NOTE 2—SECURITIES

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2014 and 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2014
Obligations of U.S. government-sponsored entities and agencies	$	18,345	$	126	$	(35)	$	18,436
Obligations of state and political subdivisions		44,645		1,124		(257)		45,512
Mortgage-backed securities - residential		57,370		965		(231)		58,104
Collateralized mortgage obligations - residential		3,887		42		—		3,929
Trust preferred security		202		210		—		412
Total available-for-sale securities	$	124,449	$	2,467	$	(523)	$	126,393

Held-to-maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
June 30, 2014
Obligations of state and political subdivisions	$	3,000	$	40	$	—	$	3,040
Total held-to-maturity securities	$	3,000	$	40	$	—	$	3,040

Available-for-sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2013
Obligations of U.S. government sponsored entities and agencies	$	4,700	$	6	$	(48)	$	4,658
Obligations of state and political subdivisions		39,777		805		(770)		39,812
Mortgage-backed securities - residential		46,834		552		(497)		46,889
Collateralized mortgage obligations - residential		5,740		11		(43)		5,708
Trust preferred security		202		—		(40)		162
Total available-for-sale securities	$	97,253	$	1,374	$	(1,398)	$	97,229

Held-to-maturity	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
June 30, 2013
Obligations of state and political subdivisions	$	3,000	$	—	$	(74)	$	2,926
Total held-to-maturity securities	$	3,000	$	—	$	(74)	$	2,926

Proceeds from sales of debt securities during 2014 and 2013 were as follows:

	2014		2013
Proceeds from sales	$	4,648	$	7,798
Gross realized gains		50		181
Gross realized losses		1		24

The income tax provision applicable to realized gains amounted to $17 in 2014 and $61 in 2013 and the income tax benefit applicable to realized losses amounted to $8 in 2013. There was no tax benefit recognized from gross realized losses in 2014.

The amortized cost and fair values of debt securities at June 30, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized mortgage obligations and the trust preferred security are shown separately.

Available-for-sale	Amortized Cost		Fair Value
Due in one year or less	$	3,533	$	3,572
Due after one year through five years		7,001		7,113
Due after five years through ten years		30,361		30,809
Due after ten years		22,095		22,454
Total		62,990		63,948
Mortgage-backed securities – residential		57,370		58,104
Collateralized mortgage obligations		3,887		3,929
Trust preferred security		202		412
Total	$	124,449	$	126,393

Held-to-maturity	Amortized Cost		Fair Value
Due after ten years	$	3,000	$	3,040
Total	$	3,000	$	3,040

Securities with a carrying value of approximately $44,720 and $27,781 were pledged at June 30, 2014 and 2013, respectively, to secure public deposits and commitments as required or permitted by law. At June 30, 2014 and 2013, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, with an aggregate book value greater than 10% of shareholders’ equity.

The following table summarizes the securities with unrealized and unrecognized losses at June 30, 2014 and 2013, aggregated by investment category and length of time the individual securities have been in a continuous unrealized or unrecognized loss position:

	Less than 12 Months				12 Months or more				Total
Available-for-sale	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 30, 2014
Obligations of U.S. government-sponsored entities and agencies	$	1,492	$	(7)	$	5,411	$	(28)	$	6,903	$	(35)
Obligations of states and political subdivisions		9,929		(223)		3,719		(34)		13,648		(257)
Mortgage-backed securities - residential		10,403		(210)		2,342		(21)		12,745		(231)
Total temporarily impaired	$	21,824	$	(440)	$	11,472	$	(83)	$	33,296	$	(523)

	Less than 12 Months				12 Months or more				Total
Available-for-sale	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

June 30, 2013
Obligations of U.S. government-sponsored entities and agencies	$	4,418	$	(48)	$	—	$	—	$	4,418	$	(48)
Obligations of states and political subdivisions		17,826		(766)		107		(4)		17,933		(770)
Mortgage-backed securities - residential		28,836		(497)		—		—		28,836		(497)
Collateralized mortgage obligations		4,696		(43)		—		—		4,696		(43)
Trust preferred security		—		—		162		(40)		162		(40)
Total temporarily impaired	$	55,776	$	(1,354)	$	269	$	(44)	$	56,045	$	(1,398)

	Less than 12 Months				12 Months or more				Total
Held-to-maturity	Fair Value		Unrecognized Loss		Fair Value		Unrecognized Loss		Fair Value		Unrecognized Loss
June 30, 2013
Obligations of states and political subdivisions	$	3,000	$	(74)	$	—	$	—	$	2,926	$	(74)
Total temporarily impaired	$	3,000	$	(74)	$	—	$	—	$	2,926	$	(74)

Management evaluates securities for other-than-temporary impairment (OTTI) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC Topic 320, Accounting for Certain Investments in Debt and Equity Securities. However, the trust preferred security is evaluated using the model outlined in FASB ASC Topic 325, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets.

In determining OTTI under the ASC Topic 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

Under the ASC Topic 325 model, the present value of the remaining cash flows as estimated at the preceding evaluation date are compared to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. The analysis of the trust preferred security falls within the scope of ASC Topic 325.

As of June 30, 2014, the Corporation’s securities portfolio consisted of $126,393 available-for-sale securities, of which $33,296 were in an unrealized loss position. There were fifty-seven securities in an unrealized loss position at June 30, 2014, forty of which were in a continuous loss position for twelve or more months. The unrealized losses related to the Corporation’s obligations of U.S. government-sponsored entities and agencies, obligations of states and political subdivisions and residential mortgage-backed securities, as discussed below:

U.S. government-sponsored entities and agencies: At June 30, 2014, the securities issued by U.S. government-sponsored entities and agencies held by the Corporation were primarily issued by Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to higher interest rates, and not credit quality, and because the Corporation does not have the intent to sell nor is it likely that it will be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired.

Obligations of States and Political Subdivisions: At June 30, 2014, approximately 95.9% of the obligations of states and political subdivisions classified as available-for-sale were general obligation bonds and 4.1% were revenue bonds. The unrealized losses were mainly attributable to the spreads for these types of securities being wider at June 30, 2014 than when these securities were purchased and changes in interest rates. Management monitors the financial data of the individual municipalities to ensure they meet minimum credit standards. Since the Corporation does not intend to sell these securities and it is not likely the Corporation will be required to sell these securities at an unrealized loss position prior to any anticipated recovery in fair value, which may be maturity, management does not believe there is any other-than-temporary impairment related to these securities at June 30, 2014.

Mortgage-Backed Securities At June 30, 2014, all of the mortgage-backed securities held by the Corporation were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to higher interest rates and higher than projected prepayment speeds increasing the premium amortization, and not credit quality, and because the Corporation does not have the intent to sell nor is it likely that it will be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired.