10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended June 30, 2011

OR

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

Commission File Number 0-18832

First Financial Service Corporation

(Exact Name of Registrant as specified in its charter)

Kentucky	61-1168311
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)
2323 Ring Road	(270) 765-2131
Elizabethown, Kentucky   42701	(Registrant's telephone number,
(Address of principal executive offices)	including area code)
(Zip Code)

(270) 765-2131

(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large Accelerated Filer o   Accelerated Filer o Non-Accelerated Filer x   Smaller Reporting Company o

Indicate by a 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.

Class	Outstanding as of July 31, 2011
Common Stock	4,749,055shares

2

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to First Financial Service Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed with the Securities and Exchange Commission on August 15, 2011, is solely to furnish Exhibit 101 to the Form 10-Q.  Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (Extensible Business Reporting Language).  No other changes have been made to the Form 10-Q.

3

Item 6. Exhibits:

31.1*  Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act

31.2* Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act

32*  Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 (As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

101** The following materials from the Quarterly Report of First Financial Service Corporation on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2011 and 2010, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2011, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (vi) Notes to the Unaudited Consolidated Financial Statements, tagged as blocks of text.

*   Filed as an Exhibit to our original report on Form 10-Q filed August 15, 2011.

** Furnished herewith.

4

FIRST FINANCIAL SERVICE CORPORATION

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date:  August 16, 2011	By:	/s/ B. Keith Johnson
		B. Keith Johnson
		Chief Executive Officer

Date:  August 16, 2011	By:	/s/ Gregory S. Schreacke
		Gregory S. Schreacke
		President
		Chief Financial Officer & Principal Accounting Officer

5

XML



Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Securities held-to-maturity, fair value	$ 22	$ 126
Serial preferred stock, par value	$ 1	$ 1
Serial preferred stock, authorized	5,000,000	5,000,000
Serial preferred stock, issued	20,000	20,000
Serial preferred stock, outstanding	20,000	20,000
Serial preferred stock, liquidation preference	$ 20,000	$ 20,000
Common stock, par value	$ 1	$ 1
Common stock, authorized	35,000,000	35,000,000
Common stock, issued	4,739,622	4,726,329
Common stock, outstanding	4,739,622	4,726,329

XML



Consolidated Statements of Income (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest and Dividend Income:
Loans, including fees	$ 11,692	$ 14,267	$ 24,035	$ 28,314
Taxable securities	1,703	878	3,269	1,371
Tax exempt securities	265	202	522	373
Total interest income	13,660	15,347	27,826	30,058
Interest Expense:
Deposits	4,674	4,890	9,588	9,759
Short-term borrowings		11		32
Federal Home Loan Bank advances	280	596	575	1,189
Subordinated debentures	350	331	691	658
Total interest expense	5,304	5,828	10,854	11,638
Net interest income	8,356	9,519	16,972	18,420
Provision for loan losses	9,517	3,274	12,982	5,026
Net interest income after provision for loan losses	(1,161)	6,245	3,990	13,394
Non-interest Income:
Customer service fees on deposit accounts	1,554	1,739	2,999	3,264
Gain on sale of mortgage loans	291	415	556	714
Gain on sale of investments	162		231
Loss on sale of investments	(38)		(38)	(23)
Other than temporary impairment loss:
Total other-than-temporary impairment losses	(67)	(11)	(104)	(183)
Portion of loss recognized in other comprehensive income/(loss) (before taxes)
Net impairment losses recognized in earnings	(67)	(11)	(104)	(183)
Loss on sale and write downs on real estate acquired through foreclosure	(4,651)	(438)	(4,886)	(464)
Brokerage commissions	108	107	215	200
Other income	476	369	855	811
Total non-interest income	(2,165)	2,181	(172)	4,319
Non-interest Expense:
Employee compensation and benefits	3,958	3,905	8,287	7,995
Office occupancy expense and equipment	832	768	1,643	1,572
Marketing and advertising	164	225	389	450
Outside services and data processing	1,056	668	1,853	1,398
Bank franchise tax	342	566	656	916
FDIC insurance premiums	906	694	1,876	1,354
Amortization of core deposit intangible	76	88	153	152
Real estate acquired through foreclosure expense	646	458	1,028	614
Other expense	1,936	1,262	3,437	2,457
Total non-interest expense	9,916	8,634	19,322	16,908
Income/(loss) before income taxes	(13,242)	(208)	(15,504)	805
Income taxes/(benefits)	(1,338)	(146)	(1,530)	112
Net Income/(Loss)	(11,904)	(62)	(13,974)	693
Less:
Dividends on preferred stock	(250)	(250)	(500)	(500)
Accretion on preferred stock	(13)	(13)	(27)	(27)
Net income (loss) attributable to common shareholders	$ (12,167)	$ (325)	$ (14,501)	$ 166
Shares applicable to basic income per common share	4,739,700	4,718,021	4,737,761	4,716,755
Basic income (loss) per common share	$ (2.57)	$ (0.07)	$ (3.06)	$ 0.04
Shares applicable to diluted income per common share	4,739,700	4,718,021	4,737,761	4,716,755
Diluted income (loss) per common share	$ (2.57)	$ (0.07)	$ (3.06)	$ 0.04
Cash dividends declared per common share

XML



Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 31, 2011
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	FFKY
Entity Registrant Name	FIRST FINANCIAL SERVICE CORP
Entity Central Index Key	0000854395
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		4,749,055

XML



LOANS

6 Months Ended

Jun. 30, 2011

LOANS

4. LOANS

Loans are summarized as follows:

	June 30,			December 31,
(Dollars in thousands)	2011			2010
Commercial	$	31,433		$	42,265
Commercial Real Estate:
Land Development		43,204			56,086
Building Lots		9,311			11,333
Other		450,785			490,345
Real estate construction		7,356			11,034
Residential mortgage		157,395			163,975
Consumer and home equity		74,525			77,781
Indirect consumer		25,739			29,588
Loans held for sale		5,708			6,388
		805,456			888,795
Less:
Net deferred loan origination fees		(333	)		(473	)
Allowance for loan losses		(17,708	)		(22,665	)
		(18,041	)		(23,138	)
Net Loans	$	787,415		$	865,657

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ending June 30, 2011:

Three Months Ended
June 30, 2011				Commercial			Real Estate			Residential			Consumer &			Indirect
	Commercial			Real Estate			Construction			Mortgage			Home Equity			Consumer			Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	1,679		$	20,536		$	104		$	776		$	742		$	754		$	24,591
Provision for loan losses		(225	)		9,655			-			131			(29	)		(15	)		9,517
Charge-offs		(100	)		(16,068	)		(9	)		(205	)		(38	)		(56	)		(16,476	)
Recoveries		17			10			-			-			15			34			76
Total ending allowance balance	$	1,371		$	14,133		$	95		$	702		$	690		$	717		$	17,708
Six Months Ended
June 30, 2011				Commercial			Real Estate			Residential			Consumer &			Indirect
	Commercial			Real Estate			Construction			Mortgage			Home Equity			Consumer			Total
(Dollars in thousands)
Allowance for loan losses:
Beginning Balance	$	1,657		$	18,595		$	158		$	751		$	708		$	796		$	22,665
Provision for loan losses		(203	)		13,006			-			174			55			(50	)		12,982
Charge-offs		(142	)		(17,684	)		(63	)		(224	)		(136	)		(87	)		(18,336	)
Recoveries		59			216			-			1			63			58			397
Total ending allowance balance	$	1,371		$	14,133		$	95		$	702		$	690		$	717		$	17,708

