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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                     September 30 , 2011                     

or

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

For the transition period from ______________________ to _____________________.

Commission File Number 0-10974

FIRST PULASKI NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Tennessee                                                                                                    62-1110294        
(State or other jurisdiction of incorporation or organization)                                    (I.R.S. Employer Identification No.)      

206 South First Street, Pulaski, Tennessee                                             38478                     
(Address of principal executive offices)                                                         (Zip Code)     


                     931-363-2585                    
(Registrant's telephone number, including area code)

                                       Not applicable                                       
(Former name, former address and former fiscal year, if changed since last report)

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

       Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  X  ] No [     ]

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

Large accelerated filer [     ]                                                                                                              Accelerated filer [ X ]
Non-accelerated filer [     ] (Do not check if a smaller reporting Company)                              Smaller reporting Company [     ]

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

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

Common Stock, $1.00 par value -- 1,568,951 shares outstanding as of November 1, 2011.

page 1


PART I - FINANCIAL INFORMATION
____________________________________________


Item 1. Financial Statements.

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

ASSETS

September 30,

December 31,

2011

2010

Cash and due from banks

$27,964,836

$15,353,132

Federal funds sold

4,690,000

1,690,000

    Cash and cash equivalents

32,654,836

17,043,132

Interest bearing balances with banks

543,806

541,058

Securities available for sale

206,615,386

191,195,324

Loans

    Loans held for sale

2,589,922

1,310,965

    Loans net of unearned income

339,336,831

342,558,758

    Allowance for loan losses

(8,124,130)

(7,996,961)

    Total net loans

333,802,623

335,872,762

Bank premises and equipment

18,840,939

19,356,498

Accrued interest receivable

3,282,775

3,316,236

Other real estate

7,830,744

12,703,579

Federal Home Loan Bank stock

1,526,500

1,526,500

Company-owned life insurance

10,703,565

10,438,189

Prepaid FDIC insurance

1,852,151

2,316,796

Deferred tax assets, net

3,004,071

5,439,368

Prepayments and other assets

1,717,707

1,390,777

    TOTAL ASSETS

$622,375,103

$601,140,219

===========

===========

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Deposits

    Non-interest bearing balances

$87,782,480

$75,966,080

    Interest bearing balances

458,521,466

457,357,446

        Total deposits

546,303,946

533,323,526

Securities sold under repurchase agreements

2,303,266

1,803,023

Other borrowed funds

7,379,927

7,545,351

Accrued interest payable

896,579

1,320,721

Other liabilities

6,071,323

4,483,135

    TOTAL LIABILITIES

562,955,041

548,475,756

SHAREHOLDERS' EQUITY

Common Stock, $1 par value; authorized - 10,000,000 shares;

    1,568,551 and 1,564,350 shares issued and outstanding, respectively

1,568,551

1,564,350

Capital surplus

1,509,477

1,323,023

Retained earnings

53,754,145

50,070,308

Accumulated other comprehensive income (loss), net

2,587,889

(293,218)

TOTAL SHAREHOLDERS' EQUITY

59,420,062

52,664,463

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$622,375,103

$601,140,219

===========

===========

* See accompanying notes to consolidated financial statements (unaudited).

     
         

page 2


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

For Three Months Ended

For Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

INTEREST INCOME:

    Loans, including fees

$6,094,422

$6,231,920

$18,164,426

$18,767,605

    Investment securities

1,105,211

1,095,709

3,339,526

3,348,061

    Federal funds sold and other

11,289

17,636

40,728

52,283

    Dividends

16,946

18,849

67,761

69,664

        Total interest income

7,227,868

7,364,114

21,612,441

22,237,613

INTEREST EXPENSE:

    Interest on deposits:

        NOW Accounts

52,102

70,850

162,869

254,623

        Savings & MMDAs

106,836

93,063

303,222

305,476

        Time

1,029,005

1,641,012

3,384,041

5,135,328

    Repurchase agreements

8,794

8,495

24,982

22,299

    Borrowed funds

68,150

71,289

205,322

215,308

        Total interest expense

1,264,887

1,884,709

4,080,436

5,933,034

        NET INTEREST INCOME

5,962,981

5,479,405

17,532,005

16,304,579

        Provision for loan losses

-

1,500,000

1,150,000

4,050,000

        NET INTEREST INCOME

        AFTER PROVISION FOR

        LOAN LOSSES

5,962,981

3,979,405

16,382,005

12,254,579

NON-INTEREST INCOME:

    Service charges on deposit accounts

576,049

534,096

1,643,533

1,572,392

    Commissions and fees

76,558

82,185

228,776

248,182

    Other service charges and fees

252,531

211,623

747,326

608,420

    Income on company-owned life insurance

86,589

98,764

265,376

299,881

    Mortgage banking income

259,973

256,775

553,748

631,342

    Gain on the sale of securities

13,390

1,025,765

129,191

1,072,441

    Other income

26,888

76,382

342,631

252,750

        Total non-interest income

1,291,978

2,285,590

3,910,581

4,685,408

page 3


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

For Three Months Ended

For Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

NON-INTEREST EXPENSE

    Salaries and employee benefits

$2,644,392

$2,291,482

$7,573,441

$7,113,247

    Occupancy expense, net

465,670

464,917

1,394,441

1,366,262

    Furniture and equipment expense

176,556

192,368

511,411

534,275

    Advertising and public relations

153,803

106,679

419,004

373,679

    Foreclosed assets, net

43,701

265,345

340,689

350,326

    FDIC insurance expense

139,382

231,835

506,135

695,534

    Impairment of available for sale equity

        securities and other equity investments

-

-

-

39,200

    Other operating expenses

829,610

762,359

2,477,683

2,451,413

          Total non-interest expense

4,453,114

4,314,985

13,222,804

12,923,936

           Income before taxes

2,801,845

1,950,010

7,069,782

4,016,051

           Applicable income tax expense

911,209

576,334

2,209,488

990,491

           NET INCOME

$1,890,636

$1,373,676

$4,860,294

$3,025,560

=========== =========== =========== ===========

           Earnings per common share:

           Basic

$1.20

$0.88

$3.10

$1.94

=========== =========== =========== ===========

           Diluted

$1.20

$0.88

$3.10

$1.93

=========== =========== =========== ===========

Comprehensive income

Net income

$1,890,636

$1,373,676

$4,860,294

$3,025,560

Reclassification adjustment for gains included

    in net income, net of tax

(8,263)

(632,999)

(79,724)

(661,803)

Change in unrealized gains (losses) on

    available for sale securities, net of tax

1,172,324

291,428

2,960,831

548,690

Comprehensive income

$3,054,697

$1,032,105

$7,741,401

$2,912,447

=========== =========== =========== ===========

* See accompanying notes to consolidated financial statements (unaudited).

       

page 4


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2011

Accumulated

Other

Common

Capital

Retained

Comprehensive

Stock

Surplus

Earnings

Income (Loss)

Total

Balance, January 1, 2011

$1,564,350

$1,323,023

$50,070,308

$(293,218)

$52,664,463

Comprehensive income:

    Net Income

4,860,294

4,860,294

    Reclassification adjustment

      for gains included in net

      income, net of tax

(79,724)

(79,724)

    Change in unrealized

      gains (losses) on available

      for sale securities, net of tax

2,960,831

2,960,831

Comprehensive income

7,741,401

Cash Dividends

($0.75 per share)

(1,176,457)

(1,176,457)

Compensation expense for

    restricted stock

101,062

101,062

Issuance of new common stock

2,050

(2,050)

-

Issuance of common stock through

    dividend reinvestment plan

2,151

87,442

89,593

Balance, September 30, 2011

$1,568,551

$1,509,477

$53,754,145

$2,587,889

$59,420,062

=========== =========== ============ ============ ===========

page 5


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

 

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2010

Accumulated

Other

Common

Capital

Retained

Comprehensive

Stock

Surplus

Earnings

Income (Loss)

Total

Balance, January 1, 2010

$1,559,016

$1,051,367

$47,606,043

$1,734,079

$51,950,505

Comprehensive income:

    Net Income

3,025,560

3,025,560

    Reclassification adjustment

      for gains included in net

      income, net of tax

(661,803)

(661,803)

    Change in unrealized

      gains (losses) on available

      for sale securities, net of tax

548,690

548,690

Comprehensive income

2,912,447

Cash Dividends

($0.75 per share)

(1,172,583)

(1,172,583)

Compensation expense for

    restricted stock

101,063

101,063

Tax benefit arising from exercise

    of director stock options

4,020

4,020

Exercise of stock options

500

16,500

17,000

Issuance of new common stock

2,050

(2,050)

-

Issuance of common stock through

    dividend reinvestment plan

1,696

88,565

90,261

Balance, September 30, 2010

$1,563,262

$1,259,465

$49,459,020

$1,620,966

$53,902,713

=========== =========== ============ ============ ===========

* See accompanying notes to consolidated financial statements (unaudited).

page 6


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For Nine Months Ended September 30,

2011

2010

Cash flows from operating activities:

    Net income

$4,860,294

$3,025,560

    Adjustments to reconcile net income

      to net cash provided by operating activities

        Provision for loan losses

1,150,000

4,050,000

        Depreciation of premises and equipment

743,672

771,004

        Amortization and accretion of investment securities, net

947,977

648,548

        Deferred income tax expense (benefit)

647,426

(709,060)

        Gain on sale of other assets

(273,488)

(134,634)

        Security gains, net

(129,191)

(1,072,441)

        Stock-based compensation expense

101,062

101,063

        Loans originated for sale

(19,125,830)

(22,036,013)

        Proceeds from sale of loans

18,400,621

20,545,213

        Mortgage banking income

(553,748)

(631,342)

        Impairment of available for sale equity securities and other equity investments

-

39,200

        Increase in cash surrender value of life insurance

(265,376)

(299,881)

        Decrease in accrued interest receivable

33,461

632,431

        Decrease in prepayments/other assets

137,716

563,357

        Decrease in accrued interest payable

(424,142)

(65,231)

        Increase in accrued taxes

130,895

352,075

        Increase in other liabilities

1,457,293

1,100,254

            Net cash from operating activities

7,838,642

6,880,103

Cash flows from investing activities:

