FIRST OTTAWA BANCSHARES, INC [FOTB] Filings

10-Q 1 fob-10q_033112.htm QUARTERLY REPORT Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

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

For transition period from ____________ to ______________

Commission file number 000-30495

FIRST OTTAWA BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Delaware		36-4331185
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

701 LaSalle Street		61350
Ottawa, Illinois		(ZIP Code)
(Address of principal executive offices)

(815) 434-0044

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: As of May 14, 2012, the registrant had outstanding 645,988 shares of common stock, $1.00 par value per share.

FIRST OTTAWA BANCSHARES, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I

Item 1.	Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39

PART II

Item 1.	Legal Proceedings	40
Item 1.A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
	Signatures	41

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	March 31,			December 31,
	2012			2011
ASSETS
Cash and cash equivalents	$	11,419		$	21,345
Interest-bearing time deposits with financial institutions		54,811			55,348
Securities available for sale		56,964			42,187
Loans held for sale		102			145
Loans, net of allowance for loan losses of $2,852 and $2,781, respectively		122,414			126,774
Premises and equipment, net		7,332			7,428
Goodwill		2,446			2,446
Core deposit intangible, net		178			215
Other real estate owned		4,726			4,878
Cash surrender value of life insurance		3,888			3,857
Accrued interest receivable and other assets		5,761			6,034

Total assets	$	270,041		$	270,657

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing demand	$	38,766		$	36,894
Interest-bearing demand		78,549			81,581
Money market savings		26,285			24,538
Savings		34,908			32,562
Certificates and other time deposits of $100,000 or more		26,451			28,037
Other certificates and time deposits		38,465			38,644
Total deposits		243,424			242,256

Borrowings		-			1,800
Other liabilities		2,272			2,352
Total liabilities		245,696			246,408

Commitments and contingencies

Shareholders’ equity
Preferred stock, $1 par value authorized and unissued – 20,000 shares		-			-
Common stock - $1 par value, 1,000,000 shares authorized and 753,734 issued		754			754
Additional paid-in capital		4,868			4,844
Retained earnings		25,111			25,003
Treasury stock, at cost - 107,746 shares		(6,299	)		(6,299	)
Accumulated other comprehensive loss		(89	)		(53	)
Total shareholders’ equity		24,345			24,249

Total liabilities and shareholders’ equity	$	270,041		$	270,657

See accompanying notes to condensed consolidated financial statements.

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 2012 and 2011
(In thousands, except share and per share data)
(Unaudited)

	2012			2011
Interest and Dividend Income
Loans, including fees	$	1,883		$	2,064
Securities available for sale
Taxable		185			218
Exempt from federal income tax		88			113
Interest-bearing deposits with financial institutions		226			258
Other		4			9
Total interest and dividend income		2,386			2,662

Interest Expense
Interest-bearing demand deposits		8			26
Money market savings accounts		3			6
Savings deposits		9			7
Time deposits		319			393
Borrowings		-			5
Total interest expense		339			437

NET INTEREST INCOME		2,047			2,225
Provision for loan losses		90			300

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,957			1,925

Noninterest Income
Service fees		157			144
Trust and farm management fees		135			135
Mortgage servicing income, net		90			51
Net realized losses on available for sale securities		-			(10	)
Other		146			182
Total noninterest income		528			502

Noninterest Expense
Salaries and employee benefits		1,190			1,164
Occupancy and equipment		298			311
Data processing fees		127			132
Insurance		156			138
Professional fees		145			112
Amortization of core deposit intangible		37			37
Other real estate owned, net		225			206
Other		217			243
Total noninterest expense		2,395			2,343

INCOME BEFORE INCOME TAXES		90			84

Income tax benefit		(18	)		(47	)

NET INCOME	$	108		$	131

Earnings per share – basic	$	0.17		$	0.20
Earnings per share – diluted	$	0.17		$	0.20

Average shares outstanding		645,988			645,988

See accompanying notes to condensed consolidated financial statements.

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months ended March 31, 2012 and 2011
(In thousands)

(Unaudited)

	2012			2011

Net income	$	108		$	131

Other comprehensive loss
Unrealized net loss on securities available for sale, net of reclassifications and tax effects		(98	)		(131	)
Net gain relating to benefit liability		62			-
Other comprehensive loss		(36	)		(131	)

Comprehensive income	$	72		$	-

See accompanying notes to condensed consolidated financial statements.

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months ended March 31, 2012 and 2011

(In thousands)

(Unaudited)

										Accumulated			Total
			Additional							Other			Share-
	Common		Paid-In		Retained		Treasury			Comprehensive			holders’
	Stock		Capital		Earnings		Stock			Income (Loss)			Equity

Balance at January 1, 2012	$	754	$	4,844	$	25,003	$	(6,299	)	$	(53	)	$	24,249

Net income		-		-		108		-			-			108

Other comprehensive loss		-		-		-		-			(36	)		(36	)

Comprehensive income														72

Stock options vested		-		24		-		-			-			24

Balance at March 31, 2012	$	754	$	4,868	$	25,111	$	(6,299	)	$	(89	)	$	24,345

Balance at January 1, 2011	$	754	$	4,736	$	24,253	$	(6,299	)	$	(477	)	$	22,967

Net income		-		-		131		-			-			131

Other comprehensive loss		-		-		-		-			(131	)		(131	)

Comprehensive income														-

Stock options vested		-		28		-		-			-			28

Balance at March 31, 2011	$	754	$	4,764	$	24,384	$	(6,299	)	$	(608	)	$	22,995

See accompanying notes to condensed consolidated financial statements.

