10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q/A

Quarterly Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2011

FNB BANCORP

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation)

000-49693	92-2115369
(Commission File Number)	(IRS Employer Identification No.)
975 El Camino Real, South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 588-6800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No 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 as of August 3, 2011: 3,339,468 shares.

FNB Bancorp

Explanatory Note

The purpose of this Amendment No. 1 on Form 10-Q/A to FNB Bancorp’s quarterly report on Form 10-Q for the period ended September 30, 2011, filed with the Securities and Exchange Commission on November 10, 2011 is solely to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the following materials from FNB Bancorp’s Form 10-Q, formatted in XBRL (eXtensible Business Reporting Language):

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

No other changes have been made to the Form 10-Q. This Amendment No. 1 speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURE

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

	FNB Bancorp
Date: November 15, 2011	/s/ David A. Curtis
	David A. Curtis
	Senior Vice President and Chief Financial Officer
	(Principal Accounting Officer)

2

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Consolidated statement of Earnings (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest and fees on loans	$ 7,314	$ 7,799	$ 22,159	$ 23,735
Interest on taxable securities	513	482	1,379	1,423
Interest on tax-exempt securities	414	335	1,192	874
Total interest income	8,241	8,616	24,730	26,032
Deposits	842	1,154	2,583	3,817
Federal Home Loan Bank advances		184		551
Total interest expense	842	1,338	2,583	4,368
Net interest income	7,399	7,278	22,147	21,664
Provision for loan losses	450	464	1,300	1,029
Net interest income after provision for loan losses	6,949	6,814	20,847	20,635
Service charges	817	686	2,325	2,045
Credit card fees	197	159	525	473
Gain on sale of available-for-sale securities	168	330	318	492
Bank owned life insurance earnings	83	87	248	246
Other income	102	73	353	181
Total noninterest income	1,367	1,335	3,769	3,437
Salaries and employee benefits	3,413	3,418	10,322	10,399
Occupancy expense	593	515	1,734	1,532
Equipment expense	433	472	1,258	1,495
FDIC assessment	240	363	915	986
Professional fees	449	372	1,206	951
Telephone, postage and supplies	253	271	864	816
Operating losses	310	19	547	52
Bankcard expenses	181	147	482	436
Low income housing expense	69	69	69	69
Loss (gain) on sale of other real estate owned		30	(66)	5
Loss on impairment of other real estate owned	69	85	299	732
Other real estate owned expense	55	207	316	819
Other expense	718	730	2,218	2,018
Total noninterest expense	6,783	6,698	20,303	20,449
Earnings before provision for income tax expense	1,533	1,451	4,313	3,623
Provision for income tax expense	344	426	1,141	855
Net earnings	1,189	1,025	3,172	2,768
Dividends and discount accretion on preferred stock	372	214	800	640
Net earnings available to common stockholders	$ 817	$ 811	$ 2,372	$ 2,128
Basic (in Dollars per share)	$ 0.24	$ 0.24	$ 0.71	$ 0.64
Diluted (in Dollars per share)	$ 0.24	$ 0.24	$ 0.71	$ 0.64
Basic (in Shares)	3,342	3,341	3,342	3,341
Diluted (in Shares)	3,361	3,341	3,361	3,351
Basic (in Dollars per share)	$ 0.24	$ 0.24	$ 0.71	$ 0.64
Diluted (in Dollars per share)	$ 0.24	$ 0.24	$ 0.71	$ 0.64

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Consolidated Statement of Comprehensive Earnings (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Net earnings	$ (1,189)	$ (1,025)	$ (3,172)	$ (2,768)
Unrealized holding gain on available-for-sale securities	1,216	869	2,660	1,585
Reclassification adjustment for gain on available-for-sale securities sold, net of tax	(99)	(195)	(188)	(290)
Total comprehensive earnings	$ 2,306	$ 1,699	$ 5,644	$ 4,063

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Document And Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Nov. 10, 2011	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	FNB Bancorp/CA/
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		3,339,468
Entity Public Float			$ 27,328,884
Amendment Flag	false
Entity Central Index Key	0001163199
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Non-accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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NOTE G – PREFERRED STOCK

6 Months Ended

Jun. 30, 2011

Preferred Stock [Text Block]

NOTE G – PREFERRED STOCK

This program does not contain any of the various restrictions (including restrictions related to the payment of dividends to Common Stockholders) that the Treasury’s Capital Purchase Program TARP program required. The Series A and B Preferred Stock, which contained a blended yield of 6.83% to the expected repayment date, were paid off in full and canceled with the proceeds received from the U. S. Treasury’s SBLF investment.