        Proceeds from maturity of investment securities available for sale

59,248,466

80,588,095

        Proceeds from sale of investment securities

4,610,660

35,666,787

        Purchase of investment securities available for sale

(75,428,997)

(135,184,582)

        Increase in interest bearing balances with banks

(2,748)

(5,454)

        Net (increase) decrease in loans

(642,075)

7,594,374

        Capital expenditures

(228,154)

(1,522,872)

        Proceeds from sale of other assets

7,987,535

4,508,049

            Net cash used by investing activities

(4,455,313)

(8,355,603)

Cash flows from financing activities:

        Net increase in deposits

12,980,420

90,342

        Cash dividends paid

(1,176,457)

(1,172,583)

        Proceeds from exercise of stock options, including tax benefit

-

21,020

        Proceeds from issuance of common stock

89,593

90,261

        Net increase (decrease) in securities sold under repurchase agreements

500,243

(72,383)

        Borrowings repaid

(165,424)

(174,008)

            Net cash from financing activities

12,228,375

(1,217,351)

Net increase (decrease) in cash and cash equivalents

15,611,704

(2,692,851)

Cash and cash equivalents at beginning of period

17,043,132

37,424,572

Cash and cash equivalents at end of period

$32,654,836

$34,731,721

=========== ===========

Supplemental cash flow information

    Interest paid

4,504,578

5,998,265

    Income taxes paid

1,553,000

1,273,796

Supplemental noncash disclosures

    Transfers from loans to other real estate owned

2,849,488

5,848,706

    Securities purchased not yet settled

400,508

3,917,917

* See accompanying notes to consolidated financial statements (unaudited).

       

page  7


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

     Notes to Consolidated Financial Statements

Note 1.

       The unaudited consolidated financial statements include the accounts of First Pulaski National Corporation (the "Corporation" or the "registrant") and its wholly-owned subsidiary, First National Bank of Pulaski (the "Bank"), and the Bank's wholly-owned subsidiary, First Pulaski Reinsurance Company.     
       The interim financial statements furnished under this item reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, as allowed under rules and regulations of the Securities and Exchange Commission for interim period presentation. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year. Certain prior period amounts have been reclassified to conform to the current period classifications.

Note 2.

       Accounting Standards Codification ("ASC") Sections 718 and 505 require the measurement, at the date of the grant, of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Compensation cost is recognized based upon the fair value of the awards over the vesting period for each award.
       Bank employees may be granted options, restricted shares or rights to purchase shares of the registrant's common stock under the registrant's equity incentive and employee stock purchase plans.
       The 1994 employee stock purchase plan ("1994 Plan") permits the granting of rights to eligible employees of the registrant to acquire stock. A total of 150,000 shares were reserved under this plan and no shares were issued under the 1994 Plan during the first nine months of 2011.
       As there are no unvested stock options as of January 1, 2011, and no stock options were granted in the first nine months of 2011, there was no share-based compensation expense or tax benefit recorded in the first nine months of 2011 related to stock options; however, as discussed below, the registrant incurred stock compensation expense in the first nine months of 2011 related to the previously issued restricted shares. In addition, there were no unrecognized compensation costs related to stock options at September 30, 2011.
       The registrant has estimated the fair value of employee stock options at the date of grant using the Black-Scholes option pricing model. The assumptions required by this model are subjective. Changes to these assumptions can materially affect the fair value estimate. There may be other factors which could have a significant effect on the value of employee stock options granted that are not considered by the model. While management believes that the Black-Scholes model provides a reasonable estimate of fair value, other methods could provide alternative fair values for the registrant's equity-based awards to employees.

 

page 8


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Below is a summary of the registrant's stock option activity for the 2010 fiscal year and the first nine months of 2011:

Weighted

Average

Number

Exercise

of Options

Price

Outstanding January 1, 2010

9,000

$46.00

Granted

-

-

Exercised

(500)

34.00

Expired

(500)

49.00

Outstanding December 31, 2010

8,000

46.56

  ========   ===========

Exercisable December 31, 2010

8,000

$46.56

========   ===========

Outstanding January 1, 2011

8,000

$46.56

Granted

-

-

Exercised

-

-

Expired

(500)

28.00

Outstanding September 30, 2011

7,500

47.80

  ========   ===========

Exercisable September 30, 2011

7,500

$47.80

========   ===========

       The aggregate intrinsic value of outstanding options shown in the table at September 30, 2011 was $0 based on $40.00 per share, the price of which the registrant is aware, at which the registrant's common stock was traded on a date closest to and/or prior to September 30, 2011. The weighted average remaining term of the stock options in the table above was 1.8 years as of September 30, 2011.
       Cash received from the exercise of stock options during the nine months ended September 30, 2011 and 2010 was $0 and $17,000, respectively. The total intrinsic value of stock options exercised was $0 and $10,500, respectively, for the nine months ended September 30, 2011 and 2010. 
       At September 30, 2011, the registrant had 87,750 shares reserved for award under its 2007 Equity Incentive Plan (the "2007 Plan"). During the first nine months of 2011 the registrant did not grant any awards of restricted stock to employees of the Bank under the 2008 Plan. Compensation expense associated with restricted share awards, like those previously awarded under the 2007 Plan, is recognized over the time period that the restrictions associated with the awards lapse. During the nine months ended September 30, 2011, the registrant recognized $101,062 in compensation costs attributable to all restricted stock awards issued under the 2007 Plan. A summary of activity for restricted share awards for the nine months ended September 30, 2011 follows:

Weighted-Average

Grant-Date

Nonvested Shares

Shares

Fair Value

Nonvested at January 1, 2011

5,700

$55.00

Granted

-

55.00

Vested

(2,050)

55.00

Forfeited

-

-

Nonvested at September 30, 2011

3,650

$55.00

==========

==============

       The registrant expects to satisfy the exercise of stock options and the future grants of other equity-based awards, by issuing shares of common stock from authorized but unissued shares. At September 30, 2011, the registrant had approximately 8.4 million authorized but unissued shares of common stock.

page 9


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       As of September 30, 2011, there was $148,614 of total unrecognized compensation cost related to nonvested restricted shares granted under the 2007 Plan. The cost is expected to be recognized over a weighted-average period of 1.2 years. The total fair value of shares vested during the nine months ended September 30, 2011 and 2010 was $112,750 for each period.

Note 3

Recent Accounting Pronouncements:
       In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring.  The amendments clarify the guidance for a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor's ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted.  The adoption of this guidance did not have a material impact upon the Corporation's financial statements.
       In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220) - Presentation of Comprehensive Income." The ASU requires entities to present items of net income and other comprehensive income either in one continuous statement - referred to as the statement of comprehensive income - or in two separate, but consecutive, statements of net income and other comprehensive income. The ASU is effective for the first interim period and annual period beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact upon the Corporation's financial statements.
       In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU represents the converged guidance of the FASB and the IASB (the "Boards") on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. Included in the ASU are requirements to disclose additional quantitative disclosures about unobservable inputs for all Level 3 fair value measurements, as well as qualitative disclosures about the sensitivity inherent in recurring Level 3 fair value measurements. The ASU is effective during interim and annual periods beginning after December 15, 2011. The Corporation is currently evaluating the impact this new ASU will have on its financial statements.

Note 4

       The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2011 and December 31, 2010 were as follows:

page 10


PART I - FINANCIAL INFORMATION
____________________________________________


Item 1. Financial Statements. (Continued)

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

September 30, 2011

Cost

Gains

Losses

Value

U.S. treasury securities

$100,268

$56

$-

$100,324

U.S. government sponsored entities

105,943,905

1,731,393

1,350

107,673,948

Obligations of states and

political subdivisions

38,460,343

1,399,590

22,695

39,837,238

Mortgage-backed securities-residential

57,917,274

1,089,672

3,070

59,003,876

 

Total

202,421,790

4,220,711

27,115

206,615,386

===========

===========

===========

===========

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

December 31, 2010

Cost

Gains

Losses

Value

U.S. treasury securities

$100,302

$366

$-

$100,668

U.S. government sponsored entities

105,559,892

394,738

1,299,026

104,655,604

Obligations of states and

political subdivisions

42,270,477

815,757

527,179

42,559,055

Mortgage-backed securities-residential

43,712,835

481,610

359,248

43,835,197

        Total debt securities

191,643,506

1,692,471

2,185,453

191,150,524

Equity Securities

27,200

17,600

-

44,800

Total

$191,670,706

$1,710,071

$2,185,453

$191,195,324

===========

===========

===========

===========

       The amortized cost and fair value of debt securities at September 30, 2011 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Available for Sale

Amortized Cost

Fair Value

Due in one year or less

$11,642,249

$11,731,337

Due after one year through five years

99,916,041

101,929,224

Due after five years through ten years

32,454,517

33,439,429

Due after ten years

491,709

511,520

Mortgage-backed-residential

57,917,274

59,003,876

TOTAL

$202,421,790

$206,615,386

============

============

page 11


 PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Securities with unrealized losses at September 30, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

September 30, 2011

Less Than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

Value

Loss

Value

Loss

Value

Loss

Obligations of U.S. government

    sponsored entities

$1,498,650

$1,350

$-

$-

$1,498,650

$1,350

Obligations of states and

    political subdivisions

481,685

3,315

614,136

19,380

1,095,821

22,695

Mortgage-backed securities

    - residential

2,102,960

3,070

-

-

2,102,960

3,070

Total temporarily impaired

    securities

$4,083,295

$7,735

$614,136

$19,380

$4,697,431

$27,115

==========

========

==========

========

==========

========

December 31, 2010

Less Than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

Value

Loss

Value

Loss

Value

Loss

Obligations of U.S. government

    sponsored entities

$62,919,080

$1,299,026

$-

$-

$62,919,080

$1,299,026

Obligations of states and

    political subdivisions

11,676,609

527,179

-

-

11,676,609

527,179

Mortgage-backed securities

    - residential

27,736,295

359,248

-

-

27,736,295

359,248

Total temporarily impaired

    securities

$102,331,984

$2,185,453

$-

$-

$102,331,984

$2,185,453

==========

========

==========

========

==========

========

       Proceeds from sales of securities available for sale were $292,950 and $30,133,731 for the three months ended September 30, 2011 and 2010, respectively, and $4,610,660 and $35,666,787 for the nine months ended September 30, 2011 and 2010, respectively. Gross gains of $129,191 and $1,103,229 and gross losses of $0 and $30,788 were realized on these sales for the first nine months of 2011 and 2010, respectively.

