INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2012

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, 2012 and December 31, 2011 are as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Unaudited; In Thousands)
Available-for-sale Securities
Federal agencies	$	37,099	$	891	$	-		$	37,990
State and municipal		30,022		2,114		(4	)		32,132
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		37,142		1,325		(6	)		38,461
Corporate		4,127		57		(566	)		3,618
Total investment securities	$	108,390	$	4,387	$	(576	)	$	112,201
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
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

The amortized cost and fair value of available-for-sale securities at September 30, 2012, 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
	(Unaudited; In Thousands)
Within one year	$	5,358	$	5,415
One to five years		21,945		22,670
Five to ten years		25,736		26,671
After ten years		18,209		18,984
		71,248		73,740
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		37,142		38,461
Totals	$	108,390	$	112,201

No securities were pledged at September 30, 2012 or at December 31, 2011 to secure FHLB advances. Securities with a carrying value of $47,628,000 and $14,562,000 were pledged at September 30, 2012 and December 31, 2011 to secure public deposits and for other purposes as permitted or required by law.

Beginning July 30, 2012 the Indiana Board for Depositories required the Corporation to pledge securities equal to 50% of the average daily balance of public funds as reported each quarter. Of the total pledged at September 30, 2012, $33,979,000 was for this purpose. The requirement was removed effective October 2012.

Proceeds from sales of securities available for sale during the nine-month periods ended September 30, 2012 and September 30, 2011 were $6,561,000 and $7,585,000. Gross gains of $450,000 and $270,000 resulting from sales and calls of available-for-sale securities were realized for the nine-month periods ended September 30, 2012 and September 30, 2011, respectively. No losses were recorded for the nine-month periods ended September 30, 2012 or September 30, 2011. Proceeds from sales of securities available for sale during the three-month periods ended September 30, 2012 and September 30, 2011 were $1,740,000 and $4,251,000. Gross gains of $119,000 and $105,000 resulting from sales and calls of available-for-sale securities were realized for the three-month periods ended September 30, 2012 and September 30, 2011, respectively. No losses were recorded for the three-month periods ended September 30, 2012 or September 30, 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 September 30, 2012 was $3,123,000, which is approximately 2.78% of the Corporation’s investment portfolio. The fair value of these investments at December 31, 2011 was $10,869,000, which represented 10.4% 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 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 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, 2012 and December 31, 2011:

	September 30, 2012
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Unaudited; In Thousands)
State and municipal	$	645	$	(4	)	$	-	$	-		$	645	$	(4	)
Government-sponsored enterprise (GSE) residential mortgage-backed and other asset-backed agency securities		1,296		(6	)		-		-			1,296		(6	)
Corporate		-		-			1,182		(566	)		1,182		(566	)
Total temporarily impaired securities	$	1,941	$	(10	)	$	1,182	$	(566	)	$	3,123	$	(576	)
	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
	(In Thousands)
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	)

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 September 30, 2012.

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 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 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 September 30, 2012.

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 September 30, 2012 of $513,000 and $53,000, respectively. At December 31, 2011, the unrealized losses on these two investments were $412,000 and $259,000, 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 1.6% of the book value of the Corporation’s investment portfolio and approximately 1.1% 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 the Corporation 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 September 30, 2012.