Noninterest expense consists mainly of salaries and employee benefits. For the three months ended September 30, 2011 compared to three months ended September 30, 2010, it represented 50.3% and 51.0% of total noninterest expenses. For the nine months ended September 30, 2011 and 2010, it was 50.8% and 50.9% respectively of total noninterest expenses. During the first quarter of 2011, the Bank experienced an operational loss of approximately $200,000 related to an unauthorized foreign wire transfer. The operational loss was increased by another $300,000 during the third quarter of 2011 when our insurance company denied coverage of our insurance reimbursement claim that had been filed. The Company disagrees with our insurance carrier’s decision to not cover the claim and intends to file suit against the insurance carrier asking the courts to force the insurance company to pay our claim. Any recoveries that may be recovered as a result of our legal remedy efforts would be recorded as other income if and when any recovery actually occurs. The reduction in other real estate owned (“OREO”) expenses was driven primarily by lower OREO holdings year over year.

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NOTE C – EARNINGS PER SHARE CALCULATION

6 Months Ended

Jun. 30, 2011

Earnings Per Share Reconciliation Disclosure

NOTE C – EARNINGS PER SHARE CALCULATION

Earnings per common share (EPS) is computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. All common stock equivalents are anti-dilutive when a net loss occurs.

Earnings per share have been computed based on the following :

(All amounts in thousands)	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011		2010
Net earnings	$	1,189	$	1,025	$	3,172	$	2,768
Dividends and discount accretion on preferred stock		372		214		800		640
Net earnings available to common shareholders	$	817	$	811	$	2,372	$	2,128
Average number of shares outstanding		3,342		3,341		3,342		3,341
Effect of dilutive options		19		10		19		10
Average number of shares outstanding used to calculate diluted earnings per share		3,361		3,351		3,361		3,351
Anti-dilutive options not included		168		323		300		323

The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim impairments tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued, or, for nonpublic entities, have not yet been made available for issuance. The Company plans to early adopt during the fourth quarter of 2011. Management does not anticipate any financial effect due to early adoption of these amendments.

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NOTE A – BASIS OF PRESENTATION

3 Months Ended

Jun. 30, 2011

Significant Accounting Policies [Text Block]

NOTE A – BASIS OF PRESENTATION

FNB Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly-owned subsidiary, First National Bank of Northern California (the “Bank”). The Bank provides traditional banking services in San Mateo and San Francisco counties.

All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods, as required by Regulation S-X, Rule 10-01.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010.

Results of operations for interim periods are not necessarily indicative of results for the full year.

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NOTE D – SECURITIES AVAILABLE FOR SALE

6 Months Ended

Jun. 30, 2011

Available-for-sale Securities [Table Text Block]

NOTE D – SECURITIES AVAILABLE FOR SALE

The amortized cost and carrying values of securities available-for-sale are as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Carrying
	cost		gains		losses			value
September 30, 2011
U. S. Treasury securities	$	12,405	$	261	$	—		$	12,666
Obligations of U.S. Government agencies		47,822		1,042		—			48,864
Mortgage backed securities		25,381		1,051		—			26,432
Obligations of states and political subdivisions		51,862		2,353		(47	)		54,168
Corporate debt		10,315		104		(173	)		10,246
	$	147,785	$	4,811	$	(220	)	$	152,376

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Carrying
	cost		gains		losses			value
December 31, 2010:
U.S. Treasury securities	$	12,440	$	2	$	(97	)	$	12,345
Obligations of U.S. Government agencies		45,941		488		(315	)		46,114
Mortgage-backed securities		18,564		521		(17	)		19,068
Obligations of states and political subdivisions		42,738		582		(864	)		42,456
Corporate debt		6,105		109		(8	)		6,206
	$	125,788	$	1,702	$	(1,301	)	$	126,189

An analysis of gross unrealized losses within the available-for-sale investment securities portfolio as of September 30, 2011 and December 31, 2010 follows.