page 12


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under the provisions of ASC 320-10, Investments - Debt and Equity Securities. In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
       When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
       As of September 30, 2011, the registrant's security portfolio consisted of 318 securities, 6 of which were in an unrealized loss position. The majority of unrealized losses are related to the registrant's obligations of U.S. government-sponsored entities as well as obligations of states and political subdivisions. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the registrant does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the registrant does not consider these securities to be other-than-temporarily impaired at September 30, 2011.
       The registrant's equity securities at December 31, 2010 consisted of floating rate preferred stock issued by Federal National Mortgage Association ("FNMA"). For the quarter ended June 30, 2010, the registrant recognized a $39,200 pre-tax charge for the other-than-temporary decline in fair value on these FNMA securities. As required by accounting guidance, when a decline in fair value below cost for an equity security is deemed to be other-than-temporary, the unrealized loss must be recognized as a charge to earnings. The market value of the perpetual preferred securities of FNMA owned by the registrant declined, leading to the charge to earnings for other-than-temporary impairment. The registrant sold these equity securities in the first quarter of 2011 and recorded a gain of $107,197 on the sale.

 

page 13


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

Note 5

      Loans at September 30, 2011 and December 31, 2010 were as follows:

September 30,

December 31,

2011

2010

Commercial

$24,490,281

$34,561,396

Commercial and agricultural real estate:

Commercial real estate

127,310,125

122,548,942

Agricultural real estate

35,795,076

34,227,577

Construction and land development

28,629,735

31,742,216

Residential real estate

Home equity line of credit

17,694,947

18,850,939

1-4 family closed-end first lien

65,973,558

63,062,322

1-4 family closed-end junior lien

2,837,066

3,175,461

Multi-family

1,017,159

1,144,978

Consumer

26,676,060

22,678,901

Other

11,687,407

12,105,971

Subtotal

342,111,414

344,098,703

Less:

Net deferred loan fees

(184,661)

(228,980)

Allowance for loan losses

(8,124,130)

(7,996,961)

Loans, net

$333,802,623

$335,872,762

============

============

       The above table includes loans held for sale, which loans do not have any allocated loan loss allowance.
       The loan balances in the following tables related to credit quality do not include approximately $2,212,000 in accrued interest receivable and approximately $185,000 in deferred loan fees at September 30, 2011 and approximately $2,225,000 in accrued interest receivable and approximately $229,000 in deferred loan fees at December 31, 2010.
       The following table presents the activity in the allowance for loan losses for the three months ended September 30, 2011 and loans by portfolio segment and based on impairment method as of September 30, 2011:

Commercial

Construction

and Agricultural

and Land

Residential

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Beginning balance - July 1, 2011

683,015

4,167,409

1,319,335

1,631,898

443,423

89,053

$8,334,133

Provision for loan losses

(101,063)

(341,384)

(89,560)

457,198

59,706

15,103

-

Loans charged-off

(22,947)

-

-

(169,509)

(61,404)

(2,052)

(255,912)

Recoveries

600

1,206

31,416

3,332

9,355

-

45,909

Ending balance

559,605

3,827,231

1,261,191

1,922,919

451,080

102,104

8,124,130

========= ========== ========= ========= ========= ========= =========

Ending balance: individually evaluated

for impairment

$2,450

$149,803

$112,995

$128,131

$-

$-

$393,379

========= ========== ========= ========= ========= ========= =========

Ending balance: collectively evaluated

for impairment

$557,155

$3,677,428

$1,148,196

$1,794,788

$451,080

$102,104

$7,730,751

========= ========== ========= ========= ========= ========= =========

Loans:

Loans individually evaluated for impairment

$52,985

$2,936,319

$3,211,115

$3,039,155

$-

$-

$9,239,574

Loans collectively evaluated for impairment

24,437,296

160,168,882

25,418,620

81,893,653

$26,676,060

11,687,407

330,281,918

Total ending loans balance

$24,490,281

$163,105,201

$28,629,735

$84,932,808

$26,676,060

$11,687,407

$339,521,492

========= ========== ========= ========= ========= ========= =========
                               

page 14


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       The following table presents the activity in the allowance for loan losses for the nine months ended September 30, 2011 and loans by portfolio segment and based on impairment method as of September 30, 2011:

Commercial

Construction

and Agricultural

and Land

Residential

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Beginning balance - January 1, 2011

$1,035,511

$3,747,046

$1,474,970

$1,274,380

$383,644

$81,410

$7,996,961

Provision for loan losses

(244,729)

176,794

(162,551)

1,084,176

261,150

35,160

1,150,000

Loans charged-off

(235,312)

(108,985)

(141,418)

(486,008)

(230,662)

(17,052)

(1,219,437)

Recoveries

4,135

12,376

90,190

50,371

36,948

2,586

196,606

Ending balance

559,605

3,827,231

1,261,191

1,922,919

451,080

102,104

8,124,130

========= ========== ========= ========= ========= ========= =========

Ending balance: individually evaluated

for impairment

$2,450

$149,803

$112,995

$128,131

$-

$-

$393,379

========= ========== ========= ========= ========= ========= =========

Ending balance: collectively evaluated

for impairment

$557,155

$3,677,428

$1,148,196

$1,794,788

$451,080

$102,104

$7,730,751

========= ========== ========= ========= ========= ========= =========

Loans:

Loans individually evaluated for impairment

$52,985

$2,936,319

$3,211,115

 

$3,039,155

 

$-

 

$-

$9,239,574

Loans collectively evaluated for impairment

24,437,296

160,168,882

25,418,620

 

81,893,653

 

26,676,060

 

11,687,407

330,281,918

Total ending loans balance

$24,490,281

$163,105,201

$28,629,735

 

$84,932,808

 

$26,676,060

 

$11,687,407

$339,521,492

========= ========== ========= ========= ========= ========= =========

       Activity in the allowance for loan losses for the three months and nine months ended September 30, 2010 was as follows:

Three months ended

Nine months ended

September 30, 2010

September 30, 2010

Beginning balance

$7,930,427

$7,085,316

Provision for loan losses

1,500,000

4,050,000

Loans charged-off

(1,387,436)

(3,147,277)

Recoveries

21,769

76,721

Ending balance

$8,064,760

$8,064,760

==============

==============

       The following table presents the balances in the allowance for loan losses and loans by portfolio segment and based on impairment method as of December 31, 2010:

Commercial

Construction

and Agricultural

and Land

Residential

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

 

Ending allowance balance attributable to loans:

                         
 

Individually evaluated for impairment

$-

 

$166,590

 

$108,252

 

$125,124

 

$-

 

$-

 

$399,966

 

Collectively evaluated for impairment

1,035,511

 

3,580,456

 

1,366,718

 

1,149,256

 

383,644

 

81,410

 

7,596,995

Total ending allowance balance

$1,035,511

$3,747,046

$1,474,970

$1,274,380

$383,644

$81,410

$7,996,961

=========

==========

=========

=========

========

========

=========

Loans:

                           
 

Loans individually evaluated for impairment

$68,442

 

$5,873,675

 

$3,272,054

 

$3,317,219

 

$-

 

$-

 

$12,531,390

 

Loans collectively evaluated for impairment

34,492,954

 

150,902,844

 

28,470,162

 

81,605,516

 

22,678,901

 

12,105,971

 

330,256,348

Total ending loans balance

$34,561,396

$156,776,519

$31,742,216

$84,922,735

$22,678,901

$12,105,971

$342,787,738

=========

==========

=========

=========

========

========

=========

page 15


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Average individually impaired loans and interest income recognized on these loans for the three months ended September 30, 2011 and September 30, 2010 were as follows:

For the Three Months Ended September 30, 2011

Average

Interest

Cash-basis

Loan

Income

Interest Income

Balance

Recognized

Recognized

Commercial

$54,495

$-

$-

Commercial and agricultural real estate:

Commercial real estate

2,941,220

14,342

14,342

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

3,056,345

4,848

4,848

Multi-family

-

-

-

Construction and land development

3,287,255

-

-

Consumer

-

-

-

Other

-

-

-

$9,339,315

$19,190

$19,190

===========

===========

==========

For the Three Months Ended September 30, 2010

Average

Interest

Cash-basis

Loan

Income

Interest Income

Balance

Recognized

Recognized

Total loans

$16,991,549

$152,922

$20,394

===========

===========

==========

       Average individually impaired loans and interest income recognized on these loans for the nine months ended September 30, 2011 and September 30, 2010 were as follows:

For the Nine Months Ended September 30, 2011

Average

Interest

Cash-basis

Loan

Income

Interest Income

Balance

Recognized

Recognized

Commercial

$59,612

$2,861

$2,861

Commercial and agricultural real estate:

Commercial real estate

2,956,113

28,524

28,524

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

3,083,053

108,437

108,437

Multi-family

-

-

-

Construction and land development

3,403,247

-

-

Consumer

-

-

-

Other

-

-

-

$9,502,025

$139,822

$139,822

===========

===========

==========

For the Nine Months Ended September 30, 2010

Average

Interest

Cash-basis

Loan

Income

Interest Income

Balance

Recognized

Recognized

Total loans

$16,449,704

$493,218

$99,509

===========

===========

==========

page 16


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2011 and December 31, 2010:

September 30, 2011

Unpaid

Allowance for

Principal

Loan

Loan Losses

Balance

Balance

Allocated

With no related allowance recorded:

Commercial and agricultural real estate:

Commercial real estate

$2,324,864

$2,324,864

$-

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

828,424

828,424

Multi-family

-

-

-

Construction and land development

2,129,474

2,129,474

With an allowance recorded:

Commercial

52,985

52,985

2,450

Commercial and agricultural real estate:

Commercial real estate

611,455

611,455

149,803

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

2,210,731

2,210,731

128,131

Multi-family

-

-

-

Construction and land development

1,081,641

1,081,641

112,995

$9,239,574

$9,239,574

$393,379

==========

==========

==========

December 31, 2010

Unpaid

Allowance for

Principal

Loan

Loan Losses

Balance

Balance

Allocated

With no related allowance recorded:

Commercial

$68,442

$68,442

$-

Commercial and agricultural real estate:

Commercial real estate

5,230,181

5,230,181

-

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

2,997,634

2,997,634

Multi-family

-

-

-

Construction and land development

1,861,553

1,861,553

With an allowance recorded:

Commercial

-

-

-

Commercial and agricultural real estate:

Commercial real estate

643,494

643,494

166,590

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end

319,585

319,585

125,124

Multi-family

-

-

-

Construction and land development

1,410,242

1,410,501

108,252

$12,531,131

$12,531,390

$399,966

==========

==========

==========

page 17


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans that are not performing.
       The following table presents nonaccrual and loans past due 90 days still on accrual by class of loans as of September 30, 2011 and December 31, 2010.

