INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

NOTE 5: INVESTMENT SECURITIES

The amortized cost and approximate fair values of securities as of September 30, 2011 and December 31, 2010 are as follows:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Gains		Fair Value
	(In Thousands)
Available-for-sale Securities
Federal agencies	$	32,079	$	919	$	-	$	32,998
State and municipal		25,644		1,600		16		27,228
Government-sponsored enterprise (GSE) - residential mortgage-backed and other asset-backed agency securities		30,096		1,391		2		31,485
Corporate		4,110		-		671		3,439
Total investment securities	$	91,929	$	3,910	$	689	$	95,150

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Available-for-sale Securities
Federal agencies	$	22,139	$	452	$	63	$	22,528
State and municipal		22,516		463		124		22,855
Government-sponsored enterprise (GSE) - residential mortgage-backed and other asset-backed agency securities		28,113		908		109		28,912
Corporate		1,768		-		832		936
Total investment securities	$	74,536	$	1,823	$	1,128	$	75,231

The amortized cost and fair value of available-for-sale securities at September 30, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
Within one year	$	2,351	$	2,385
One to five years		26,264		26,990
Five to ten years		17,910		18,627
After ten years		15,308		15,663
		61,833		63,665
Government-sponsored enterprise (GSE) - residential mortgage-backed and other asset-backed agency securities		30,096		31,485
Totals	$	91,929	$	95,150

No securities were pledged at September 30, 2011 or at December 31, 2010 to secure FHLB advances. Securities with a carrying value of $13,405,000 and $18,580,000 were pledged at September 30, 2011 and December 31, 2010 to secure public deposits and for other purposes as permitted or required by law.

Proceeds from sales of securities available for sale during the nine-month periods ended September 30, 2011 and September 30, 2010 were $7,585,000 and $9,637,000, respectively. Gross gains of $270,000 resulting from sales and calls of available-for-sale securities were realized during the nine-month period ended September 30, 2011. There were no losses recorded for the period. Comparatively, gross gains of $309,000 and gross losses of $3,000 were realized for the nine-month period ended September 30, 2010.

Proceeds from sales of securities available for sale during the three-month period ended September 30, 2011 were $4,251,000 and $2,271,000 during the same period in 2010. Gross gains of $105,000 and $175,000 resulting from sales and calls of available-for-sale securities were realized for the three-month periods ended September 30, 2011 and September 30, 2010, respectively. No losses were recorded for the three-month period ended September 30, 2011 or September 30, 2010. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2011 was $4,952,000, which is approximately 5.20% of the Corporation’s investment portfolio. The fair value of these investments at December 31, 2010 was $13,352,000, which represented 17.7% of the Corporation’s investment portfolio. Management has the ability and intent to hold securities with unrealized losses to recovery, which may be maturity. Based on evaluation of available evidence, including recent changes in market interest rates, management believes that any declines in fair values for these securities are temporary.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting credit portion of the loss recognized in net income and the non-credit portion of the loss would be recognized in accumulated other comprehensive income in the period the other-than-temporary impairment is identified.

The following tables show the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010:

	September 30, 2011
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In Thousands)
Federal agencies	$	-	$	-		$	-	$	-		$	-	$	-
State and municipal		741		(10	)		771		(6	)		1,512		(16	)
GSE - residential mortgage-backed and other asset-backed agency securities		-		-			1		(2	)		1		(2	)
Corporate		2,277		(70	)		1,162		(601	)		3,439		(671	)
Total temporarily impaired securities	$	3,018	$	(80	)	$	1,934	$	(608	)	$	4,952	$	(689	)

	December 31, 2010
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In Thousands)
Federal agencies	$	3,952	$	(63	)	$	-	$	-		$	3,952	$	(63	)
State and municipal		2,752		(70	)		724		(54	)		3,476		(124	)
GSE - residential mortgage-backed and other asset-backed agency securities		4,988		(109	)		-		-			4,988		(109	)
Corporate		-		-			936		(832	)		936		(832	)
Total temporarily impaired securities	$	11,692	$	(242	)	$	1,660	$	(886	)	$	13,352	$	(1,128	)

State and Municipal

The unrealized losses on the Corporation’s investments in securities of state and political subdivisions were primarily caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at September30, 2011.

Government- Sponsored Enterprise (GSE) - Residential Mortgage-Backed and Other Asset-Backed Agency Securities

The unrealized losses on the Corporation’s investment in residential mortgage-backed agency securities were primarily caused by interest rate changes. The Corporation expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at September30, 2011.

Corporate Securities

The unrealized losses on the Corporation’s investment in corporate securities were due primarily to losses on two pooled trust preferred issues held by the Corporation. The two, ALESCO 9A and PRETSL XXVII, had unrealized losses at September30, 2011 of $387,000 and $214,000, respectively. At December 31, 2010, the unrealized losses on these two investments were $530,000 and $302,000, respectively. These two securities are both “A” tranche investments (A2A and A-1 respectively) and have performed as agreed since purchase. The two are rated B2 and Baa3, respectively by Moody’s indicating these securities are considered low medium-grade to below investment grade quality and credit risk. Both provide good collateral coverage at those tranche levels, providing protection for the Corporation. The Corporation has reviewed the pricing reports for these investments and has determined that the decline in the market price is not other than temporary and indicates thin trading activity rather than a true decline in the value of the investment. Factors considered in reaching this determination included the class or “tranche” held by the Corporation, the collateral coverage position of the tranches, the number of deferrals and defaults on the issues, projected and actual cash flows and the credit ratings. These two investments represent 1.92% of the book value of the Corporation investment portfolio and approximately 1.22% of market value. The Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, and expects to receive all contractual cash flows related to these investments. Based upon these factors, the Corporation has determined these securities are not other-than-temporarily impaired at September30, 2011.

In August, the Corporation purchased four corporate floating rate bonds, $1.9 million in total, rated A+, AA+, A and A- by Standard & Poor’s. All are uncapped and tied to 3 month LIBOR. These investments had unrealized losses at September 30, 2011 of $69,000, due primarily to interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at September30, 2011.