The following table presents the activity in the allowance for loan losses for the three and six months ended June 30, 2010:

	Three Months Ended			Six Months Ended
(Dollars in thousands)	June 30,			June 30,
	2010			2010
Balance, beginning of period	$	18,810		$	17,719
Provision for loan losses		3,274			5,026
Charge-offs		(1,193	)		(1,904	)
Recoveries		62			112
Balance, end of period	$	20,953		$	20,953

We did not implement any changes to our accounting policies or methodology during the current period.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment excluding loans held for sale and based on the impairment method as of June 30, 2011 and December 31, 2010:

June 30, 2011			Commercial		Real Estate		Residential		Consumer &		Indirect
	Commercial		Real Estate		Construction		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	566	$	6,796		-	$	220	$	130	$	33	$	7,745
Collectively evaluated for impairment		805		7,337		95		482		560		684		9,963
Total ending allowance balance	$	1,371	$	14,133		95	$	702	$	690	$	717	$	17,708
Loans:
Loans individually evaluated for impairment	$	4,102	$	78,005	$	998	$	1,311	$	247	$	176	$	84,839
Loans collectively evaluated for impairment		27,331		425,295		6,358		156,084		74,278		25,563		714,909
Loans acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total ending loans balance	$	31,433	$	503,300	$	7,356	$	157,395	$	74,525	$	25,739	$	799,748

December 31, 2010			Commercial		Real Estate		Residential		Consumer &		Indirect
	Commercial		Real Estate		Construction		Mortgage		Home Equity		Consumer		Total
(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	691	$	11,872		24	$	334	$	147	$	29	$	13,097
Collectively evaluated for impairment		966		6,723		134		417		561		767		9,568
Total ending allowance balance	$	1,657	$	18,595		158	$	751	$	708	$	796	$	22,665
Loans:
Loans individually evaluated for impairment	$	1,870	$	86,250	$	1,267	$	1,609	$	337	$	91	$	91,424
Loans collectively evaluated for impairment		40,395		471,514		9,767		162,366		77,444		29,497		790,983
Loans acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total ending loans balance	$	42,265	$	557,764	$	11,034	$	163,975	$	77,781	$	29,588	$	882,407

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 and December 31, 2010.  The difference between the unpaid principal balance and recorded investment represents partial write downs/charge offs taken on individual impaired credits.

							Three Months Ended						Six Months Ended
							June 30, 2011						June 30, 2011
June 30, 2011	Unpaid				Allowance for		Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest		Recorded		Income		Interest
(Dollars in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	3,115	$	3,114	$	-	$	1,689	$	80	$	80	$	1,230	$	58	$	58
Commercial Real Estate:
Land Development		22,165		13,012		-		9,019		188		188		7,869		164		164
Building Lots		-		-		-		-		-		-		-		-		-
Other		40,640		38,311		-		41,228		1,680		1,680		38,263		1,593		1,593
Real Estate Construction		1,717		998		-		644		8		8		491		17		17
Residential Mortgage		-		-		-		-		-		-		-		-		-
Consumer and Home Equity		-		-		-		-		-		-		-		-		-
Indirect Consumer		-		-		-		-		-		-		-		-		-
With an allowance recorded:
Commercial		988		988		566		1,326		63		63		1,403		67		67
Commercial Real Estate:
Land Development		817		817		1,042		9,481		198		198		12,096		253		253
Building Lots		3,663		1,654		348		2,542		7		7		2,838		5		5
Other		24,211		24,211		5,406		25,419		1,036		1,036		26,143		1,088		1,088
Real Estate Construction		-		-		-		-		-		-		361		13		13
Residential Mortgage		1,406		1,311		220		1,591		24		24		1,597		3		3
Consumer and Home Equity		247		247		130		273		-		-		294		-		-
Indirect Consumer		176		176		33		157		1		1		135		-		-
Total	$	99,145	$	84,839	$	7,745	$	93,369	$	3,285	$	3,285	$	92,720	$	3,261	$	3,261

December 31, 2010	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
(Dollars in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial	$	312	$	312	$	-
Commercial Real Estate:
Land Development		5,569		5,569		-
Building Lots		-		-		-
Other		34,327		32,332		-
Real Estate Construction		185		185		-
Residential Mortgage		-		-		-
Consumer and Home Equity		-		-		-
Indirect Consumer		-		-		-
With an allowance recorded:
Commercial		1,558		1,558		691
Commercial Real Estate:
Land Development		17,326		17,326		4,562
Building Lots		3,430		3,430		39
Other		27,593		27,593		7,271
Real Estate Construction		1,082		1,082		24
Residential Mortgage		1,609		1,609		334
Consumer and Home Equity		337		337		147
Indirect Consumer		91		91		29
Total	$	93,419	$	91,424	$	13,097

The following table presents information for loans individually evaluated for impairment as of June 30, 2010:

	June 30,
(Dollars in thousands)	2010
Average of individually impaired loans during period		62,406
Interest income recognized during impairment		1,936
Cash-basis interest income recognized		1,936

The following table presents the recorded investment in restructured, nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2011 and December 31, 2010.

			Loans Past Due
June 30, 2011			Over 90 Days
			Still
(Dollars in thousands)	Restructured		Accruing		Nonaccrual
Commercial	$	382		-	$	312
Commercial Real Estate:
Land Development		2,394		-		6,844
Building Lots		-				1,417
Other		27,390		-		12,835
Real Estate Construction		-				998
Residential Mortgage		665		-		1,217
Consumer and Home Equity		70				277
Indirect Consumer		-		-		140
Total	$	30,901		-	$	24,040
			Loans Past Due
December 31, 2010			Over 90 Days
			Still
(Dollars in thousands)	Restructured		Accruing		Nonaccrual
Commercial	$	179		-	$	597
Commercial Real Estate:
Land Development		-		-		15,356
Building Lots		-				3,430
Other		3,394		-		19,939
Real Estate Construction		-				-
Residential Mortgage		306		-		2,294
Consumer and Home Equity		27				365
Indirect Consumer		-		-		188
Total	$	3,906		-	$	42,169

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

June 30, 2011	30-59		60-89		Greater than
	Days		Days		90 Days		Total		Loans Not
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial	$	1,418	$	214	$	909	$	2,541	$	28,892	$	31,433
Commercial Real Estate:
Land Development		161		-		6,844		7,005		36,199		43,204
Building Lots		236		-		1,417		1,653		7,658		9,311
Other		5,526		4,864		18,465		28,855		421,930		450,785
Real Estate Construction		-		-		998		998		6,358		7,356
Residential Mortgage		674		355		2,378		3,407		153,988		157,395
Consumer and Home Equity		661		519		534		1,714		72,811		74,525
Indirect Consumer		211		78		140		429		25,310		25,739
Total	$	8,887	$	6,030	$	31,685	$	46,602	$	753,146	$	799,748

December 31, 2010	30-59		60-89		Greater than
	Days		Days		90 Days		Total		Loans Not
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial	$	719	$	683	$	574	$	1,976	$	40,289	$	42,265
Commercial Real Estate:
Land Development		-		-		7,682		7,682		48,404		56,086
Building Lots		-		-		3,430		3,430		7,903		11,333
Other		2,824		10,110		16,294		29,228		461,117		490,345
Real Estate Construction		1,082		-		-		1,082		9,952		11,034
Residential Mortgage		313		962		4,386		5,661		158,314		163,975
Consumer and Home Equity		527		70		680		1,277		76,504		77,781
Indirect Consumer		386		51		188		625		28,963		29,588
Total	$	5,851	$	11,876	$	33,234	$	50,961	$	831,446	$	882,407

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) is a situation where the Bank grants a concession to the borrower that the Bank would not otherwise have considered due to a borrower’s financial difficulties.  All TDRs are considered impaired.  The substantial majority of our residential mortgage and consumer TDRs involve reducing the borrower’s loan payment through a rate reduction for a set period of time based on the borrower’s ability to service the modified loan payment.  The majority of our commercial and commercial real estate related TDRs involve a restructuring of loan terms such as a temporary forbearance or reduction in the payment amount to require only interest and/or extending the maturity date of the loan.