September 30, 2011

Loans Past Due

Over 90 Days

Nonaccrual

Still Accruing

Commercial

$52,985

$-

Commercial and agricultural real estate:

Commercial real estate

3,229,723

-

Agricultural real estate

308,167

-

Residential real estate:

Home equity line of credit

-

-

1-4 family closed-end first lien

4,248,363

-

1-4 family closed-end junior lien

179,744

-

Multi-family

-

-

Construction and land development

3,106,878

-

Consumer

163,439

-

Other

33,506

-

$11,322,805

$-

=========== ===========

December 31, 2010

Loans Past Due

Over 90 Days

Nonaccrual

Still Accruing

Commercial

$218,262

$-

Commercial and agricultural real estate:

Commercial real estate

3,096,537

-

Agricultural real estate

125,710

-

Residential real estate:

Home equity line of credit

-

-

1-4 family closed-end first lien

4,781,841

-

1-4 family closed-end junior lien

469,085

-

Multi-family

-

-

Construction and land development

4,278,154

-

Consumer

233,827

-

Other

49,146

-

$13,252,562

$-

=========== ===========

 

page 18


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       The following table presents the aging of past due loans as of September 30, 2011 and December 31, 2010 by class of loans:

September 30, 2011

90 days

30-89 days

or more

Total

Loans Not

Past Due

Past Due

Past Due

Past Due

Total

Commercial

$201,757

$-

$201,757

$24,288,524

$24,490,281

Commercial and agricultural real estate:

Commercial real estate

1,285,982

1,715,384

3,001,366

124,308,759

$127,310,125

Agricultural real estate

138,765

253,492

392,257

35,402,819

$35,795,076

Residential real estate:

Home equity line of credit

48,935

-

48,935

17,646,012

$17,694,947

1-4 family closed-end first lien

1,059,826

590,316

1,650,142

64,323,416

$65,973,558

1-4 family closed-end junior lien

41,269

179,744

221,013

2,616,053

$2,837,066

Multi-family

-

-

-

1,017,159

$1,017,159

Construction and land development

255,653

1,863,727

2,119,380

26,510,355

$28,629,735

Consumer

520,925

80,668

601,593

26,074,467

$26,676,060

Other

2,745

33,506

36,251

11,651,156

$11,687,407

$3,555,857

$4,716,837

$8,272,694

$333,838,720

$342,111,414

=========

=========

=========

==========

==========

December 31, 2010

90 days

30-89 days

or more

Total

Loans Not

Past Due

Past Due

Past Due

Past Due

Total

Commercial

$346,719

$85,117

$431,836

$34,129,560

$34,561,396

Commercial and agricultural real estate:

Commercial real estate

560,969

1,985,389

2,546,358

120,002,584

$122,548,942

Agricultural real estate

114,519

125,710

240,229

33,987,348

$34,227,577

Residential real estate:

Home equity line of credit

114,848

-

114,848

18,736,091

$18,850,939

1-4 family closed-end first lien

3,084,041

1,663,835

4,747,876

58,314,446

$63,062,322

1-4 family closed-end junior lien

189,356

60,995

250,351

2,925,110

$3,175,461

Multi-family

-

-

-

1,144,978

$1,144,978

Construction and land development

473,735

1,558,551

2,032,286

29,709,930

$31,742,216

Consumer

714,702

172,033

886,735

21,792,166

$22,678,901

Other

29,839

33,506

63,345

12,042,626

$12,105,971

$5,628,728

$5,685,136

$11,313,864

$332,784,839

$344,098,703

=========

=========

=========

==========

==========


       All loans 90 days or more past due in the above table are on nonaccrual. In addition the above table includes nonaccrual loans of $5,354,605 and $4,648,327 in the loans not past due category and $1,251,363 and $2,919,099 in the 30-89 days past due category as of September 30, 2011 and December 31, 2010, respectively.

 

page 19


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

Troubled Debt Restructurings:

       The Company has allocated $130,581 and $0 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011 and 2010. The Company has not committed to lend any additional amounts as of September 30, 2011 and 2010 to customers with outstanding loans that are classified as troubled debt restructurings.
       During the period ending September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.
       Modifications involving an extension of the maturity date were for periods ranging from 6 months to 12 months.
       The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2011:

Pre-Modification

Post-Modification

Number

Unpaid Principal

Unpaid Principal

of Loans

Balance

Balance

Construction and land development

2

$267,922

$267,922

2

$267,922

$267,922

=======

===========

============

       The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2011:

Pre-Modification

Post-Modification

Number

Unpaid Principal

Unpaid Principal

of Loans

Balance

Balance

Commercial

1

$791,257

$791,257

Construction and land development

2

267,922

267,922

3

$1,059,179

$1,059,179

=======

===========

============

       The troubled debt restructurings described above increased the allowance for loan losses by $130,581 and did not result in charge offs during the nine months ended September 30, 2011.
       There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ended September 30, 2011:
       A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
       In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's internal underwriting policy.

page 20


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Most of the Bank's TDRs involve a restructuring of loan terms to reduce the payment amount to require only interest for a period prior to maturity. The following table presents detail of the Bank's TDRs at September 30, 2011 and December 31, 2010:

September 30, 2011

TDRs on

TDRs on

Nonaccrual

Accrual

Status

Status

Total TDRs

Commercial

$52,985

$-

$52,985

Commercial and agricultural real estate:

Commercial real estate

791,257

-

791,257

Agricultural real estate

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

1-4 family closed-end first lien

2,210,731

-

2,210,731

1-4 family closed-end junior lien

-

-

-

Multi-family

-

-

-

Construction and land development

-

267,922

267,922

$3,054,973

$267,922

$3,322,895

============

============

============

December 31, 2010

TDRs on

TDRs on

Nonaccrual

Accrual

Status

Status

Total TDRs

Commercial real estate

$-

$2,741,541

$2,741,541

============

============

============

Credit Quality Indicators

       The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings, which are updated annually:

Special mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are 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 liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

page 21


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are typically loans held for sale and overdrafts. An analysis of loans by risk category is performed quarterly. As of September 30, 2011 and December 31, 2010, and based on the most recent analysis performed as of each date, the risk category of loans by class of loans is as follows:

September 30, 2011

Special

Pass

Mention

Substandard

Doubtful

Not Rated

Commercial

$23,959,276

$127,504

$403,501

$-

$-

Commercial and agricultural real estate:

Commercial real estate

116,006,169

3,257,586

8,046,370

-

-

Agricultural real estate

34,513,685

954,606

326,785

-

-

Residential real estate:

Home equity line of credit

17,326,935

33,000

335,012

-

-

1-4 family closed-end first lien

57,480,412

1,371,664

4,517,992

13,568

2,589,922

1-4 family closed-end junior lien

2,349,996

34,665

452,405

-

-

Multi-family

1,017,159

-

-

-

-

Construction and land development

25,056,181

10,992

3,562,562

-

Consumer

26,029,749

155,964

490,347

-

-

Other

11,139,325

20,008

33,506

-

494,568

Total

$314,878,887

$5,965,989

$18,168,480

$13,568

$3,084,490

==========

=========

=========

=========

=========

December 31, 2010

Special

Pass

Mention

Substandard

Doubtful

Not Rated

Commercial

$33,353,758

$111,401

$1,096,237

$-

$-

Commercial and agricultural real estate:

Commercial real estate

108,460,368

3,507,932

10,580,642

-

-

Agricultural real estate

33,534,967

174,269

518,341

-

-

Residential real estate:

Home equity line of credit

18,643,055

28,069

179,815

-

-

1-4 family closed-end first lien

55,231,087

1,031,548

5,169,137

319,585

1,310,965

1-4 family closed-end junior lien

2,434,095

8,343

733,023

-

-

Multi-family

1,144,978

-

-

-

-

Construction and land development

22,407,749

3,907,654

5,426,813

-

Consumer

21,824,500

294,091

560,310

-

-

Other

11,449,573

1,337

59,911

-

595,150

Total

$308,484,130

$9,064,644

$24,324,229

$319,585

$1,906,115

==========

=========

=========

=========

=========

Note 6

       Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

page 22


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)


Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

       The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

       Investment securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

       Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

       Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned ("OREO") are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

page 23


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

Assets Measured on a Recurring Basis

       Assets and liabilities measured at fair value on a recurring basis as of September 30,2011 and December 31, 2010 are summarized below:

Fair Value Measurements at

Fair Value Measurements at

September 30, 2011 using

December 31, 2010 using

Quoted Prices

Quoted Prices

in Active

Significant

in Active

Significant

Markets for

Other

Markets for

Other

Identical

Observable

Identical

Observable

Carrying

Assets

Inputs

Carrying

Assets

Inputs

Value

(Level 1)

(Level 2)

Value

(Level 1)

(Level 2)

Assets:

Available for sale securities:

    U.S. Treasuries

$100,324

$-

$100,324

$100,668

$-

$100,668

    Obligations of U.S. Government

        Sponsored Agencies

107,673,948

-

107,673,948

104,655,604

-

104,655,604

    Obligations of States and

        Political Subdivisions

39,837,238

-

39,837,238

42,559,055

-

42,559,055

    Mortgage-backed securities

        - residential

59,003,876

-

59,003,876

43,835,197

-

43,835,197

    Equity securities

-

-

-

44,800

44,800

        Total

$206,615,386

$-

$206,615,386

$191,195,324

$44,800

$191,150,524

=========

===========

===========

=========

===========

===========

Assets Measured on a Non-Recurring Basis

       Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements at

September 30, 2011 Using

Significant

Other

Significant

Observable

Unobservable

Carrying

Inputs

Inputs

Value

(Level 2)

(Level 3)

Assets:

Impaired loans

Comml and ag real estate:

    Commercial real estate

$1,533,607

$1,533,607

    Agricultural real estate

-

-

Residential real estate:

    Home equity line of credit

-

-

    1-4 family closed-end

-

-

    Multi-family

-

-

Construction & land development

1,861,553

1,861,553

Total impaired loans

$3,395,160

$3,395,160

============ ============

Other real estate owned

Residential real estate:

    Home equity line of credit

$-

$-

    1-4 family closed-end

117,500

117,500

    Multi-family

576,690

576,690

Construction & land development

3,511,370

3,511,370

Total other real estate owned

$4,205,560

$4,205,560

============ ============

page 24


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

Fair Value Measurements at

December 31, 2010 Using

Significant

Other

Significant

Observable

Unobservable

Carrying

Inputs

Inputs

Value

(Level 2)

(Level 3)

Assets:

Impaired loans

Comml and ag real estate:

    Commercial real estate

$2,488,639

$2,488,639

Residential real estate:

    1-4 family closed-end

197,508

197,508

Construction & land development

1,861,553

1,861,553

Total impaired loans

$4,547,700

$4,547,700

============ ============

Other real estate owned

Construction & land development

$4,056,100

$4,056,100

Total other real estate owned

$4,056,100

$4,056,100

============ ============

       There were $3,395,160 in impaired loans measured for impairment using the fair value of the collateral at September 30, 2011, resulting in an additional provision for loan losses of $0 and $28,200 for the three and nine months ended September 30, 2011, respectively. There were no impaired loans measured for impairment using the fair value of the collateral at September 30, 2010. Additional provision for loan losses for the nine months ended September 30, 2010 was $26,765 related to impaired loans measured at fair value. There was no additional provision for loan losses related to impaired loans measured at fair value for the three months ended September 30, 2010.
       Other real estate owned, which is measured at fair value less costs to sell, had a net carrying amount of $7,830,744 as of September 30, 2011. Included in this amount were properties that were written down to fair value totaling $4,205,560, resulting in additional foreclosed asset expense $0 and $17,155 in the three and nine months ended September 30, 2011, respectively. Other real estate owned had a net carrying amount of $14,015,090 at September 30, 2010. Included in this amount were properties that were written down to fair value totaling $979,480 resulting in additional foreclosed asset expense of $138,650 in the three and nine months ended September 30, 2010.
       Carrying amount and estimated fair values of financial instruments at September 30, 2011 and December 31, 2010 were as follows:

September 30, 2011

December 31, 2010

(In thousands)

(In thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Financial assets:

Cash and short-term investments

$33,199

$33,199

$17,584

$17,584

Securities

206,615

206,615

191,195

191,195

Loans, net

333,803

332,014

335,873

333,421

Accrued interest receivable

3,283

3,283

3,316

3,316

Financial liabilities:

Deposits

546,304

547,894

533,324

535,620

Securities sold under repurchase agreements

2,303

2,303

1,803

1,803

Other borrowed funds

7,380

7,824

7,545

7,967

Accrued interest payable

897

897

1,321

1,321

page 25


PART I - FINANCIAL INFORMATION
____________________________________________

Item 1. Financial Statements. (Continued)

       The methods and assumptions not previously described used to estimate fair value are described as follows:
       Carrying amount is the estimated fair value for cash and short term investments, accrued interest receivable and payable, demand deposits, and variable rate loans or deposits that reprice frequently and fully. The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.
Fair values of impaired loans are generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Fair values of debt are based on current rates for similar financing. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability, therefore it has been excluded from the table above. The fair value of off-balance-sheet items and loans held for sale are not considered material.

Note 7

       The factors used in the earnings per share computation follow:

For Three Months Ended

For Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Net Income

$1,890,636

$1,373,676

$4,860,294

$3,025,560

Less:  Distributed earnings allocated to participating securities

(613)

(613)

(1,838)

(1,838)

Less:  (Undistributed income) dividends in excess of earnings

                 allocated to participating securities

(2,339)

(1,539)

(5,755)

(2,905)

Net earnings allocated to common stock

$1,887,684

$1,371,524

$4,852,701

$3,020,817

========== ========== ========== ==========

Weighted common shares outstanding

    including participating securities

1,569,394

1,564,231

1,568,185

1,562,979

Less:  Participating securities

(2,450)

(2,450)

(2,450)

(2,450)

Weighted average shares

1,566,944

1,561,781

1,565,735

1,560,529

========== ========== ========== ==========

Basic earnings per share

$1.20

$0.88

$3.10

$1.94

========== ========== ========== ==========

Net earnings allocated to common stock

$1,887,684

$1,371,524

$4,852,701

$3,020,817

========== ========== ========== ==========

Weighted average shares

1,566,944

1,561,781

1,565,735

1,560,529

Add:  dilutive effects of assumed exercises of stock options

92

403

131

649

Average shares and dilutive potential common shares

1,567,036

1,562,184

1,565,866

1,561,178

========== ========== ========== ==========

Dilutive earnings per share

$1.20

$0.88

$3.10

$1.93

========== ========== ========== ==========

page 26


PART I - FINANCIAL INFORMATION
____________________________________________


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

       The following analysis should be read in conjunction with the financial statements set forth in Part I, Item 1, immediately preceding this section. 
       Reference is made to the annual report of the registrant on Form 10-K for the year ended December 31, 2010, which report was filed with the Securities and Exchange Commission on March 16, 2011. This Form 10-Q contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the registrant. The words "anticipate," "expect," "should," "could," "may", "plan," "intend", "believe", "likely", "seek", "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The registrant undertakes no obligation to publicly release any modifications, updates or revisions of these statements to reflect events or circumstances occurring after the day hereof, or to reflect the occurrence of unanticipated events.
       In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the registrant cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the registrant. Such forward-looking statements involve known and unknown risks and uncertainties, including, but not limited to those described in the registrant's Annual Report on Form 10-K for the year ended December 31, 2010 and, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) continuation of the historically low short-term interest rate environment, (iii) increased competition with other financial institutions, (iv) deterioration or lack of sustained growth in the economy in the registrant's market areas, (v) rapid fluctuations in interest rates, (vi) significant downturns in the businesses of one or more large customers, (vii) risks inherent in originating loans, including prepayment risks, (viii) the fluctuations in collateral values, the rate of loan charge-offs and the level of the provision for losses on loans, (ix) results of regulatory examinations, (x) any event that would cause the registrant to conclude that there was impairment of any asset including intangible assets, (xi) changes in state and Federal legislation, regulations or policies applicable to banks and other financial services providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and (xii) loss of key personnel. These risks and uncertainties may cause the actual results or performance of the registrant to be materially different from any future results or performance expressed or implied by such forward-looking statements.

Critical Accounting Policies

       The accounting principles the registrant follows and its methods of applying these principles conform to accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles to the determination of the allowance for loan losses, the registrant has made judgments and estimates that have significantly impacted the financial position and results of operations.
       The provision for loan losses is the charge to earnings which management feels is necessary to maintain the allowance for loan losses at a level considered adequate to reflect estimated credit losses for specifically identified impaired loans as well as estimated probable incurred credit losses inherent in the remainder of the loan portfolio at the balance sheet date. The allowance is increased by the provision for loan losses, which is charged against current period operating results, and decreased by the amount of charge-offs, net of recoveries. A formal review of the allowance for loan losses is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The registrant's methodology of assessing the appropriateness of the allowance consists of several elements, which include the historical allowance and specific allowances as described below.
       The historical allowance is calculated by applying loss factors to outstanding loans. For purposes of the quarterly review, the loan portfolio is separated by loan type, and each type is treated as a homogeneous

page 27


PART I - FINANCIAL INFORMATION
____________________________________________

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

pool. Each loan is assigned a risk rating by loan officers using established credit policy guidelines. These risk ratings are periodically reviewed and all risk ratings are subject to review by an independent Credit Review Department. Each risk rating is assigned an allocation percentage which, when multiplied times the dollar value of loans in that risk category, results in the amount of the allowance for loan losses allocated to these loans. Allocation percentages are based on the registrant's historical loss experience and may be adjusted for significant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date.
       Specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates the probability that a loss has been incurred. In addition, every substandard or worse loan in excess of $250,000 and all loans classified as "Other Assets Especially Mentioned" over $400,000 are reviewed quarterly by the Executive and Loan Committee of the Bank's Board of Directors.
       Other Real Estate Owned acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.


