Investment Securities

12 Months Ended

Dec. 31, 2011

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Note 3: Investment Securities

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

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities
Federal agencies	$	37,107	$	844	$	(34	)	$	37,917
State and municipal		27,076		1,663		(24	)		28,715
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		33,565		1,138		(6	)		34,697
Corporate		4,115		-		(755	)		3,360
Total investment securities	$	101,863	$	3,645	$	(819	)	$	104,689
	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
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 December 31, 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
Within one year	$	2,691	$	2,725
One to five years		26,358		26,955
Five to ten years		22,147		22,866
After ten years		17,102		17,446
		68,298		69,992
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		33,565		34,697
Totals	$	101,863	$	104,689

No securities were pledged at December 31, 2011 or at December 31, 2010 to secure FHLB advances. Securities with a carrying value of $14,562,000 and $18,580,000 were pledged at December 31, 2011 and 2010 to secure public deposits and for other purposes as permitted or required by law.

Gross gains of $312,000 and $350,000 resulting from sales and calls of available-for-sale securities were realized during the respective periods. Gross losses of $3,000 were recognized during 2010. No losses were realized from sales and calls of available-for-sale securities during 2011. 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 December 31, 2011 and 2010, were $10,869,000 and $13,352,000, which is approximately 10.4% and 17.7% of the Company’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 noncredit 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 Company’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 December 31, 2011 and December 31, 2010:

	December 31, 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
Federal agencies	$	4,991	$	(34	)	$	—	$	—		$	4,991	$	(34	)
State and municipal		733		(20	)		773		(4	)		1,506		(24	)
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		1,012		(6	)		—		—			1,012		(6	)
Corporate		2,270		(84	)		1,090		(671	)		3,360		(755	)
Total temporarily impaired securities	$	9,006	$	(144	)	$	1,863	$	(675	)	$	10,869	$	(819	)
	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
Federal agencies	$	3,952	$	(63	)	$	—	$	—		$	3,952	$	(63	)
State and municipal		2,752		(70	)		724		(54	)		3,476		(124	)
Government-sponsored enterprise (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	)

Federal Agencies

The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies 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 Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2011.

State and Municipal

The unrealized losses on the Company’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 Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2011.

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

The unrealized losses on the Company’s investment in residential mortgage-backed agency securities were primarily caused by interest rate changes. The Company expects to recover the amortized cost bases 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 Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2011.

Corporate Securities

The unrealized losses on the Company’s investment in corporate securities were due primarily to losses on two pooled trust preferred issues held by the Company. The two, ALESCO 9A and PRETSL XXVII, had unrealized losses at December 31, 2011 of $412,000 and $259,000, 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 Company. The Company 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 Company, the collateral coverage position of the tranches, limited number of deferrals and defaults on the issues, projected and actual cash flows and the credit ratings. These two investments represent 1.73% of the book value of the Company’s investment portfolio and approximately 1.04% of market value. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, and the Company expects to receive all contractual cash flows related to these investments. Based upon these factors, the Company has determined these securities are not other-than-temporarily impaired at December 31, 2011.

In August 2011, the Company purchased five corporate floating rate bonds, $2,342,000 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 December 31, 2011 of $84,000, 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 Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2011.