We have allocated $3.5 million and $151,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2011 and December 31, 2010.  We are not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring. Specific reserves are generally assessed prior to loans being modified as a TDR, as most of these loans migrate from our internal watch list and have been specifically reserved for as part of our normal reserving methodology.

Credit Quality Indicators:

We categorize 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.  We analyze loans individually by classifying the loans as to credit risk.  This analysis includes commercial and commercial real estate loans.  We also evaluate credit quality on residential mortgage, consumer and home equity and indirect consumer loans based on the aging status and payment activity of the loan.  This analysis is performed on a monthly basis.  We use the following definitions for risk ratings:

Criticized:  Loans classified as criticized 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 in our 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 or 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.

Loss:  Loans classified as loss are considered non-collectible and their continuance as bankable assets is not warranted.

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 included in groups of homogeneous loans.

As of June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2011
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	24,416	$	2,915	$	3,692	$	410	$	-	$	31,433
Commercial Real Estate:
Land Development		-		23,821		5,554		13,829		-		-		43,204
Building Lots		-		7,089		568		1,654		-		-		9,311
Other		-		367,056		16,009		67,596		124		-		450,785
Real Estate Construction		-		6,358		-		998		-		-		7,356
Residential Mortgage		150,937		-		1,118		5,340		-		-		157,395
Consumer and Home Equity		72,527		-		792		1,206		-		-		74,525
Indirect Consumer		25,350		-		16		373		-		-		25,739
Total	$	248,814	$	428,740	$	26,972	$	94,688	$	534	$	-	$	799,748

December 31, 2010
(Dollars in thousands)	Not Rated		Pass		Criticized		Substandard		Doubtful		Loss		Total
Commercial	$	-	$	38,036	$	2,359	$	1,412	$	458	$	-	$	42,265
Commercial Real Estate:
Land Development		-		29,769		3,422		22,895		-		-		56,086
Building Lots		-		7,903		-		3,430		-		-		11,333
Other		-		409,387		21,012		59,800		125		21		490,345
Real Estate Construction		-		9,767		-		1,267		-		-		11,034
Residential Mortgage		157,498		-		917		5,560		-		-		163,975
Consumer and Home Equity		76,086		-		599		1,072		-		24		77,781
Indirect Consumer		29,342		-		-		227		-		19		29,588
Total	$	262,926	$	494,862	$	28,309	$	95,663	$	583	$	64	$	882,407

The following table presents the unpaid principal balance in residential mortgage, consumer and home equity and indirect consumer loans based on payment activity as of June 30, 2011 and December 31, 2010:

June 30, 2011	Residential		Consumer &		Indirect
(Dollars in thousands)	Mortgage		Home Equity		Consumer
Performing	$	155,513	$	74,178	$	25,599
Restructured & Non-accrual		1,882		347		140
Total	$	157,395	$	74,525	$	25,739

December 31, 2010	Residential		Consumer &		Indirect
(Dollars in thousands)	Mortgage		Home Equity		Consumer
Performing	$	161,375	$	77,389	$	29,400
Restructured & Non-accrual		2,600		392		188
Total	$	163,975	$	77,781	$	29,588

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FAIR VALUE

6 Months Ended

Jun. 30, 2011

FAIR VALUE

9. FAIR VALUE

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

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

Level 2: 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.

We used the following methods and significant assumptions to estimate the fair value of available-for-sale-securities.

Securities: The fair values of some equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).  The fair values of most debt securities are determined by a 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).  In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within (Level 3) of the valuation hierarchy.  For trust preferred securities, discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality.  Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.  For other equity securities, discounted cash flows are calculated with available market information through processes using benchmark yields, market spreads sourced from new issues, dealer quotes and trade prices among other sources.  Equity securities are carried at cost which approximates fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:  There were no significant transfers between Level 1 and Level 2 during the periods presented.

			Quoted Prices in
			Active Markets for		Significant Other		Significant
	June 30,		Identical Assets		Observable Inputs		Unobservable Inputs
(Dollars in thousands)	2011		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Treasury and agencies	$	101,031	$	-	$	101,031	$	-
Government-sponsored mortgage-backed residential		156,538		-		156,538		-
Equity		294		3		-		291
State and municipal		23,322		-		23,322		-
Trust preferred securities		377		-		-		377
Total	$	281,562	$	3	$	280,891	$	668
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	December 31,		Identical Assets		Observable Inputs		Unobservable Inputs
(Dollars in thousands)	2010		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Treasury and agencies	$	113,893	$	-	$	113,893	$	-
Government-sponsored mortgage-backed residential		59,170		-		59,170		-
Equity		293		2		-		291
State and municipal		22,618		-		22,618		-
Trust preferred securities		55		-		-		55
Total	$	196,029	$	2	$	195,681	$	346

Between June 2002 and July 2006, we invested in four AFS and one HTM investment grade tranches of trust preferred collateralized debt obligation (“CDO”) securities.  The securities were issued and are referred to as Preferred Term Securities Limited (“PreTSL”).  The underlying collateral for the PreTSL is unguaranteed pooled trust preferred securities issued by banks, insurance companies and REITs geographically dispersed across the United States.  We hold five PreTSL securities, none of which are currently investment grade.  Prior to September 30, 2008, we determined the fair value of the trust preferred securities using a valuation technique based on Level 2 inputs.  The Level 2 inputs included estimates of the market value for each security provided through our investment broker.

Since late 2007, the markets for collateralized debt obligations and trust preferred securities have become increasingly inactive.  The inactivity began in late 2007 when new issues of similar securities were discounted in order to complete the offering.  Beginning in the second quarter of 2008, the purchase and sale activity of these securities substantially decreased as investors elected to hold the securities instead of selling them at substantially depressed prices.  Our brokers have indicated that little if any activity is occurring in this sector and that the PreTSL securities trades that are taking place are primarily distressed sales where the seller must liquidate as a result of insolvency, redemptions or closure of a fund holding the security, or other distressed conditions.  As a result, the bid-ask spreads have widened significantly and the volume of trades decreased significantly compared to historical volumes.

During 2008, we concluded that the market for the trust preferred securities that we hold and for similar CDO securities (such as higher-rated tranches within the same CDO security) was also not active.  That determination was made considering that there are few observable transactions for the trust preferred securities or similar CDO securities and the observable prices for those transactions have varied substantially over time.  Consequently, we have considered those observable inputs and determined that our trust preferred securities are classified within Level 3 of the fair value hierarchy.

We have determined that an income approach valuation technique (using cash flows and present value techniques) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is equally or more representative of fair value than relying on the estimation of market value technique used at prior measurement dates, which now has few observable inputs and relies on an inactive market with distressed sales conditions that would require significant adjustments.

We received valuation estimates on our trust preferred securities for June 30, 2011.  Those valuation estimates were based on proprietary pricing models utilizing significant unobservable inputs in an inactive market with distressed sales, Level 3 inputs, rather than actual transactions in an active market.  In accordance with current accounting guidance, we determined that a risk-adjusted discount rate appropriately reflects the reporting entity’s estimate of the assumptions that market participants would use in an active market to estimate the selling price of the asset at the measurement date.