OVERVIEW

       Total assets of the registrant grew $21.2 million, or 3.5 percent, in the first nine months of 2011. This growth in assets was primarily funded by an approximately $13.0 million, or 2.4 percent, increase in deposits. Loans net of unearned income decreased $3.2 million in the first nine months of 2011 as loan demand improved slightly from previous quarters but remained at weak levels. The growth in deposits contributed to an increase in investment securities of approximately $15.4 million and an increase in cash and due from banks of $12.6 million in the first nine months of 2011.
       Net income increased $516,960 to $1,890,636, or $1.20 per diluted share, in the third quarter of 2011 as compared to $1,373,376, or $0.88 per diluted share, during the same period of 2010. The increase in net income in the third quarter of 2011 as compared to the same period of 2010 was primarily due to decreased provision for loan losses and increased net interest income in the third quarter of 2011. There was no provision for loan losses in the third quarter of 2011 as total loans declined, primarily commercial and construction and land development loans and credit risk factors stabilized, leading to a decrease of $1,500,000 as compared to the provision for loan losses in the third quarter of 2010. Net interest income increased $483,576, or 8.8 percent, to $5,962,981 in the third quarter of 2011 as compared to the same period of 2010. The increase in net interest income was primarily due to an increase in the net interest margin to 4.26 percent in the third quarter of 2011 from 4.01 percent in the third quarter of 2010. This increase in net interest income was partially offset by a $993,612 reduction in non-interest income in the third quarter of 2011 as compared to the same period of 2010 primarily as a result of a $1,012,375 decline in the gain on the sale of securities in the third quarter of 2011.
       Net income increased $1,834,734 to $4,860,294, or $3.10 per diluted share, in the first nine months of 2011 as compared to $3,025,560, or $1.93 per diluted share, during the same period of 2010. The increase in net income in the first nine months of 2011 as compared to the same period of 2010 was primarily due to decreased provision for loan losses and increased net interest income in the first nine months of 2011. Provision for loan losses totaled $1,150,000 in the first nine months of 2011, a decrease of $2,900,000 as compared to the provision for loan losses in the first nine months of 2010. Net interest income increased $1,227,426, or 7.5 percent, to $17,532,005 in the first nine months of 2011 as compared to $16,304,579 in the same period of 2010. The increase in net interest income was primarily due to an increase in the net interest margin to 4.23 percent for the first nine months of 2011 from 4.05 percent for the first nine months of 2010. This increase in net interest income was partially offset by a $774,827 reduction in non-interest

page 28


PART I - FINANCIAL INFORMATION
____________________________________________

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

income in the first nine months of 2011 as compared to the same period of 2010 primarily as a result of a $943,250 decline in the gain on the sale of securities in the first nine months of 2011.
       Net charged-off loans totaled approximately $1,023,000 in the first nine months of 2011, resulting in an annualized charge-off ratio of 0.40 percent as compared to net charge-offs of approximately $3,071,000 in the first nine months of 2010, resulting in an annualized charge-off ratio of 1.16 percent.
Nonaccrual loans decreased to approximately $11,323,000 at September 30, 2011 as compared to approximately $13,253,000 at December 31, 2010. Other real estate owned also declined to approximately $7,831,000 at September 30, 2011 as compared to approximately $12,704,000 at December 31, 2010. Concerted efforts are being made to dispose of the other real estate owned while striving to ensure that fair market value is received and that excessive discounts are not taken. Expenses related to these foreclosed assets decreased approximately $10,000 in the first nine months of 2011 as compared to the same period of 2010. The registrant expects total non-performing assets, as well as expenses related to foreclosed assets, will continue at elevated levels through the remainder of 2011.


Results of Operations

       Net income of the registrant was $4,860,294 for the first nine months of 2011. This amounted to an increase of $1,834,734, or 60.6 percent, compared to the first nine months of 2010.  For the three-month period ended September 30, 2011, net income was $1,890,636, an increase of $516,960, or 37.6 percent, as compared to the three months ended September 30, 2010. 
       Net interest income increased $483,576, or 8.8 percent, to $5,962,981 during the third quarter of 2011 as compared to $5,479,405 for the third quarter of 2010.  Total interest income decreased $136,246, or 1.9 percent, to $7,227,868 for the third quarter of 2011 as compared to $7,364,114 for the same period in 2010. The decrease in total interest income was primarily due to a decrease in average loans outstanding and a decrease in the yields earned on the registrant's investment securities in the third quarter of 2011 as compared to the same period of 2010. Interest and fees on loans decreased $137,498 in the third quarter of 2011 as compared to the same period of 2010 primarily as a result of a decrease in average loans outstanding of approximately $11.5 million in the third quarter of 2011 as compared to the same period of 2010. Interest income on securities increased $9,502 in the third quarter of 2011 as compared to the third quarter of 2010 primarily as a result of an increase in average investment securities held of approximately $30.3 million in the third quarter of 2011 as compared to the same period of 2010. The overall increase in interest income on securities was limited in the third quarter of 2011 as compared to the same period of 2010 as yields earned on securities declined in the third quarter of 2011.
       The increase in net interest income in the third quarter of 2011 as compared to the third quarter of 2010 was primarily due to a decrease in total interest expense of $619,822, or 32.9 percent, to $1,264,887 for the third quarter of 2011 as compared to $1,884,709 for the same period in 2010. The decrease in total interest expense was primarily due to lower average interest rates paid on interest-bearing deposits in the third quarter of 2011 as compared to the third quarter of 2010. The interest expense on time deposits decreased $612,007 in the third quarter of 2011 as compared to the same period of 2010 as the average interest rate paid on time deposits fell to 1.50 percent in the third quarter of 2011 as compared to 2.12 percent in the third quarter of 2010. The average balances held in time deposits also decreased $34.3 million in the third quarter of 2011 as compared to the same period of 2010 as the registrant lowered interest rates paid on time deposits, shrinking these higher interest-bearing deposits to more effectively use these funds in the lower-yielding investment portfolio due to continuing weakness in loan demand. The interest expense on NOW accounts decreased $18,748 in the third quarter of 2011 as compared to the same period of 2010 even as the average balances held increased $13.1 million as the average interest rate paid fell to 0.22 percent in the third quarter of 2011 as compared to 0.35 percent for the same period of 2010. The interest expense on

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

savings and money market accounts increased $13,773 in the third quarter of 2011 as compared to the same period of 2010 as the average balances held increased $16.8 million and the average interest rate paid fell to 0.43 percent in the third quarter of 2011 from 0.46 percent in the third quarter of 2010.
       Net interest income of the registrant for the nine-month period ended September 30, 2011 increased by $1,227,426, or 7.5 percent, to $17,532,005 as compared to $16,304,579 for the nine months ended September 30, 2010. Total interest income decreased $625,172, or 2.8 percent, for the first nine months of 2011 as compared to the same period in 2010. This decrease was primarily the result of a $603,179 decrease in interest and fees on loans. The decrease in interest and fees on loans was primarily the result of a decrease in average loans outstanding of approximately $15.7 million that was partially offset by a slight increase in yields earned on loans in the first nine months of 2011 as compared to the same period of 2010. Interest on investment securities also decreased by $8,535 in the first nine months of 2011 as compared to the same period of 2010, primarily as a result of a decrease in average yields earned on investment securities that was partially offset by an increase in average investment securities held of approximately $33.0 million in the first nine months of 2011 as compared to same period of 2010.
       The increase in net interest income in the first nine months of 2011 as compared to the same period in 2010 was primarily due to a decrease in total interest expense of $1,852,598, or 31.2 percent, to $4,080,436 for the first nine months of 2011 as compared to $5,933,034 for the same period in 2010. The decrease in total interest expense was primarily caused by a $1,751,287 decrease in interest expense on time deposits for the nine months ended September 30, 2011 as compared to the same period in 2010. The decrease in interest expense on time deposits was primarily due to lower interest rates paid in the first nine months of 2011 as well as a decrease in the average balance of time deposits of $30.2 million as compared to the same period of 2010. The average interest rate paid on time deposits decreased to 1.63 percent in the first nine months of 2011 as compared to 2.24 percent in the first nine months of 2010. The interest expense on NOW accounts decreased $91,754 in the first nine months of 2011 even though the average balances held increased $14.5 million as the average interest rate paid fell to 0.22 percent from 0.41 percent in the first nine months of 2011 as compared to the same period of 2010. The interest expense on savings and money market accounts decreased $2,254 in the first nine months of 2011 even though the average balances held increased $14.8 million as the average interest rate paid fell to 0.44 percent from 0.52 percent in the first nine months of 2011 as compared to the same period of 2010.
       The registrant's non-interest income is composed of several components, some of which vary significantly between quarterly periods. Service charges on deposit accounts and other non-interest income generally reflect the registrant's growth, while fees for origination of mortgage loans will often reflect home mortgage market conditions and fluctuate more widely from period to period.
       Total non-interest income decreased $993,612, or 43.5 percent, to $1,291,978 for the three-month period ended September 30, 2011 as compared to $2,285,590 for the three-month period ended September 30, 2010. Most of the decrease in non-interest income was due to a $1,012,375 decrease in gain on the sale of securities in the third quarter of 2011 as compared to the same period of 2010. Also, other income decreased $49,494 in the third quarter of 2011 as compared to the same period of 2010 primarily due to a $48,441 decrease in rental income from other real estate owned by the Bank in the third quarter of 2011 as compared to the same period of 2010 as a large portion of the other real estate owned on which rental income was received was sold in the first quarter of 2011. This decrease was partially offset by a $41,953 increase in service charges on deposit accounts and a $40,908 increase in other service charges and fees in the third quarter of 2011 as compared to the same period of 2010. The increase in service charges on deposit accounts was primarily due to increased overdraft fees and the increase in other service charges and fees was primarily due to increased debit card interchange fees in the third quarter of 2011. Other categories of non-interest income showed only minor differences between the third quarter of 2011 and the third quarter of 2010.