September 30, 2011:	# of		Total		< 12 Months			Total		12 Months or >		Total		Total
(Dollar amounts	secu-		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
in thousands)	rities		Value		Losses			Value		Losses		Value		Losses
Obligations of states and political subdivisions		9	$	6,369		(47	)		—		—	$	6,369		(47	)
Corporate debt		6		4,485		(173	)		—		—		4,485		(173	)
Total		15	$	10,854	$	(220	)	$	—	$	—	$	10,854	$	(220	)

9

The amortized cost and carrying value of debt securities as of September 30, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollar amounts in thousands)	Amortized		Carrying
	Cost		Value
Available-for-sale:
Due in one year or less	$	7,140	$	7,182
Due after one through five years		77,937		79,576
Due after five years through ten years		26,028		27,061
Due after ten years		36,680		38,557
	$	147,785	$	152,376

For the nine months ended September 30, 2011, gross realized gains amounted to $318,000 on the sale of $21,275,000 in securities. For the nine months ended September 30, 2010, gross realized gains amounted to $492,000 on the sale of $50,910,000 in securities.

At September 30, 2011, securities with an amortized cost of $130,254,000 and fair value of $134,280,000 were pledged as collateral for public deposits and for other purposes required by law.

At September 30, 2011 and December 31, 2010, the Bank had investments in Federal Reserve Bank stock classified as other assets in the accompanying balance sheet of $1,062,000. These investments in Federal Reserve Bank stock are carried at cost. At September 30, 2011 and December 31, 2010, the Bank had investments in Federal Home Loan Bank stock classified as other assets in the accompanying balance sheet of $3,460,000 and $3,939,000, respectively. These investments in Federal Home Loan Bank stock are carried at cost.

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NOTE E – LOANS

6 Months Ended

Jun. 30, 2011

Policy Loans Receivable, Policy [Policy Text Block]

NOTE E - LOANS

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

	September 30,			December 31,
(Dollar amounts in thousands)	2011			2010
Commercial real estate	$	268,455		$	278,866
Commercial real estate construction		24,476			21,410
Residential 1 to 4 family construction		7,315			6,167
Real estate multi-family		37,265			42,584
Real estate 1 to 4 family		81,461			71,463
Commercial & industrial		44,612			61,493
Consumer loans		2,349			2,689
Gross loans		465,933			484,672
Net deferred loan fees		(181	)		(320	)
Allowance for loan losses		(9,646	)		(9,524	)
Net loans	$	456,106		$	474,828

A summary of impaired loans, the related allowance for loan losses, average investment and income recognized on impaired loans follows.

11

			Unpaid
(Dollar amounts in thousands)	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded
Commercial & industrial	$	3,684	$	3,813	$	—
Commercial real estate construction		6,255		6,255		—
Commercial real estate		1,476		1,578		—
Residential - 1 to 4 family		1,073		1,187		—
Total		12,488		12,833		—
With an allowance recorded
Commercial & industrial	$	4,371		5,141	$	1,506
Residential 1 to 4 family construction		1,590		1,690		142
Commercial real estate		7,187		7,654		413
Residential- 1 to 4 family		2,253		2,262		212
Total		15,401		16,747		2,273
Total
Commercial & industrial	$	8,055	$	8,954	$	1,506
Commercial real estate construction		6,255		6,255		—
Residential 1 to 4 family construction		1,590		1,690		142
Commercial real estate		8,663		9,232		413
Residential - 1 to 4 family		3,326		3,449		212
Grand total	$	27,889	$	29,580	$	2,273

The following aggregate information is provided at September 30, 2011 and December 31, 2010, about the contractual provisions of these nonaccrual loans:

	September 30			December 31
(Dollars amounts in thousands)	2011			2010
Outstanding balance	$	16,180		$	16,712
Weighted average rate		5.94	%		5.99	%
Weighted average term to maturity	70 months			94 months

	Loans on Nonaccrual Status
	As of
(Dollar amounts in thousands)	September 30,		December 31,
	2011		2010
Commercial & industrial	$	5,512	$	5,415
Commercial real estate construction		115		1,963
Residential 1 to 4 family construction		527		1,555
Commercial real estate		8,730		6,662
Real estate 1 to 4 family		1,296		1,117
Consumer		—		—
Total	$	16,180	$	16,712

A summary of the number, principal amounts outstanding for troubled debt restructurings were as follows as of September 30, 2011 and December 31, 2010.

