisals and unobservable inputs based on customized discounting criteria. Due to the significance of the
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 7 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
(Continued)
unobservable inputs, all other real estate owned values have been classified as Level 3. Goodwill was evaluated for impairment at December 31, 2011. No impairment was identified.
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, 2012 and December 31, 2011 were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
11,419
|
|
|
$
|
11,419
|
|
|
$
|
21,345
|
|
|
$
|
21,345
|
|
Interest-bearing time deposits in financial institutions
|
|
|
54,811
|
|
|
|
55,682
|
|
|
|
55,348
|
|
|
|
56,254
|
|
Securities available for sale
|
|
|
56,964
|
|
|
|
56,964
|
|
|
|
42,187
|
|
|
|
42,187
|
|
Loans held for sale
|
|
|
102
|
|
|
|
102
|
|
|
|
145
|
|
|
|
145
|
|
Loans, net
|
|
|
122,414
|
|
|
|
124,456
|
|
|
|
126,774
|
|
|
|
131,558
|
|
Cash surrender value of life insurance
|
|
|
3,888
|
|
|
|
3,888
|
|
|
|
3,857
|
|
|
|
3,857
|
|
Accrued interest receivable
|
|
|
1,171
|
|
|
|
1,171
|
|
|
|
1,174
|
|
|
|
1,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with no stated maturities
|
|
|
178,508
|
|
|
|
178,508
|
|
|
|
175,575
|
|
|
|
175,575
|
|
Time deposits
|
|
|
64,916
|
|
|
|
66,042
|
|
|
|
66,681
|
|
|
|
67,655
|
|
Borrowings
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
|
|
1,800
|
|
Accrued interest payable
|
|
|
205
|
|
|
|
205
|
|
|
|
245
|
|
|
|
245
|
|
NOTE 8 – RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 2011 and March 31, 2011 condensed consolidated financial statements in order to conform to the March 31, 2012 condensed consolidated financial statement presentation. These reclassifications had no effect on net income.
NOTE 9 – SUBSEQUENT EVENTS
Subsequent events have been evaluated through May 14, 2012, which is the date the financial statements were issued.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table
dollars in thousands)
March 31, 2012 and 2011
NOTE 10 – NEW ACCOUNTING PRONOUNCEMENTS
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-03,
Transfers and Servicing (Topic 860); Reconsideration of Effective Control for Repurchase Agreements.
ASU 2011-03 removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The new authoritative guidance was effective for reporting periods beginning on or after December 15, 2011. The adoption of this pronouncement did not have a material impact on the Company’s financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05,
Comprehensive Income (Topic 220); Presentation of Comprehensive Income
. ASU 2011-05 requires 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. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The new authoritative guidance was effective for reporting periods beginning after December 15, 2011, and did not have a material impact on the Company’s financial position or results of operations. Additionally, the guidance required 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. However, this requirement has been deferred under ASU 2011-12 as issued in December 2011.
In September 2011, the FASB issued ASU 2011-08,
Intangibles – Goodwill and Other (Topic 350); Testing Goodwill for Impairment.
ASU 2011-08 permits an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit, as described in paragraph 350-20-35-4. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, as described in paragraph 350-20-35-9. Under the amendments in this Update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The new authoritative guidance is effective for fiscal years beginning after December 15, 2011, and is not expected to have a material impact on the Company’s financial position or results of operations. Early adoption is permitted.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
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, noninterest income, and noninterest 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 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, 2012, was $108,000, or $.17 per common share, compared to net income of $131,000, or $.20 per common share, for the three months ended March 31, 2011. The decrease in net income was due primarily to an increase in noninterest expense and a decrease in income tax benefit compared to the same period in 2011.
The Company’s assets at March 31, 2012 were $270.0 million compared to $270.7 million at December 31, 2011, a decrease of $616,000, or (0.2%).
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On April 5, 2012, the U.S. President signed into law the Jumpstart Our Business Startups Act (the
“
JOBS Act
”
), which is generally intended to stimulate economic growth by helping smaller and emerging growth companies access the U.S. capital markets. The JOBS Act amends various provisions of, and adds new sections to, the Securities Act of 1933 and the Securities Exchange Act of 1934 (as amended by the JOBS Act, the
“
Exchange Act
”
), as well as provisions of the Sarbanes-Oxley Act of 2002. The JOBS Act directs the Securities and Exchange Commission to issue rules implementing certain of the JOBS Act amendments. Except as noted below, the Company is currently evaluating the effects that the provisions of the JOBS Act and the Securities and Exchange Commission rules adopted pursuant to the JOBS Act will have on the Company.