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months ended March 31, 2012 and 2011

(In thousands)

(Unaudited)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	108		$	131
Items not requiring (providing) cash
Provision for loan losses		90			300
Depreciation and amortization		141			141
Premium amortization on securities, net		118			131
Loans originated for sale		(5,928	)		(2,751	)
Proceeds from the sale of loans		6,061			3,389
Gains on sales of loans held for sale		(90	)		(63	)
Losses on sales of securities, net		-			10
Writedowns and loss on sales of other real estate owned		152			146
Stock options vested		24			28
Change in interest receivable and other assets		355			(3	)
Change in interest payable and other liabilities		(80	)		143
Net cash provided by operating activities		951			1,602

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale		-			422
Proceeds from maturities, calls, and paydowns of securities available for sale		2,079			1,527
Purchases of securities available for sale		(17,123	)		(5,300	)
Proceeds from maturities of interest-bearing time deposits		3,579			5,169
Purchases of interest-bearing time deposits		(3,042	)		-
Net change in loans		4,270			985
Proceeds from sales of other real estate owned		-			458
Net purchases of premises and equipment		(8	)		(14	)
Net cash provided by (used in) investing activities		(10,245	)		3,247

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		1,168			(9,650	)
Repayment of borrowings		(1,800	)		(2,000	)
Dividends paid		-			(168	)
Net cash used in financing activities		(632	)		(11,818	)

Net change in cash and cash equivalents		(9,926	)		(6,969	)

Cash and cash equivalents at beginning of period		21,345			17,087

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	11,419		$	10,118

See accompanying notes to condensed consolidated financial statements.

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Table dollars in thousands)

March 31, 2012 and 2011

NOTE 1 – BASIS OF PRESENTATION

The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent with those used in the preparation of annual consolidated financial statements. The interim condensed consolidated financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management, for a fair statement of results for the interim periods presented. Results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The accompanying unaudited condensed consolidated financial statements of First Ottawa Bancshares, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for the interim financial period and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for 2011 filed with the Securities and Exchange Commission. The condensed consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet as of that date.

The Company’s wholly-owned subsidiary, The First National Bank of Ottawa (the “Bank”), operates as a full service community bank. First Ottawa Financial Corporation, a wholly owned subsidiary of the Bank, sells insurance and investment products.

NOTE 2 – EARNINGS PER SHARE

The number of shares used to compute basic and diluted earnings per share were as follows:

	Three Months Ended
	March 31,
	2012		2011

Net income (in thousands)	$	108	$	131
Weighted average shares outstanding		645,988		645,988
Effect of dilutive securities:
Stock options		-		-
Shares used to compute diluted earnings per share		645,988		645,988

Earnings per share (not stated in thousands):

Basic	$	0.17	$	0.20
Diluted		0.17		0.20

A total of 71,990 and 74,440 stock options for the three month periods ended March 31, 2012 and 2011, respectively, are not included in the above calculations as they are non-dilutive.

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

At the dates indicated, the capital ratios for the Company and the Bank were:

												To Be Well
												Capitalized
							Minimum					Under Prompt
							Capital					Corrective
	Actual						Requirement					Action Provisions
As of March 31, 2012	Amount		Ratio				Amount		Ratio			Amount		Ratio
						(Amounts in Thousands)
Total capital to risk weighted assets:
Consolidated	$	23,531		14.0	%		$	13,477		8.0	%		N/A		N/A
First National Bank of Ottawa		23,415		13.9				13,466		8.0		$	16,833		10.0	%

Tier I capital to risk weighted assets:
Consolidated	$	21,418		12.7	%		$	6,738		4.0	%		N/A		N/A
First National Bank of Ottawa		21,302		12.7				6,733		4.0		$	10,100		6.0	%

Tier I capital to average assets:
Consolidated	$	21,418		7.9	%		$	10,800		4.0	%		N/A		N/A
First National Bank of Ottawa		21,302		7.9				10,795		4.0		$	13,493		5.0	%


												To Be Well
												Capitalized
							Minimum					Under Prompt
							Capital					Corrective
	Actual						Requirement					Action Provisions
As of December 31, 2011	Amount		Ratio				Amount		Ratio			Amount		Ratio
						(Amounts in Thousands)
Total capital to risk weighted assets:
Consolidated	$	22,726		15.6	%		$	11,652		8.0	%		N/A		N/A
First National Bank of Ottawa		22,605		15.5				11,643		8.0		$	14,554		10.0	%

Tier I capital to risk weighted assets:
Consolidated	$	20,894		14.4	%		$	5,826		4.0	%		N/A		N/A
First National Bank of Ottawa		20,773		14.3				5,822		4.0		$	8,732		6.0	%

Tier I capital to average assets:
Consolidated	$	20,894		7.5	%		$	11,155		4.0	%		N/A		N/A
First National Bank of Ottawa		20,773		7.5				11,133		4.0		$	13,916		5.0	%

10.

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

11.

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	)

12.

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	)

13.

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.

14.

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

15.

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

16.

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

17.

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		-