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

       Total non-interest income decreased $774,827, or 16.5 percent, to $3,910,581 for the nine-month period ended September 30, 2011 as compared to $4,685,408 for the same period ended September 30, 2010. Most of the decrease in non-interest income was due to a $943,250 decrease in gain on the sale of securities in the third quarter of 2011 as compared to the same period of 2010. Also, mortgage banking income decreased $77,594 and income on company-owned life insurance decreased $34,505 in the first nine months of 2011 as compared to the same period of 2010. These decreases were partially offset by a $138,906 increase in other service charges and fees, an $89,881 increase in other income and a $71,141 increase in service charges on deposit accounts in the first nine months of 2011 as compared to the same period of 2010. The increase in other service charges and fees was primarily due to increased debit card interchange fees and the increase in service charges on deposit accounts was primarily due to increased overdraft fees in the first nine months of 2011 as compared to the same period of 2010. The increase in other income was primarily due to a $274,976 gain on the sale of certain real estate held by the registrant that was partially offset by a $171,340 decrease in rental income from other real estate owned by the Bank in the first nine months of 2011 as compared to the same period of 2010 as a large portion of the other real estate owned on which rental income was received was sold in the first quarter of 2011.
       Total non-interest expenses increased $138,129, or 3.2 percent, to $4,453,114 in the third quarter of 2011 as compared to $4,314,985 for the same period of 2010. This increase in non-interest expenses was primarily due to a $352,910 increase in salaries and employee benefits due to increased accrued potential incentive and benefit expenses in the third quarter of 2011 as compared to the same period of 2010. Other increases included a $67,251 increase in other operating expenses and a $47,124 increase in advertising and public relations in the third quarter of 2011 as compared to the same period of 2010. These increases were partially offset by decreases of $221,644 in foreclosed asset expense and $92,453 in FDIC insurance expense in the third quarter of 2011 as compared to the same period of 2010.
       Total non-interest expenses increased $298,868, or 2.3 percent, to $13,222,804 in the first nine months of 2011 as compared to $12,923,936 for the same period of 2010. This increase in non-interest expenses was primarily due to a $460,194 increase in salaries and employee benefits in the first nine months of 2011 as compared to the same period of 2010. Advertising and public relations and occupancy expenses also showed small increases of $45,325 and $28,179, respectively, in the first nine months of 2011 as compared to the same period of 2010. Decreases of $189,399 in FDIC insurance expense and $39,200 in impairment of available for sale equity securities and other equity investments in the first nine months of 2011 as compared to the same period of 2010 partially offset these increases.
       As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC. Because the FDIC's deposit insurance fund fell below prescribed levels in 2008, the FDIC announced increased premiums for all insured depository institutions, including the Bank, in order to begin recapitalizing the fund.
       In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011. In December 2009, the Bank paid $3.39 million in prepaid risk-based assessments, which included $216,000 related to the fourth quarter of 2009 that would have otherwise been payable in the first quarter of 2010. This amount was included in FDIC insurance expense for 2009. Prepaid FDIC insurance had a balance of $1.82 million at September 30, 2011 as a $126,000 reduction was made for applicable FDIC insurance premiums in the third quarter of 2011.
       There was no provision for loan losses in the three months ended September 30, 2011 as total loans declined and credit risk factors stabilized during the third quarter of 2011, leading to a decrease as compared to a provision for loan losses of $1,500,000 in the same period of 2010. The provision for loan losses for the nine months ended September 30, 2011, decreased $2,900,000 to $1,150,000 from $4,050,000 over the same period of 2010. Although the provision for loan losses in the three and nine months ended September 30, 2011 declined significantly from the amount in the same periods of 2010, the size of the allowance for loan

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PART I - FINANCIAL INFORMATION
____________________________________________

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

losses continued to reflect the effects of continued weakness in local and national economic conditions upon the loan portfolio, particularly within the real estate segment of the portfolio. If economic conditions or the real estate market deteriorates beyond management's current expectations, additional provisions for loan losses would likely be necessary, negatively impacting the registrant's net income. The provision for possible loan losses is based on past loan experience and other factors that, in management's judgment, deserve current recognition in estimating possible credit losses. Such factors include past loan loss experience, growth and composition of the loan portfolio, review of specific problem loans, results of regulatory examinations, results of updated appraisals, the relationship of the allowance for credit losses to outstanding loans and current economic conditions that may affect the borrower's ability to repay. A more detailed description of the allowance for loan losses can be found under the section titled "Critical Accounting Policies."
       For the three-month period ended September 30, 2011, income before taxes increased $851,835, or 43.7 percent, to $2,801,845 as compared to $1,950,010 for the three months ended September 30, 2010.  Applicable income taxes increased $334,875 for the three-month period ended September 30, 2011 as compared to the same period in 2010. The effective tax rate for the three months ended September 30, 2011 was 32.5 percent as compared to 29.6 percent for the same period of 2010.
       For the nine-month period ended September 30, 2011, income before taxes increased $3,053,731, or 76.0 percent, to $7,069,782 as compared to $4,016,051 for the nine-month period ended September 30, 2010. Applicable income taxes increased $1,218,997 for the nine months ended September 30, 2011 as compared to the same period of 2010. The effective tax rate for the nine months ended September 30, 2011 was 31.3 percent as compared to 24.7 percent for the same period of 2010.
       The following table shows the return on assets (net income divided by average total assets) and return on equity (net income divided by average stockholders' equity, excluding unrealized gain or loss on securities) for the nine months ended September 30, 2011 (annualized) and for the year ended December 31, 2010.

For the nine months ended

For year ended

September 30, 2011 (annualized)

December 31, 2010

Return on assets

1.05%

0.66%

Return on equity

11.85%

7.80%


Financial Condition

       The registrant's total assets increased 3.5 percent to $622,375,103 during the nine months ended September 30, 2011, from $601,140,219 at December 31, 2010. Total loans, net of unearned income were $339,336,831 at September 30, 2011, a 0.9 percent decrease compared to $342,558,758 at December 31, 2010. Securities available-for-sale increased to $206,615,386 at September 30, 2011 from $191,195,324 at December 31, 2010.  At September 30, 2011, there was an unrealized gain on available-for-sale securities, net of tax, of $2,587,889, as compared to an unrealized loss on available-for-sale securities, net of tax, of $293,218 at December 31, 2010.
       Total liabilities increased by 2.6 percent to $562,955,041 at September 30, 2011, compared to $548,475,756 at December 31, 2010. This increase was primarily due to an increase of $11,816,400 in non-interest bearing deposits at September 30, 2011 as compared to December 31, 2010.
       Non-performing assets decreased to $19,153,549 at September 30, 2011 as compared to $25,956,141 at December 31, 2010.  The decrease in non-performing assets at September 30, 2011 as compared to December 31, 2010, was primarily due to decreases in other real estate owned as the registrant continued its

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

efforts to liquidate other real estate owned. Non-performing assets at September 30, 2011 included $7,830,744 in other real estate owned, $11,322,805 in non-accrual loans, and no loans past due 90 days or more as to interest or principal payment and accruing interest. There were $3,322,895 in restructured loans at September 30, 2011. Other real estate owned declined during the first nine months of 2011; however, the level of other real estate owned remained at an elevated level at September 30, 2011. The properties comprising other real estate owned at September 30, 2011 were primarily construction and development, one-to-four family real estate properties, agricultural real estate and commercial real estate. The balance of non-accrual loans at September 30, 2011 consisted primarily of one-to-four family real estate loans, construction and land development loans, and commercial real estate loans. At December 31, 2010, the corresponding amounts of non-performing assets were $12,703,579 in other real estate owned, $13,252,562 in non-accrual loans and no loans past due 90 days or more and accruing interest. There were $2,741,541 in restructured loans at December 31, 2010. The Company allocated $130,581 in specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2011. There were no specific reserves allocated to loans that were classified as troubled debt restructurings at December 31, 2010. The allowance for loan losses was 71.8% of the balance of nonaccrual loans at September 30, 2011 as compared to 60.3% at December 31, 2010.
       Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due 90 days with respect to principal or interest unless such loans are well secured and in the process of collection. The additional amount of interest that would have been recorded during the first nine months of 2011 if the above nonaccrual loans had been current in accordance with their original terms was approximately $780,000.
       Loans that are classified as "substandard" by the registrant represent loans to which management has doubts about the borrowers' ability to comply with the present loan repayment terms. As of September 30, 2011, there were approximately $7,497,000 in loans that were classified as "substandard" and accruing interest. This compares to approximately $10,416,000 in loans that were classified as "substandard" and accruing interest as of September 30, 2010 and $12,003,000 of such loans at December 31, 2010.
       Credit risk represents the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. Concentrations of credit risk or types of collateral arising from financial instruments exist in relation to certain groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The registrant does not have a significant concentration to any individual customer or counterparty. The major concentrations of credit risk for the registrant arise by collateral type in relation to loans and credit commitments. The most significant concentration that exists is in loans secured by real estate, primarily commercial real estate loans (37 percent of total loans) and 1-4 family residential loans (25 percent of total loans). Commercial loans, both those secured by real estate and those not secured by real estate, are further classified by their appropriate North American Industry Classification System ("NAICS") code. Of those loans classified by NAICS code, the registrant has concentrations of credit, defined as 25 percent or more of total risk-based capital, of loans to lessors of residential buildings and dwellings (36 percent of total risk-based capital) and loans secured by subdivision land (32 percent of total risk-based capital). Although the registrant has a loan portfolio diversified by type of risk, the ability of its customers to honor their contracts is to some extent dependent upon economic conditions, particularly within the real estate segment of the economy, in the regions where our customers operate. A geographic concentration arises because the registrant grants commercial, real estate and consumer loans primarily to customers in Giles, Marshall and Lincoln Counties, Tennessee and Madison and Limestone Counties, Alabama. In order to mitigate the impact of credit risk, management strives to identify loans experiencing difficulty early enough to correct the problems and to maintain an

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

allowance for loan losses at a level management believes is sufficient to cover probable incurred losses in the loan portfolio.
       For the nine months ended September 30, 2011, the registrant had net loan charge-offs of approximately $1,023,000 for a net charge-off ratio (net charge-offs divided by total loans net of unearned income) of 0.40 percent (annualized). This compares to net charge-offs of approximately $3,071,000 for the nine months ended September 30, 2010 for a net charge-off ratio of 1.16 percent (annualized).
       The total allowance for loan losses increased to $8,124,130 as of September 30, 2011 from $7,996,961 as of December 31, 2010. The ratio of the allowance for loan losses to loans net of unearned income was 2.39 percent at September 30, 2011 as compared to 2.33 percent at December 31, 2010. Management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio.

Liquidity

       Liquidity is the ability to fund increases in loan demand or to compensate for decreases in deposits and other sources of funds, or both. Maintenance of adequate liquidity is an essential component of the financial planning process. The objective of asset/liability management is to provide an optimum balance of liquidity and earnings. Cash and cash equivalents increased $15,611,704 from December 31, 2010 to September 30, 2011.
       Marketable investment securities, particularly those of short maturities, are another source of asset liquidity. Securities maturing in one year or less amounted to approximately $11,731,000 at September 30, 2011, representing 5.7 percent of the registrant's investment portfolio as compared to $8,541,000, or 4.9 percent, one year earlier and $8,979,000, or 4.7 percent, at December 31, 2010. These securities may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital, or asset/liability strategy. Management classifies all the registrant's investment portfolio in the available-for-sale category and reports these securities at fair value. Management does not anticipate the sale of a substantial amount of investment securities in the foreseeable future.
       Other sources of liquidity include maturing loans and federal funds sold. At September 30, 2011, the registrant had approximately $119,516,000 in loans maturing within one year. The registrant had $4,690,000 in federal funds sold at September 30, 2011, compared to $1,690,000 as of December 31, 2010. The registrant also had approximately $27,965,000 in cash and due from banks at September 30, 2011 as compared to approximately $15,353,000 at December 31, 2010.
       The registrant does not anticipate that there will be any unusual demands, commitments, or events that could adversely impact the liquidity of the registrant for the remainder of 2011.