We conduct a thorough review of fair value hierarchy classifications on a quarterly basis.  Reclassification of certain financial instruments may occur when input observability changes.

The table below presents reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended June 30, 2011 and 2010:

	Fair Value Measurements						Fair Value Measurements
	Using Significant						Using Significant
	Unobservable Inputs						Unobservable Inputs
	(Level 3)						(Level 3)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2011			2010			2011			2010
Beginning balance	$	763		$	335		$	346		$	340
Total gains or losses:
Impairment charges on securities		-			(11	)		(25	)		(134	)
Included in other comprehensive income		(95	)		10			347			128
Transfers in and/or out of Level 3		-			-			-			-
Ending balance	$	668		$	334		$	668		$	334

The table below summarizes changes in unrealized gains and losses recorded in earnings for the quarter and six months ended June 30 for Level 3 assets and liabilities that are still held at June 30.

	Changes in Unrealized Gains/Losses				Changes in Unrealized Gains/Losses
	Relating to Assets Still Held at Reporting				Relating to Assets Still Held at Reporting
	Date for the Three Months Ended				Date for the Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2011		2010		2011		2010
Interest income on securities	$	-	$	-	$	-	$	-
Other changes in fair value		-		11		25		134
Total	$	-	$	11	$	25	$	134

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis are summarized below:

			Quoted Prices in
			Active Markets for		Significant Other		Significant
	June 30,		Identical Assets		Observable Inputs		Unobservable Inputs
(Dollars in thousands)	2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	3,213	$	-	$	-	$	3,213
Commercial Real Estate:
Land Development		10,393		-		-		10,393
Building Lots		1,305		-		-		1,305
Other		33,213		-		-		33,213
Real Estate Construction		998		-		-		998
Residential Mortgage		4,355		-		-		4,355
Consumer and Home Equity		910		-		-		910
Indirect Consumer		301		-		-		301
Real estate acquired through foreclosure:
Commercial		1,207		-		-		1,207
Commercial Real Estate:
Land Development		2,514		-		-		2,514
Building Lots		6,813		-		-		6,813
Other		5,560		-		-		5,560
Residential Mortgage		262		-		-		262
Trust preferred security held-to-maturity		22		-		-		22

			Quoted Prices in
			Active Markets for		Significant Other		Significant
	December 31,		Identical Assets		Observable Inputs		Unobservable Inputs
(Dollars in thousands)	2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	1,092	$	-	$	-	$	1,092
Commercial Real Estate:
Land Development		18,333		-		-		18,333
Building Lots		3,391		-		-		3,391
Other		49,505		-		-		49,505
Real Estate Construction		1,057		-		-		1,057
Residential Mortgage		4,821		-		-		4,821
Consumer and Home Equity		824		-		-		824
Indirect Consumer		171		-		-		171
Real estate acquired through foreclosure
Commercial		1,103		-		-		1,103
Commercial Real Estate:
Land Development		2,190		-		-		2,190
Building Lots		1,483		-		-		1,482
Other		3,375		-		-		3,375
Residential Mortgage		428		-		-		428
Trust preferred security held-to-maturity		22		-		-		22

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $59.1 million, with a valuation allowance of $4.4 million, resulting in an additional provision for loan losses of $7.9 million and $8.7 million for the three and six month periods ended June 30, 2011.  Values for collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisals and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value on the estimated cost to replace the current property after considering adjustments for depreciation.  Values of the market comparison approach evaluate the sales price of similar properties in the same market area.  The income approach considers net operating income generated by the property and an investor’s required return.  The final value is a reconciliation of these three approaches and takes into consideration any other factors management deems relevant to arrive at a representative fair value.

Real estate owned acquired through foreclosure is recorded at fair value less estimated selling costs at the date of foreclosure.  Fair value is based on the appraised market value of the property based on sales of similar assets.  The fair value may be subsequently reduced if the estimated fair value declines below the original appraised value.  Fair value adjustments of $4.4 million and $4.6 million were made to real estate owned during the quarter and six months ended June 30, 2011.  Fair value adjustments of $388,000 were made to real estate owned during the quarter and six months ended June 30, 2010.

Our held-to-maturity trust preferred security is valued using an income approach valuation technique (using cash flows and present value techniques) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The income approach is equally or more representative of fair value than relying on the estimation of market value technique used at prior measurement dates, which now has few observable inputs and relies on an inactive market with distressed sales conditions that would require significant adjustments.

We received a valuation estimate on our trust preferred security for June 30, 2011.  The valuation estimate was based on proprietary pricing models utilizing significant unobservable inputs in an inactive market with distressed sales, Level 3 inputs, rather than actual transactions in an active market.

Fair Value of Financial Instruments

The estimated fair value of financial instruments not previously presented is as follows:

(Dollars in thousands)	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	75,188	$	75,188	$	166,176	$	166,176
Securities held-to-maturity		-		-		102		104
Loans held for sale		5,708		5,799		6,388		6,472
Loans, net		727,019		738,611		780,075		789,889
Accrued interest receivable		7,949		7,949		6,404		6,404
FHLB stock		4,805		N/A		4,909		N/A
Financial liabilities:
Deposits		1,127,182		1,124,959		1,173,908		1,163,654
Advances from Federal Home Loan Bank		27,805		30,465		52,532		55,190
Subordinated debentures		18,000		12,743		18,000		12,743
Accrued interest payable		1,170		1,170		594		594

The methods and assumptions used in estimating fair value disclosures for financial instruments are presented below:

Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt and variable rate loans or deposits that re-price frequently and fully.  Held-to-maturity securities fair values are based on market prices or dealer quotes and if no such information is available, on the rate and term of the security and information about the issuer.  The value of loans held for sale is based on the underlying sale commitments.  For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life.  Fair values of advances from Federal Home Loan Bank and subordinated debentures are based on current rates for similar financing.  The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and is not material.  It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

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Consolidated Statements of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating Activities:
Net income/(loss)	$ (13,974)	$ 693
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	12,982	5,026
Depreciation on premises and equipment	862	872
Core deposit intangible amortization	153	152
Net amortization (accretion) available-for-sale	(2,873)	(911)
Impairment loss on securities available-for-sale	25	134
Impairment loss on securities held-to-maturity	79	49
Loss on sale of investments held-to-maturity	3
Loss on sale of investments available-for-sale	35	23
Gain on sale of investments available-for-sale	(231)
Gain on sale of mortgage loans	(556)	(714)
Origination of loans held for sale	(34,232)	(55,617)
Proceeds on sale of loans held for sale	35,468	49,517
Stock-based compensation expense	95	47
Prepaid FDIC premium	1,806	1,275
Changes in:
Cash surrender value of life insurance	(171)	(173)
Interest receivable	(1,545)	(249)
Other assets	1,010	(868)
Interest payable	576	(71)
Accounts payable and other liabilities	309	(16)
Net cash from operating activities	(179)	(831)
Investing Activities:
Sales of securities available-for-sale	88,197	500
Sales of securities held-to-maturity	92
Purchases of securities available-for-sale	(180,139)	(118,689)
Maturities of securities available-for-sale	15,500	21,504
Maturities of securities held-to-maturity	7	788
Net change in loans	57,119	46,180
Redemption of Federal Home Loan Bank stock	104
Net purchases of premises and equipment	(292)	(1,232)
Net cash from investing activities	(19,412)	(50,949)
Financing Activities
Net change in deposits	(46,726)	29,470
Change in short-term borrowings		(905)
Advance from Federal Home Loan Bank	337
Maturity of Federal Home Loan Bank advance	(25,000)
Repayments to Federal Home Loan Bank	(64)	(149)
Issuance of common stock under dividend reinvestment program	2	13
Issuance of common stock for employee benefit plans	54	63
Dividends paid on preferred stock		(500)
Net cash from financing activities	(71,397)	27,992
(Decrease) Increase in cash and cash equivalents	(90,988)	(23,788)
Cash and cash equivalents, beginning of period	166,176	98,533
Cash and cash equivalents, end of period	75,188	74,745
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$ 9,438	$ 8,076