	Modifications As of September 30, 2011
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollar amounts in thousands)	Contracts		Investment		Investment
Commercial & industrial		5	$	2,362	$	2,362
Real estate 1 to 4 family		2		1,015		1,015
Commercial real estate		4		2,008		2,008
Real estate multi family		1		3,326		3,326
Total		12		8,711		8,711

	Modifications
	As of December 31, 2010
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollar amounts in thousands)	Contracts		Investment		Investment
Commercial & industrial		3	$	2,416	$	2,416
Real estate 1 to 4 family		4		2,621		2,621
Commercial real estate		4		4,598		4,598
Real estate multi family		2		9,774		9,774
Total		13		19,409		19,409

(Dollar amounts in thousands)
	30-59		60-89										Recorded
	Days		Days		Over		Total						Investment >
	Past		Past		90		Past				Total		90 Days and
	Due		Due		Days		Due		Current		Loans		Accruing
Commercial & industrial	$	330	$	—	$	651	$	981	$	43,631	$	44,612	$	—
Commercial real estate		—		—		8,040		8,040		297,680		305,720		—
Commercial real estate -construction		26		—		527		553		23,923		24,476		—
Residential 1 to 4 family -construction		—		—		—		—		7,315		7,315		—
Residential		739		74		212		1,025		80,436		81,461		—
Consumer		—		10		—		10		2,339		2,349		—
Total	$	1,095	$	84	$	9,430	$	10,609	$	455,324	$	465,933	$	—

(Dollar amounts in thousands)
			Special		Sub-				Total
	Pass		mention		standard		Doubtful		loans
Commercial & industrial	$	37,012	$	—	$	7,235	$	365	$	44,612
Commercial real estate construction		15,765		—		8,711		—		24,476
Residential 1 to 4 family construction		6,788				527				7,315
Commercial real estate		295,457		—		10,263		—		305,720
Real estate 1 to 4 family		77,590		—		3,413		458		81,461
Consumer loans		2,349		—		—		—		2,349
Totals	$	434,961	$	—	$	30,149	$	823	$	465,933

(Dollar amounts in thousands)
	Commercial			Commercial			Real estate			Real estate
	& industrial			real estate			construction			1 to 4 family			Consumer			Total
Allowance for credit losses
Beginning balance	$	809		$	5,177		$	3,110		$	704		$	29		$	9,829
Charge-offs		(331	)		(87	)		(1,003	)		(217	)		(24	)		(1,662	)
Recoveries		6			—			27			14			7			54
Provision		2,118			(1,101	)		(939	)		885			66			1,029
Ending balance	$	2,602		$	3,989		$	1,195		$	1,386		$	78		$	9,250

Risk rating system

Loans to borrowers graded as pass or pooled loans represent loans to borrowers of acceptable or better credit quality. They demonstrate sound financial positions, repayment capacity and credit history. They have an identifiable and stable source of repayment.

Special mention loans have potential weaknesses that deserve management’s attention. If left uncorrected these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These assets are “not adversely classified” and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard loans are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans are normally classified as Substandard when there are unsatisfactory characteristics causing more than acceptable levels of risk. A substandard loan normally has one or more well-defined weakness that could jeopardize the repayment of the debt. For example, a) cash flow deficiency, which may jeopardize future payments; b) sale of non-collateral assets has become primary source of repayment; c) the borrower is bankrupt; or d) for any other reason, future repayment is dependent on court action.

Commercial Real Estate Loans

Our commercial real estate loans are made primarily to investors or small businesses where our primary source of repayment is from cash flows generated by the properties, either through rent collection or business profits. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have multiple sources of income, so if cash flow generated from the property declines, at least in the short term, the borrowers can normally cover these short term cash flow deficiencies from their available cash reserves. Risk of loss to the Bank is increased when there are cash flow decreases sufficiently large and for such a prolonged period of time that loan payments can no longer be made by the borrowers.

Our real estate construction loans are generally made to borrowers who are rehabilitating a building, converting a building use from one type of use to another, or developing land and building residential or commercial structures for sale or lease. The borrower’s promissory notes are secured with recorded liens on the underlying property. The borrowers would normally also be required to personally guarantee repayment of the loan. The bank uses conservative underwriting standards in reviewing applications for credit. Generally, our borrowers have sufficient resources to make the required construction loan payments during the construction and absorption or lease-up period. After construction is complete, the loans are normally paid off from proceeds from the sale of the building or through a refinance to a commercial real estate loan. Risk of loss to the Bank is increased when there are material construction cost overruns, significant delays in the time to complete the project and/or there has been a material drop in the value of the projects in the marketplace since the inception of the loan.