Off Balance Sheet Arrangements

       The registrant has not historically incurred off-balance sheet obligations through the use of or investment in off-balance sheet derivative financial instruments of structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts. However, the registrant is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The following table summarizes the registrant's involvement in financial instruments with off-balance sheet risk:

 

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

Amount at

September 30, 2011

December 31, 2010

Commitments to extend credit

$54,028,574

$56,723,565

Standby letters of credit

2,535,521

2,586,386

Mortgage loans sold with repurchase

    requirements outstanding

8,212,282

9,348,103

       Since these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these commitments, the registrant has the ability to liquidate federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase federal funds from other financial institutions as well as borrow from the Federal Home Loan Bank of Cincinnati. At September 30, 2011, the registrant had total borrowings of $7,379,927 and had approximately $19,486,000 of available additional borrowings from the Federal Home Loan Bank of Cincinnati. At September 30, 2011, the registrant had no federal funds purchased and had $20,000,000 in additional federal funds lines available from correspondent banks.
       The registrant originates residential mortgage loans for sale in the secondary market which it may be required to repurchase if a default occurs with respect to the payment of any of the first four installments of principal and interest after a loan is sold and the default continues for a period of 90 days.

Capital Adequacy

       The Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC have established risk-based capital guidelines for U.S. banking organizations. These guidelines provide a uniform capital framework that is sensitive to differences in risk profiles among banks. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Pulaski National Corporation ("FPNC") and First National Bank of Pulaski ("FNB") must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. FPNC's and FNB's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
       Under these guidelines, total capital consists of Tier I capital (core capital, primarily stockholders' equity) and Tier II capital (supplementary capital, including certain qualifying debt instruments and credit loss reserve).
       Assets are assigned risk weights ranging from 0 to 100 percent depending on the level of credit risk normally associated with such assets. Off-balance sheet items (such as commitments to make loans) are also included in assets through the use of conversion factors established by regulators and are assigned risk weights in the same manner as on-balance sheet items. Banking institutions are expected to maintain a Tier I capital to risk-weighted assets ratio of at least 4.00 percent, a total capital (Tier I plus Tier II) to total risk-weighted assets ratio of at least 8.00 percent, and a Tier I capital to total average assets ratio (leverage ratio) of at least 4.00 percent.

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PART I - FINANCIAL INFORMATION
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Continued)

       Management believes, as of September 30, 2011 and December 31, 2010, that FPNC and FNB met all capital adequacy requirements to which they are subject.  To be categorized as well-capitalized, FNB must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. The following table presents actual, minimum and "well capitalized" capital amounts and ratios for FPNC and FNB as of September 30, 2011 and December 31, 2010.

To Be Well Capitalized

Under Prompt

For Capital

Corrective Action

Actual

Adequacy Purposes

Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars In thousands)

As of September 30, 2011

Total Capital to risk weighted assets

FPNC

$61,977

15.17%   

$32,694

>

8.00%    

40,868

>

10.00

FNB

61,469

15.05

32,685

>

8.00

40,856

>

10.00

Tier I (Core) Capital to risk weighted assets

FPNC

56,832

13.91

16,347

>

4.00

24,521

>

6.00

FNB

56,324

13.79

16,342

>

4.00

24,514

>

6.00

Tier I (Core) Capital to average quarterly assets

FPNC

56,832

9.21

24,677

>

4.00

30,847

>

5.00

FNB

56,324

9.13

24,673

>

4.00

30,841

>

5.00

As of December 31, 2010

Total Capital to risk weighted assets

FPNC

$58,249

13.87%   

$33,597

>

8.00%    

41,997

>

10.00

FNB

57,855

13.78

33,592

>

8.00

41,991

>

10.00

Tier I (Core) Capital to risk weighted assets

FPNC

52,958

12.61

16,799

>

4.00

25,198

>

6.00

FNB

52,563

12.52

16,796

>

4.00

25,194

>

6.00

Tier I (Core) Capital to average quarterly assets

FPNC

52,958

8.68

24,407

>

4.00

30,508

>

5.00

FNB

52,563

8.62

24,404

>

4.00

30,505

>

5.00


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

       The registrant's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the registrant's assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the registrant's operations, the registrant is not subject to foreign currency exchange or commodity price risk.

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PART I - FINANCIAL INFORMATION
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Continued)

       Interest rate risk management focuses on the earnings risk associated with changing interest rates, as well as the risk to the present value of the registrant's equity. Management seeks to maintain profitability in both immediate and long-term earnings through funds management and interest rate risk management. The registrant's rate sensitive position has an important impact on earnings and the present value of the registrant's equity. Management of the registrant meets regularly to analyze the rate sensitivity position, focusing on the spread between the cost of funds and interest yields generated primarily through loans and investments. Management also seeks to maintain stability in the net interest margin under varying interest rate environments. These goals are accomplished through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.
       Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments, changes in market conditions, and pricing and deposit volume and mix. Since these assumptions are inherently uncertain, net interest income can not be precisely estimated nor can the impact of changes in interest rates be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management's strategies, among other factors.
       Simulation modeling is used to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. Important elements in this modeling process include the mix of floating rate versus fixed rate assets and liabilities; the repricing/maturing volumes and rates of the existing balance sheet; and assumptions regarding future volumes, maturity patterns and pricing under varying interest rate scenarios. The Bank's Asset/Liability policy strives to limit the decrease in net interest income over a +/-200 basis point rate shock to no more than 9.0 percent over the next twelve months as compared to the base scenario of no changes in interest rates and to limit the decrease in the current present value of the Bank's equity to no more than 18 percent over the same +/-200 basis point rate shock.
As of September 30, 2011, the -200 basis point rate shock was estimated to increase the current present value of the Bank's equity by 2.8 percent and a +200 basis point rate shock was estimated to decrease the current present value of the Bank's equity by 3.1 percent, both well within the policy guidelines. A -200 basis point rate shock was estimated to decrease net interest income approximately $2,560,000, or 12.0 percent, over the next twelve months, as compared to the base scenario. A +200 basis point rate shock was projected to decrease net interest income approximately $527,000, or 2.5 percent, over the next twelve months as compared to the base scenario. The decrease in net interest income in the next twelve months in the -200 basis point rate shock is outside the Bank's limit of -9.0%; however, the longer-term interest rate risk seems to be mitigated as shown by the very small change in the current present value of the Bank's equity in the -200 basis point rate shock scenario as compared to rates remaining stable. Although interest rates are currently very low, the Bank believes a -200 basis point rate shock is an effective and realistic test since interest rates on many of the Bank's loans still have the ability to decline 200 basis points. For those loans that have floors above the -200 basis point rate shock, the interest rate would be the floor rate. All deposit account rates would likely fall to their floors under the -200 basis point rate shock as well. This simulation analysis assumes that NOW and savings accounts have a lower correlation to changes in market interest rates than do loans, investment securities and time deposits. The simulation analysis takes into account the call features of certain investment securities based upon the rate shock, as well as estimated prepayments on loans. The simulation analysis assumes no change in the Bank's asset/liability composition due to the inherent uncertainties of specific conditions and corresponding actions of management. Actual results would vary due to changing market conditions and management's response to those conditions.
       There have been no material changes in reported market risks during the quarter ended September 30, 2011.  

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PART I - FINANCIAL INFORMATION
____________________________________________

Item 4. Controls and Procedures.

       The registrant maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The registrant carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and the Chief Financial Officer concluded that the registrant's disclosure controls and procedures were effective.

Changes in Internal Controls

       There were no changes in the registrant's internal control over financial reporting during the registrant's fiscal quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.


PART II - OTHER INFORMATION
____________________________________________

Item 1.  Legal Proceedings.

       The registrant and its subsidiaries are involved, from time to time, in ordinary routine litigation incidental to the banking business. Neither the registrant nor its subsidiary is involved in any material pending legal proceedings.


Item 1A. Risk Factors.

       There were no material changes to the risk factors previously disclosed in Part I, Item 1A, of the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

     (a) None

     (b) None

     (c) None


Item 3.  Defaults Upon Senior Securities.

      None


Item 4. (Removed and Reserved.)

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PART II - OTHER INFORMATION
____________________________________________

Item 5.  Other Information.

      None


Item 6.  Exhibits.

      Exhibit 31.1    Certification of Mark A. Hayes, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
      Exhibit 31.2    Certification of Tracy Porterfield, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
      Exhibit 32.1    Certification of Mark A. Hayes, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                             Sarbanes-Oxley Act of 2002.
      Exhibit 32.2    Certification of Tracy Porterfield, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                             Sarbanes-Oxley Act of 2002.
      Exhibit 101     Interactive Data File

 

 

 

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SIGNATURES
____________________________________________


      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

                                                                                       FIRST PULASKI NATIONAL CORPORATION


Date:  November 9, 2011                                                /s/Mark A. Hayes                                     
                                                                                       Mark A. Hayes, Chief Executive Officer

 

Date:  November 9, 2011                                                 /s/Tracy Porterfield                                  
                                                                                        Tracy Porterfield, Chief Financial Officer
                                                                               

 

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Exhibit Index

Exhibit 31.1     Certification of Mark A. Hayes, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2     Certification of Tracy Porterfield, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1     Certification of Mark A. Hayes, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the
                        Sarbanes-Oxley Act of 2002.
Exhibit 32.2     Certification of Tracy Porterfield, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002.
Exhibit 101       Interactive Data File

 

 

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