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INCOME TAXES

6 Months Ended

Jun. 30, 2011

INCOME TAXES

6. INCOME TAXES

The calculation for the income tax provision or benefit generally does not consider the tax effects of changes in other comprehensive income, or OCI, which is a component of shareholders’ equity on the balance sheet.  However, an exception is provided in certain circumstances, such as when there is a full valuation allowance against net deferred tax assets, there is a loss from continuing operations and income in other components of the financial statements.  In such a case, pre-tax income from other categories, such as changes in OCI, must be considered in determining a tax benefit to be allocated to the loss from continuing operations.  For the six month period ended June 30, 2011, this resulted in $1.5 million of income tax benefit allocated to continuing operations.

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefit related to such assets will not be realized.  In assessing the need for a valuation allowance, we considered various factors including our three year cumulative loss position and the fact that we did not meet our forecast levels in 2010 and 2011.  These factors represent the most significant negative evidence that we considered in concluding that a valuation allowance was necessary at June 30, 2011 and December 31, 2010.

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STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2011

STOCKHOLDERS' EQUITY

11.  STOCKHOLDERS’ EQUITY

Regulatory Capital Requirements – The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies.  Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices.  Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition.  If adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined).

As of June 30, 2011, the regulatory capital levels of the Corporation and the Bank exceeded “well-capitalized” standards. However, as a result of the Consent Order the Bank entered into with the FDIC and KDFI described in greater detail in Note 2, the Bank is categorized as a "troubled institution" by bank regulators, which by definition does not permit the Bank to be considered "well-capitalized" despite its current capital levels.

Our actual and required capital amounts and ratios are presented below.

(Dollars in thousands)						For Capital
	Actual					Adequacy Purposes
As of June 30, 2011:	Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)
Consolidated	$	89,849		10.30	%	$	69,779		8.00	%
Bank		91,426		10.48			69,784		8.00
Tier I capital (to risk-weighted assets)
Consolidated		78,862		9.04			34,890		4.00
Bank		80,438		9.22			34,892		4.00
Tier I capital (to average assets)
Consolidated		78,862		6.20			50,858		4.00
Bank		80,438		6.31			51,012		4.00

											To Be Considered
											Well Capitalized
											Under Prompt
(Dollars in thousands)						For Capital					Correction
	Actual					Adequacy Purposes					Action Provisions
As of December 31, 2010:	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)
Consolidated	$	104,717		11.34	%	$	73,890		8.00	%		N/A		N/A
Bank		105,116		11.38			73,880		8.00			92,350		10.00
Tier I capital (to risk-weighted assets)
Consolidated		93,034		10.07			36,945		4.00			N/A		N/A
Bank		93,423		10.12			36,940		4.00			55,410		6.00
Tier I capital (to average assets)
Consolidated		93,034		7.16			52,003		4.00			N/A		N/A
Bank		93,423		7.18			52,082		4.00			65,103		5.00

In the Consent Order, a formal agreement with the FDIC and KDFI, the Bank agreed to achieve and maintain the capital ratios set forth in the following table: At March 31, 2011, and June 30, 2011, we were not in compliance with the Tier 1 and total risk-based capital requirements.

				Ratio Required			Ratio Required
	Actual as of			by the Order			by the Order
	6/30/2011			at 3/31/2011			at 6/30/2011
Total capital to risk-weighted assets		10.48	%		11.50	%		12.00	%
Tier 1 capital to average total assets		6.31	%		8.50	%		9.00	%

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EARNINGS (LOSS) PER SHARE

6 Months Ended

Jun. 30, 2011

EARNINGS (LOSS) PER SHARE

7. EARNINGS (LOSS) PER SHARE

The reconciliation of the numerators and denominators of the basic and diluted EPS is as follows:

	Three Months Ended						Six Months Ended
(Dollars in thousands,	June 30,						June 30,
except per share data)	2011			2010			2011			2010
Basic:
Net income/(loss)	$	(11,904	)	$	(62	)	$	(13,974	)	$	693
Less:
Preferred stock dividends		(250	)		(250	)		(500	)		(500	)
Accretion on preferred stock discount		(13	)		(13	)		(27	)		(27	)
Net income (loss) available to common shareholders	$	(12,167	)	$	(325	)	$	(14,501	)	$	166
Weighted average common shares		4,740			4,718			4,738			4,717
Diluted:
Weighted average common shares		4,740			4,718			4,738			4,717
Dilutive effect of stock options and warrants		-			-			-			-
Weighted average common and incremental shares		4,740			4,718			4,738			4,717
Earnings (Loss) Per Common Share:
Basic	$	(2.57	)	$	(0.07	)	$	(3.06	)	$	0.04
Diluted	$	(2.57	)	$	(0.07	)	$	(3.06	)	$	0.04

Stock options for 266,521 shares of common stock were not included in the June 30, 2011 computation of diluted earnings per share for the quarter and year to date because their impact was anti-dilutive.  Stock options for 215,983 shares of common stock were not included in the June 30, 2010 computation of diluted earnings per share for the quarter and year to date because their impact was anti-dilutive.  Warrants to purchase 215,983 shares at June 30, 2011 and 2010 were not included in the computation because their impact was also anti-dilutive.

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REAL ESTATE ACQUIRED THROUGH FORECLOSURE

6 Months Ended

Jun. 30, 2011

REAL ESTATE ACQUIRED THROUGH FORECLOSURE

5. REAL ESTATE ACQUIRED THROUGH FORECLOSURE

A summary of the real estate acquired through foreclosure activity is as follows:

	June 30,			December 31,
(Dollars in thousands)	2011			2010
Beginning balance	$	25,807		$	8,428
Additions		9,438			24,622
Sales		(4,137	)		(4,928	)
Writedowns		(4,649	)		(2,315	)
Ending balance	$	26,459		$	25,807

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Summary of Accumulated Other Comprehensive Income Balances (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Beginning Balance			$ (4,715)
Current Period Change	3,009	919	4,043	1,060
Ending Balance			(672)
Net Unrealized Income( Loss) on Non OTTI Securities Available For Sale
Beginning Balance			(5,691)
Current Period Change			3,782
Ending Balance			(1,909)
Net Unrealized Income (Loss) on OTTI Securities Available For Sale
Beginning Balance			1,082
Current Period Change			209
Ending Balance			1,291
Accumulated Net Unrealized Investment Gain (Loss)
Beginning Balance			(106)
Current Period Change			52
Ending Balance			$ (54)

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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2011

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying unaudited consolidated financial statements include the accounts of First Financial Service Corporation and its wholly owned subsidiary, First Federal Savings Bank.  First Federal Savings Bank has three wholly owned subsidiaries, First Service Corporation of Elizabethtown, Heritage Properties, LLC and First Federal Office Park, LLC.  Unless the text clearly suggests otherwise, references to "us," "we," or "our" include First Financial Service Corporation and its direct and indirect wholly owned subsidiaries.  All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and six month periods ending June 30, 2011 are not necessarily indicative of the results that may occur for the year ending December 31, 2011.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation’s annual report on Form 10-K for the period ended December 31, 2010, as amended by Form 10-K/A filed May 13, 2011.