Commercial and Industrial Loans

Our commercial and industrial loans are generally made to small businesses to provide them with at least some of the working capital necessary to fund their daily business operations. These loans are generally either unsecured or secured by fixed assets, accounts receivable and/or inventory. The borrowers would normally also be required to personally guarantee repayment of the loan. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when our small business customers experience a significant business downturn, incur significant financial losses, or file for relief from creditors through bankruptcy proceedings.

Residential Real Estate Loans

Consumer and Installment Loans

Our consumer and installment loans generally consist of personal loans, credit card loans, automobile loans or other loans secured by personal property. The Bank uses conservative underwriting standards in reviewing applications for credit. Risk of loss to the Bank is increased when borrowers loose their primary source of income, or file for relief from creditors through bankruptcy proceedings.

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NOTE F – FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Text Block]

NOTE F – FAIR VALUE MEASUREMENT

The following tables present information about the Company’s assets and liabilities measured at fair value as of September 30, 2011 and December 31, 2010, and indicate the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table presents the recorded amounts of assets measured at fair value on a recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at September 30, 2011, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	9/30/2011		(Level 1)		(Level 2)		(Level 3)
U. S. Treasury securities	$	12,666	$	12,666	$	—	$	—
Obligations of U.S. Government agencies		48,864		—		48,864		—
Mortgage-backed securities		26,432		—		26,432		—
Obligations of states and political subdivisions		54,168		—		54,168		—
Corporate debt		10,246		—		10,246		—
Total assets measured at fair value	$	152,376	$	12,666	$	139,710	$	—

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2010, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
Description	12/31/2010		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
U. S. Treasury securities	$	12,345	$	12,345	$	—	$	—
Obligations of U.S. Government agencies		46,114		—		46,114		—
Mortgage-backed securities		19,068		—		19,068		—
Obligations of states and political subdivisions		42,456		—		42,456		—
Corporate debt		6,206		—		6,206		—
Total assets measured at fair value	$	126,189	$	12,345	$	113,844	$	—

The following tables present the recorded amount of assets measured at fair value on a non-recurring basis:

			Fair Value Measurements
(Dollar amounts in thousands)			at September 30, 2011, Using
			Quoted Prices in
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable		Total
			Assets		Inputs		Inputs		gains
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)		(losses)
Impaired loans *	$	7,536	$	—	$	—	$	7,536	$	(115	)
Other real estate owned		2,023		—		—		2,023		(69	)
Total impaired assets measured at fair value	$	9,559	$	—	$	—	$	9,559	$	(184	)

			Fair Value Measurements
(Dollar amounts in thousands)			at December 31, 2010, Using
			Quoted Prices
			in Active
			Markets		Other		Significant
			for Identical		Observable		Unobservable		Total
			Assets		Inputs		Inputs		gains
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)		(losses)
Impaired loans *	$	10,471	$	—	$	—	$	10,471	$	(1,069	)
Other real estate owned		6,680		—		—		6,680		552
Total impaired assets measured at fair value	$	17,151	$	—	$	—	$	17,151	$	(517	)

* Represents impaired loans for which a change in the valuation occurred during the nine months period ended September 30, 2011 and the year ended December 31, 2010.

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral or when the impaired loan has been written down to fair value require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 3. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank also records the impaired loans as nonrecurring Level 3.

Other real estate owned is carried at the lower of historical cost or fair market value. An appraisal (a Level 3 valuation) is obtained at the time the Company acquires property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the property’s appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment charge is recorded along with a corresponding reduction in the book carrying value of the property.

Fair Values of Financial Instruments.

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

Cash and Cash Equivalents.

The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.

Securities Available-for-Sale.

Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Federal Home Loan Bank and Federal Reserve Bank stock.

Federal Home Loan Bank and Federal Reserve Bank stock can only be issued and redeemed at par by these entities. These securities cannot be sold in open market transactions. Fair value is estimated to be their carrying value.

Loans Receivable.

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values and credit risk factors. For fixed rate loans, fair values are based on discounted cash flows, credit risk factors, and liquidity factors.

Bank Owned Life Insurance.

The fair value of bank owned life insurance is the cash surrender value of the policies.

Deposit liabilities.

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.