The JOBS Act increases the statutory threshold for deregistration under the Securities Exchange Act of 1934
for bank holding companies from 300 to 1,200 stockholders of record. On May 11, 2012, the Company filed a Form 15 with the Securities and Exchange Commission to deregister the Company
’
s common stock under Section 12(g)(4) of the Exchange Act.
The Section 12(g) deregistration will become in 90 days, or such shorter period as determined by the Securities and Exchange Commission.
Based on the filing date of the Form 15, the Company does not expect to have any further reporting obligations under the Exchange Act after August 9, 2012.
Until the Section 12(g) deregistration is effective, the Company is required to file all reports as required by the Exchange Act Sections 13(a), 14, and 16. The Company expects the deregistration to provide substantial cost savings in the form of reduced audit, legal and filing expenses and other costs related to complying with the Exchange Act.
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, 2011. 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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 other real estate owned.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 2012 or December 31, 2011.
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.
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 Per Share
: Basic earnings 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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
CONSOLIDATED FINANCIAL CONDITION
Total assets at March 31, 2012 were $270.0 million compared to $270.7 million at December 31, 2011, a decrease of $616,000, or (0.2%). This decrease in total assets was the result of a $9.9 million decrease in cash and due from banks, a $4.4 million decrease in net loans due to current economic trends and a decline in demand, a $537,000 decrease in interest-bearing time deposits in financial institutions, a $152,000 decrease in other real estate owned, and a modest decrease in premises and equipment of $96,000. These decreases were partially offset by a $14.8 million increase in securities available for sale and a nominal increase of $31,000 in cash surrender value of life insurance. The $616,000 decrease in total assets corresponded to a decrease of $1.8 million in borrowings as well as a $1.2 million increase in deposits.
Total liabilities at March 31, 2012 were $245.7 million compared to $246.4 million at December 31, 2011, a decrease of $712,000, or (0.3%). This decrease in total liabilities was primarily the result of a $1.8 million decrease in borrowings. This decrease in borrowings was partially offset by an increase in total deposits of $1.2 million. The increase in deposits was a result of increases in noninterest-bearing demand, money market savings and savings accounts while interest-bearing demand and time deposits decreased. The decrease in borrowings was due to a reduction in federal funds purchased.
Total shareholders’ equity was $24.3 million at March 31, 2012 and $24.2 million at December 31, 2011. Total shareholders’ equity increased as a result of $108,000 of additional retained earnings from net income for the quarter ended March 31, 2012, partially offset by a decrease of $36,000, net of tax, in the valuation of the Company’s investment portfolio.
CONSOLIDATED RESULTS OF OPERATIONS
Net income for the first quarter of 2012 was $108,000, or $0.17 per share, a 17.6% decrease compared to $131,000, or $0.20 per share, in the first quarter of 2011. The decrease in net income for the quarter was primarily the result of a $52,000 increase in noninterest expenses and a $29,000 decrease in the tax benefit compared to the same period in 2011. Current year net interest income after the provision increased by $32,000, and noninterest income increased by $26,000 compared to March 31, 2011. The provision for loan losses of $90,000 decreased $210,000 compared to the same period in 2011. Increases in net interest income and noninterest income were offset by increases in noninterest expense and decreased income tax benefit. The provision for income taxes increased by $29,000, from a $47,000 tax benefit in 2011, to a $18,000 tax benefit in the first quarter of 2012.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The annualized return on average assets was 0.16% in the first quarter of 2012 compared to 0.19% in the first quarter of 2011. The annualized return on average equity decreased to 1.77% in the first quarter of 2012 from 2.23% in the first quarter of 2011.
NET INTEREST INCOME
Net interest income before the provision for loan losses was $2.0 million for the three month period in 2012 compared to $2.2 million for the three months ended March 31, 2011. Total interest and dividend income decreased $276,000 to $2.4 million for the three months ended March 31, 2012, compared to the same period in 2011. The decrease in total interest and dividend income for the three months ended March 31, 2012 reflected a decrease in interest income and fees from loans of $181,000 to $1.9 million, a decrease in tax exempt investment income of $25,000 to $88,000, a decrease in taxable security income of $33,000, to $185,000, and a decrease in income on interest-bearing deposits with financial institutions of $32,000 to $226,000, compared to the same period in 2011. 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 2012.