Adoption of New Accounting Standards – In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which significantly expands the existing requirements and leads to greater transparency into a company’s exposure to credit losses from lending arrangements.  The extensive new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending after December 15, 2010.  Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance roll-forward and modification disclosures were required for periods beginning after December 15, 2010.  The new standard did not have a material impact.

In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring, as clarified, is effective on a prospective basis. The provisions of the amendment will be effective for our reporting period ending September 30, 2011. The new standard is not expected to have a material impact on our consolidated financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (for us this will be our 2012 first quarter), with early adoption permitted. The new standard is not expected to have a material impact on our consolidated financial position or results of operations.

Reclassifications – Some items in the prior year financial statements were classified to conform to the current presentation.

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REGULATORY MATTERS

6 Months Ended

Jun. 30, 2011

REGULATORY MATTERS

2. REGULATORY MATTERS

On January 27, 2011, the Bank entered into a Consent Order, a formal agreement with the FDIC and KDFI, under which, among other things, the Bank has agreed to achieve and maintain a Tier 1 leverage ratio of 8.5% and a total risk-based capital ratio of 11.5% by March 31, 2011 and achieve and maintain a Tier 1 leverage ratio of 9.0% and a total risk-based capital ratio of 12.0% by June 30, 2011.   At March 31, 2011, and June 30, 2011, we were not in compliance with the Tier 1 and total risk-based capital requirements.  We notified the bank regulatory agencies that the increased capital levels would not be achieved and as we remain in regular contact with the FDIC and KDFI, we expect the agencies will reevaluate our progress toward the higher capital ratios at September 30, 2011.

The Bank’s Consent Order with the FDIC and KDFI requires us to obtain the consent of the Regional Director of the FDIC and the Commissioner of the KDFI to declare and pay cash dividends to the Corporation.We are also no longerallowed to accept, renew or rollover brokered deposits (including deposits through the CDARs program) without prior regulatory approval.

On April 20, 2011, the Corporation entered into a Consent Order with the Federal Reserve Bank of St. Louis which requires the Corporation to obtain regulatory approval before declaring any dividends.  We also may not redeem shares or obtain additional borrowings without prior approval.

In order to meet these capital requirements, we have engaged an investment banking firm with expertise in the financial services sector to assist with a review of all strategic opportunities available to us including the following:

· Raising capital by selling capital stock through a public offering or private placement; and

· Evaluating other strategic alternatives, such as a sale of assets, one or more branches, or the institution.

Our plans for the third quarter of 2011 include the following:

· Pursue all available strategies to recapitalize the Bank;

· Continue to serve our community banking customers and operate the Corporation and the Bank in a safe and sound manner.

· Continue to reduce our lending concentration in commercial real estate by obtaining paydowns and payoffs; and

· Take significant operating expense reductions and other cost cutting measures aimed at lowering expenses.

Bank regulatory agencies can exercise discretion when an institution does not meet the terms of a consent order.  The agencies may initiate changes in management, issue mandatory directives, impose monetary penalties or refrain from formal sanctions, depending on individual circumstances. Any of these alternatives could damage our reputation and have a material adverse effect on our business.

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PREFERRED STOCK

6 Months Ended

Jun. 30, 2011

PREFERRED STOCK

10.  PREFERRED STOCK

On January 9, 2009, we issued $20 million of cumulative perpetual preferred shares, with a liquidation preference of $1,000 per share (the “Senior Preferred Shares”) to the United States Treasury under its Capital Purchase Program (“CPP”). The Senior Preferred Shares constitute Tier 1 capital and rank senior to our common shares. The Senior Preferred Shares pay cumulative dividends quarterly at a rate of 5% per annum for the first five years and will reset to a rate of 9% per annum after five years. The Senior Preferred Shares may be redeemed at any time, at our option. We also have the ability to defer dividend payments at any time, at our option.

We also issued a warrant to purchase 215,983 common shares to the U.S. Treasury at a purchase price of $13.89 per share. The aggregate purchase price equals 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury, which was $3 million. The initial purchase price per share for the warrant and the number of common shares subject to the warrant were determined by reference to the market price of the common shares (calculated on a 20-day trailing average) on December 8, 2008, the date the U.S. Treasury approved our TARP application. The warrant has a term of 10 years and is potentially dilutive to earnings per share.

On October 29, 2010, we gave written notice to the U.S. Treasury that effective with the fourth quarter of 2010, we were suspending the payment of regular quarterly cash dividends on our Senior Preferred Shares.  Under the CPP provisions, failure to pay dividends for six quarters would trigger the rights of the holder of our Senior Preferred Shares to appoint representatives to our Board of Directors.  The dividends will continue to be accrued for payment in the future and reported as a preferred dividend requirement that is deducted from income to common shareholders for financial statement purposes.  As of June 30, 2011, these accrued but unpaid dividends totaled $889,000.

Participation in the CPP requires a participating institution to comply with a number of restrictions and provisions, including standards for executive compensation and corporate governance and limitations on share repurchases and the declaration and payment of dividends on common shares. The standard terms of the CPP require that a participating financial institution limit the payment of dividends to the most recent quarterly amount prior to October 14, 2008, which is $0.19 per share in our case. This dividend limitation will remain in effect until the earlier of three years or such time that the preferred shares are redeemed.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted. As required by ARRA, the U.S. Treasury has issued additional compensation standards on companies receiving financial assistance from the U.S. government. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on each CPP recipient, until the recipient has repaid the Treasury.  ARRA also permits CPP participants to redeem the preferred shares held by the Treasury Department without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

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SECURITIES

6 Months Ended

Jun. 30, 2011

SECURITIES

3. SECURITIES

The amortized cost basis and fair values of securities are as follows:

			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Securities available-for-sale:
June 30, 2011:
U.S. Treasury and agencies	$	101,925	$	107	$	(1,001	)	$	101,031
Government-sponsored mortgage-backed residential		154,811		2,003		(276	)		156,538
Equity		299		-		(5	)		294
State and municipal		22,515		808		(1	)		23,322
Trust preferred securities		1,078		-		(701	)		377
Total	$	280,628	$	2,918	$	(1,984	)	$	281,562
December 31, 2010:
U.S. Treasury and agencies	$	117,886	$	97	$	(4,090	)	$	113,893
Government-sponsored mortgage-backed residential		59,320		448		(598	)		59,170
Equity		299		-		(6	)		293
State and municipal		22,564		264		(210	)		22,618
Trust preferred securities		1,074		-		(1,019	)		55
Total	$	201,143	$	809	$	(5,923	)	$	196,029

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Securities held-to-maturity:
June 30, 2011:
Trust preferred securities	$	22	$	-	$	-	$	22
Total	$	22	$	-		-	$	22
December 31, 2010:
Government-sponsored mortgage-backed residential	$	102	$	2	$	-	$	104
Trust preferred securities		22		-		-		22
Total	$	124	$	2	$	-	$	126

The amortized cost and fair value of securities at June 30, 2011, by contractual maturity, are shown below.  Securities not due at a single maturity date, primarily mortgage-backed and equity securities, are shown separately.

	Available for Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	115	$	115	$	-	$	-
Due after one year through five years		11,936		12,012		-		-
Due after five years through ten years		15,310		15,329		-		-
Due after ten years		98,157		97,274		22		22
Government-sponsored mortgage-backed residential		154,811		156,538		-		-
Equity		299		294		-		-
	$	280,628	$	281,562	$	22	$	22

For the June 30, 2011 six month period, proceeds from sales of available-for-sale and held-to-maturity debt securities were $88.3 million and for the 2010 period, proceeds from sales of available-for-sale equity securities were $500,000.  Gross realized gains recognized in income in 2011 were $231,000 and gross realized losses recognized were $38,000.  Gross realized losses recognized in income in 2010 were $23,000.

Investment securities pledged to secure public deposits and FHLB advances had an amortized cost of $67.4 million and fair value of $67.3 million at June 30, 2011 and a $66.8 million amortized cost and fair value of $65.1 million at December 31, 2010.

Securities with unrealized losses at June 30, 2011 and December 31, 2010 aggregated by major security type and length of time in a continuous unrealized loss position are as follows:

June 30, 2011	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury and agencies	$	73,988	$	(1,001	)	$	-	$	-		$	73,988	$	(1,001	)
Government-sponsored mortgage-backed residential		23,609		(276	)		-		-			23,609		(276	)
Equity		-		-			3		(5	)		3		(5	)
State and municipal		769		(1	)		-		-			769		(1	)
Trust preferred securities		-		-			377		(701	)		377		(701	)
Total temporarily impaired	$	98,366	$	(1,278	)	$	380	$	(706	)	$	98,746	$	(1,984	)

December 31, 2010	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury and agencies	$	70,896	$	(4,090	)	$	-	$	-		$	70,896	$	(4,090	)
Government-sponsored mortgage-backed residential		22,084		(598	)		-		-			22,084		(598	)
Equity		3		(6	)		-		-			3		(6	)
State and municipal		11,095		(157	)		527		(53	)		11,622		(210	)
Trust preferred securities		-		-			55		(1,019	)		55		(1,019	)
Total temporarily impaired	$	104,078	$	(4,851	)	$	582	$	(1,072	)	$	104,660	$	(5,923	)

We evaluate investment securities with significant declines in fair value on a quarterly basis to determine whether they should be considered other-than-temporarily impaired under current accounting guidance, which generally provides that if a security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the securities must assess whether the impairment is other-than-temporary.

Accounting guidance requires entities to split other than temporary impairment charges between credit losses (i.e., the loss based on the entity’s estimate of the decrease in cash flows, including those that result from expected voluntary prepayments), which are charged to earnings, and the remainder of the impairment charge (non-credit component) to accumulated other comprehensive income. This requirement pertains to both securities held to maturity and securities available for sale.

The unrealized losses on our U. S. Treasury and agency securities and our government sponsored mortgage-backed residential securities were a result of changes in interest rates for fixed-rate securities where the interest rate received is less than the current rate available for new offerings of similar securities.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because we do not intend to sell and it is more likely than not that we will not be required to sell these investments until recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at June 30, 2011.

The unrealized losses on the state and municipal securities were caused primarily by interest rate decreases.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment.  Because we do not have the intent to sell these securities and it is likely that we will not be required to sell the securities before their anticipated recovery, we do not consider these investments to be other-than-temporarily impaired at June 30, 2011.  We also considered the financial condition and near term prospects of the issuer and identified no matters that would indicate less than full recovery.

As discussed in Note 9 - Fair Value, the fair value of our portfolio of trust preferred securities, has decreased significantly.  There is limited trading in trust preferred securities and the majority of holders of such instruments have elected not to participate in the market unless they are required to sell as a result of liquidation, bankruptcy, or other forced or distressed conditions.

To determine if the five trust preferred securities were other than temporarily impaired as of June 30, 2011, we used a discounted cash flow analysis.  The cash flow models were used to determine if the current present value of the cash flows expected on each security were still equivalent to the original cash flows projected on the security when purchased.   The cash flow analysis takes into consideration assumptions for prepayments, defaults and deferrals for the underlying pool of banks, insurance companies and REITs.

Management works with independent third parties to identify its best estimate of the cash flow expected to be collected. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, credit loss exists), an other than temporary impairment is considered to have occurred. If there is no credit loss, any impairment is considered temporary. The cash flow analysis we performed included the following general assumptions:

· We assume default rates on individual entities behind the pools based on Fitch ratings for financial institutions and A.M. Best ratings for insurance companies.  These ratings are used to predict the default rates for the next several quarters.  Two of the trust preferred securities hold a limited number of real estate investment trusts (REITs) in their pools.  REITs are evaluated on an individual basis to predict future default rates.

· We assume that annual defaults for the remaining life of each security will be 37.5 basis points.

· We assume a recovery rate of 15% on deferrals after two years.

· We assume 2% prepayments through the five year par call and then 2% per annum for the remaining life of the security.

· Our securities have been modeled using the above assumptions by FTN Financial using the forward LIBOR curve plus original spread to discount projected cash flows to present values.

Additionally, in making our determination, we considered all available market information that could be obtained without undue cost and effort, and considered the unique characteristics of each trust preferred security individually by assessing the available market information and the various risks associated with that security including:

· Valuation estimates provided by our investment broker;

· The amount of fair value decline;

· How long the decline in fair value has existed;

· Significant rating agency changes on the issuer;

· Level of interest rates and any movement in pricing for credit and other risks;

· Information about the performance of the underlying institutions that issued the debt instruments, such as net income, return on equity, capital adequacy, non-performing assets, Texas ratios, etc;

· Our intent to sell the security or whether it is more likely than not that we will be required to sell the security before its anticipated recovery; and

· Other relevant observable inputs.

The following table details the five debt securities with other-than-temporary impairment at June 30, 2011 and the related credit losses recognized in earnings during the six months ended June 30, 2011:

		Moody's										% of Current
		Credit	Current							Current		Deferrals and
(Dollars in thousands)		Ratings	Moody's					Estimated		Deferrals		Defaults			Year to Date
		When	Credit	Par		Amortized		Fair		and		to Current			OTTI
Security	Tranche	Purchased	Ratings	Value		Cost		Value		Defaults		Collateral			Recognized
Preferred Term Securities IV	Mezzanine	A3	Ca	$	244	$	180	$	120	$	18,000		27	%	$	1
Preferred Term Securities VI	Mezzanine	A1	Caa1		259		22		22		30,000		74	%		79
Preferred Term Securities XV B1	Mezzanine	A2	Ca		1,004		425		184		211,700		35	%		-
Preferred Term Securities XXI C2	Mezzanine	A3	Ca		1,018		393		72		225,890		31	%		24
Preferred Term Securities XXII C1	Mezzanine	A3	Ca		503		80		1		428,500		33	%		-
Total				$	3,028	$	1,100	$	399						$	104

The table below presents a roll-forward of the credit losses recognized in earnings for the periods ended June 30, 2011 and 2010:

(Dollars in thousands)	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Beginning balance	$	1,947	$	1,034	$	1,910	$	862
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		67		11		104		183
Ending balance	$	2,014	$	1,045	$	2,014	$	1,045