(Dollar amounts in thousands)	Carrying		Fair
	amount		value
Financial assets:
Cash and cash equivalents	$	69,273	$	69,273
Securities available for sale		152,376		152,376
Loans, net		456,106		466,101
Bank owned life insurance		9,444		9,444
Federal Home Loan Bank stock		3,460		3,460
Federal Reserve Bank stock		1,062		1,062
Financial liabilities:
Deposits		631,654		632,197
Off-balance-sheet liabilities:
Undisbursed loan commitments, lines of credit, standby letters of credit and Mastercard lines of credit		—		962

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Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Net earnings	$ 3,172	$ 2,768
Gain on sale of securities available-for-sale	(318)	(492)
Depreciation, amortization and accretion	2,041	1,828
Gain on sale of other real estate owned	(66)
Stock-based compensation expense	230	126
Provision for loan losses	(1,300)	(1,029)
Decrease in accrued interest receivable and other assets	3,655	2,040
Valuation allowance on other real estate owned	299	732
(Decrease) increase in accrued expenses and other liabilities	(1,321)	25
Net cash provided by operating activities	8,992	8,056
Purchase of securities available-for-sale	(51,557)	(105,958)
Proceeds from matured/called/sold securities available-for-sale	28,950	74,008
Proceeds from sale of other real estate owned	4,078	3,631
Net investment in other real estate owned		(468)
Net decrease in loans	16,803	14,673
Purchases of bank premises, equipment, leasehold improvements	(979)	(1,143)
Proceeds from sale of equipment	2
Net cash used in investing activities	(2,703)	(15,257)
Net increase in demand and savings deposits	23,104	41,147
Net decrease in time deposits	(19,890)	(1,101)
Net decrease in Federal Home Loan Bank advances		(25,000)
Dividends paid on common stock	(568)	(477)
Exercise of stock options	9
Dividends paid on preferred stock series A and B	(545)	(490)
Repayment of series A and B preferred stock	(12,600)
Issuance of preferred stock series C	12,600
Net cash provided by financing activities	2,110	14,079
NET INCREASE IN CASH AND CASH EQUIVALENTS	8,399	6,878
Cash and cash equivalents at beginning of period	60,874	62,853
Cash and cash equivalents at end of period	69,273	69,731
Interest paid	2,581	4,630
Income taxes paid	1,640	207
Accrued dividends	200	159
Change in unrealized gain in available for-sale securities, net of tax	2,472	1,295
Loans transferred to other real estate owned	619	3,183
Deemed dividends on preferred stock	$ 255	$ 149

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NOTE B – STOCK OPTION PLANS

3 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE B – STOCK OPTION PLANS

Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Company’s stock price and the level of dividends the Company is expected to pay.

The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.

The amount of compensation expense for options recorded in the quarters ended September 30, 2011 and September 30, 2010 was $76,000 and $41,000, respectively. There was no income tax benefit recognized in the statements of earnings for these amounts for the quarters ended September 30, 2011, and September 30, 2010, respectively. The amount of compensation expense for options recorded in the nine months ended September 30, 2011 and September 30, 2010 was $230,000 and $126,000, respectively.

7

There was a $183,000 intrinsic value for options exercisable and a $7,000 intrinsic value for options exercised during the nine month period ended September 30, 2011.

The amount of total unrecognized compensation expense related to non-vested options at September 30, 2011 was $433,000, and the weighted average period over which it will be amortized is 2.5 years.

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 69,273	$ 60,874
Securities available-for-sale at fair value	152,376	126,189
Loans, net of allowance for loan losses of $9,646 and $9,524 on September 30, 2011 and December 31, 2010	456,106	474,828
Bank premises, equipment, and leasehold improvements, net	13,399	13,535
Other real estate owned	2,988	6,680
Goodwill	1,841	1,841
Accrued interest receivable and other assets	27,037	30,692
Total assets	723,020	714,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand, noninterest bearing	141,196	137,237
Demand, interest bearing	60,627	60,413
Savings and money market	324,321	305,390
Time	105,510	125,400
Total deposits	631,654	628,440
Accrued expenses and other liabilities	5,672	5,275
Total liabilities	637,326	633,715
Preferred stock - series A - no par value, authorized and outstanding 12,000 shares (liquidation preference of $1,000 per share plus accrued dividends)		11,747
Preferred stock - series B - no par value, authorized and outstanding 600 shares (liquidation preference of $1,000 per share plus accrued dividends)		615
Preferred stock - series C - no par value, authorized and outstanding 12,600 shares (liquidation preference of $1,000 per share plus accrued dividends)	12,600
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 3,339,468 shares at September 30, 2011 and 3,341,049 shares at December 31, 2010	46,804	46,565
Retained earnings	23,581	21,760
Accumulated other comprehensive income	2,709	237
Total stockholders’ equity	85,694	80,924
Total liabilities and stockholders’ equity	$ 723,020	$ 714,639