The Company’s net interest margin was 3.43% for the three months ended March 31, 2012 compared to 3.64% for the same period in 2011. The yield on average earning assets decreased to 4.01% for the three months ended March 31, 2012 from 4.37% for the same period in 2011, a 36 basis point decrease. This decrease was offset by a similar decrease in the cost of funds from .73% to .58% paid for the same period ended March 31, 2012, a 15 basis point decrease. The decrease in interest expense was significantly affected by a $74,000 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 $90,000 in the first quarter of 2012, and $300,000 in the first quarter of 2011. This decreased provision level reflects a reduction in the portfolio volume and an increase in the allowance for loan losses as a percentage of total loans compared to December 31, 2011. As of March 31, 2012, the allowance for loan losses totaled $2.9 million, or 2.28% of total loans, which has increased from 2.15% as of December 31, 2011. Nonaccrual loans decreased from $6.1 million at December 31, 2011 to $5.8 million at March 31, 2012. Nonperforming loans, including nonaccrual loans, increased $314,000 to $7.4 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.
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, 2012 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 $528,000 for the three months ended March 31, 2012 compared to $502,000 for the same period in 2011, an increase of $26,000, or 5.2%. The increase in noninterest income was primarily due to increased mortgage sales and servicing activity of $39,000 to $90,000, compared to the same period in 2011. In addition, service fees on deposit accounts also increased by $13,000, to $157,000 compared to the same period in the prior year.
NONINTEREST EXPENSE
The Company’s noninterest expense was $2.4 million for the three months ended March 31, 2012 and $2.3 million for the same period in 2011. Salaries and employee benefits, the largest component of noninterest expense, increased $26,000, or 2.2%, to $1.2 million. Other real estate owned expenses increased $19,000 to $225,000 in the first quarter of 2012 compared to 2011 due to increased expenses related to properties held and losses on the sale or valuation of other real estate in 2012. Modest increases in insurance expense of $18,000, and professional fees of $33,000 were partially offset by decreases in occupancy and equipment expense of $13,000, other expenses of $26,000, and data processing fees of $5,000. In addition, income tax expense increased $29,000 from a $47,000 benefit in the first quarter of 2011 compared to a $18,000 benefit in 2012.
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
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2012, cash and due from banks and certificates of deposit held at other financial institutions maturing in less than 1 year totaled $26.1 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, 2012:
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1 – 3 Years
|
|
|
4 – 5 Years
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of credit
(1)
|
|
$
|
18,830
|
|
|
$
|
13,040
|
|
|
$
|
1,239
|
|
|
$
|
1,450
|
|
|
$
|
3,101
|
|
Data processing contract payable
|
|
|
352
|
|
|
|
223
|
|
|
|
129
|
|
|
|
-
|
|
|
|
-
|
|
Commitments to Extend credit
|
|
|
110
|
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Standby letters of credit
(1)
|
|
|
339
|
|
|
|
329
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,631
|
|
|
$
|
13,702
|
|
|
$
|
1,378
|
|
|
$
|
1,450
|
|
|
$
|
3,101
|
|
(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.
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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
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.
FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2012 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 2012, 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.
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LEGAL PROCEEDINGS
|
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|
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.
|
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|
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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.
|
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
None
|
|
|
|
DEFAULTS UPON SENIOR SECURITIES
|
|
|
|
None
|
|
|
|
MINE SAFETY DISCLOSURES
|
|
|
|
Not applicable
|
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|
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OTHER INFORMATION
|
|
|
|
None
|
|
|
|
EXHIBITS
|
|
Exhibits
|
|
|
|
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-
14(a)
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-
14(a)
|
|
32.1
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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32.2
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
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101*
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (ii) Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and March 31, 2011; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and March 31, 2011; (iv) Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2012 and March 31, 2011; (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and March 31, 2011; and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
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* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability under those sections.
|
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.
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FIRST OTTAWA BANCSHARES, INC.
|
|
|
(Registrant)
|
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|
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/s/ Joachim J. Brown
|
Date: May 14, 2012
|
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Joachim J. Brown
|
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President and Chief Executive Officer
|
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|
(Principal Executive Officer)
|
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|
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/s/ Vincent G. Easi
|
Date: May 14, 2012
|
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Vincent G. Easi
|
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Chief Financial Officer
|
|
|
(Principal Financial Officer)
|