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Consolidated Statements of Comprehensive Income (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Net income/(loss)	$ (11,904)	$ (62)	$ (13,974)	$ 693
Other comprehensive income (loss):
Change in unrealized gain (loss) on securities available-for-sale	4,716	1,381	5,923	1,448
Change in unrealized gain (loss) on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized into earnings	(100)	(19)	293	(47)
Reclassification of realized amount on securities available-for-sale losses (gains)	(124)	11	(168)	157
Reclassification of unrealized loss on held-to-maturity security recognized in income	67	20	79	49
Accretion (amortization) of non-credit component of other-than-temporary impairment on held-to-maturity securities		(1)	(1)	(1)
Net unrealized gain (loss) recognized in comprehensive income	4,559	1,392	6,126	1,606
Tax effect	(1,550)	(473)	(2,083)	(546)
Total other comphrehensive income	3,009	919	4,043	1,060
Comprehensive Income/(Loss)	$ (8,895)	$ 857	$ (9,931)	$ 1,753

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Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands	Total	Preferred	Common	Additional Paid-in Capital	Retained Earnings	Accumulated other Comprehensive (Loss), Net of Tax
Beginning Balance at Dec. 31, 2010	$ 71,311	$ 19,835	$ 4,726	$ 35,201	$ 16,264	$ (4,715)
Beginning Balance (in shares) at Dec. 31, 2010		20,000	4,726
Net loss	(13,974)				(13,974)
Shares issued under dividend reinvestment program (in shares)			1
Shares issued under dividend reinvestment program	2		1	1
Stock issued for employee benefit plans (in shares)			13
Stock issued for employee benefit plans	54		13	41
Stock-based compensation expense	95			95
Net change in unrealized gains (losses) on securities available-for-sale,	3,782					3,782
Change in unrealized gains (losses) on held-to-maturity securities for which an other-than-temporary impairment charge has been recorded,	52					52
Change in unrealized gains (losses) on securities available-for-sale for which a portion of an other-than-temporary impairment charge has been recognized into earnings, net of reclassification	209					209
Dividends on preferred stock	(500)				(500)
Accretion of preferred stock discount		27			(27)
Ending Balance at Jun. 30, 2011	$ 61,031	$ 19,862	$ 4,740	$ 35,338	$ 1,763	$ (672)
Ending Balance (in shares) at Jun. 30, 2011		20,000	4,740

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STOCK BASED COMPENSATION PLAN

6 Months Ended

Jun. 30, 2011

STOCK BASED COMPENSATION PLAN

8.  STOCK BASED COMPENSATION PLAN

Our 2006 Stock Option and Incentive Compensation Plan, which is shareholder approved, succeeded our 1998 Stock Option and Incentive Compensation Plan. Under the 2006 Plan, we may grant restricted stock and incentive or non-qualified stock options to key employees and directors for a total of 647,350 shares of our common stock. Options available for future grants under the 1998 Plan totaled 38,500 shares and were rolled into the 2006 Plan. We believe that the ability to award stock options and other forms of stock-based incentive compensation can assist us in attracting and retaining key employees. Stock-based incentive compensation is also a means to align the interests of key employees with those of our shareholders by providing awards intended to reward recipients for our long-term growth. The option to purchase shares vest over periods of one to five years and expire ten years after the date of grant. We issue new shares of common stock upon the exercise of stock options. If options or awards granted under the 2006 Plan expire or terminate for any reason without having been exercised in full or released from restriction, the corresponding shares again become available for option or award for the purposes of the Plan. At June 30, 2011, options and restricted stock available for future grants under the 2006 Plan totaled 460,559.

Compensation cost related to options and restricted stock granted under the 1998 and 2006 Plans that was charged against earnings for the six month periods ended June 30, 2011 and 2010was $95,000 and $47,000.  As of June 30, 2011 there was $327,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 1998 and 2006 Plans.That cost is expected to be recognized over a weighted-average period of 2.6 years.

Stock Options – The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses various weighted-average assumptions.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected volatility is based on the fluctuation in the price of a share of stock over the period for which the option is being valued and the expected life of the options granted represents the period of time the options are expected to be outstanding.  There were no stock option grants for the June 30, 2011 period.

A summary of option activity under the 1998 and 2006 Plans as of June 30, 2011 is presented below:

						Weighted
				Weighted		Average
	Number			Average		Remaining		Aggregate
	of			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
								(Dollars In Thousands)
Outstanding, beginning of period		296,521		$	13.70
Granted during period		-			-
Forfeited during period		(30,000	)		14.03
Exercised during period		-			-
Outstanding, end of period		266,521		$	13.67		6.7	$	-
Eligible for exercise at period end		125,455		$	19.32		4.5	$	-

There were no options exercised, modified or settled in cash for the periods ended June 30, 2011 and 2010.  Management expects all outstanding unvested options will vest.

Restricted Stock – In addition to the stock options reflected above, on December 31, 2010, we granted 36,855 shares of restricted common stock at the weighted average current market price of $4.07.  No restricted stock had been granted prior to December 31, 2010.  Restricted stock provides the grantee with voting, dividend and anti-dilution rights equivalent to common shareholders.  The restricted stock vests on December 31, 2012, provided that the recipient has continued to perform substantial services for the Company through that date.  The restricted stock will become 100% vested before the vesting date upon the recipient’s death or disability or a change of control event as defined by federal regulations. Any dividends declared on the restricted stock prior to vesting will be retained and paid only on the date of vesting. The recipient may not transfer, pledge or dispose of the restricted stock before the date of vesting, and thereafter only in proportion to percentage of the preferred shares originally issued to the U.S. Treasury that have been redeemed.  As of June 30, 2011 there was $113,000 of total unrecognized compensation cost related to the restricted stock.That cost is expected to be recognized over the remaining vesting period of 1.5 years.

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
ASSETS:
Cash and due from banks	$ 14,284	$ 14,840
Interest bearing deposits	60,904	151,336
Total cash and cash equivalents	75,188	166,176
Securities available-for-sale	281,562	196,029
Securities held-to-maturity, fair value of $22 Jun (2011) and $126 Dec (2010)	22	124
Total securities	281,584	196,153
Loans held for sale	5,708	6,388
Loans, net of unearned fees	799,415	881,934
Allowance for loan losses	(17,708)	(22,665)
Net loans	787,415	865,657
Federal Home Loan Bank stock	4,805	4,909
Cash surrender value of life insurance	9,525	9,354
Premises and equipment, net	31,418	31,988
Real estate owned:
Acquired through foreclosure	26,459	25,807
Held for development	45	45
Other repossessed assets	34	40
Core deposit intangible	841	994
Accrued interest receivable	7,949	6,404
Accrued income taxes	6,030	2,161
Deferred income taxes		2,982
Prepaid FDIC Insurance	2,643	4,449
Other assets	8,160	2,388
TOTAL ASSETS	1,242,096	1,319,507
Deposits:
Non-interest bearing	74,305	73,566
Interest bearing	1,052,877	1,100,342
Total deposits	1,127,182	1,173,908
Advances from Federal Home Loan Bank	27,805	52,532
Subordinated debentures	18,000	18,000
Accrued interest payable	1,170	594
Accounts payable and other liabilities	3,971	3,162
Deferred income taxes	2,937
TOTAL LIABILITIES	1,181,065	1,248,196
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY:
Serial preferred stock, $1 par value per share; authorized 5,000,000 shares; issued and outstanding, 20,000 shares with a liquidation preference of $20,000	19,862	19,835
Common stock, $1 par value per share; authorized 35,000,000 shares; issued and outstanding, 4,739,622 shares Jun (2011), and 4,726,329 shares Dec (2010)	4,740	4,726
Additional paid-in capital	35,338	35,201
Retained earnings	1,763	16,264
Accumulated other comprehensive loss	(672)	(4,715)
TOTAL STOCKHOLDERS' EQUITY	61,031	71,311
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,242,096	$ 1,319,507