NOTE 2 – SECURITIES

As of June 30, 2013:

The amortized cost and estimated fair values of securities available-for-sale were as follows:

	Adjusted Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. Government and agency obligations	$	17,848	$	36	$	156	$	17,728
Corporate bonds		6,716		57		58		6,715
States and municipal obligations		20,612		628		163		21,077
Collateralized debt obligations		1,916		-		912		1,004
Mortgage-backed securities		40,465		742		232		40,975
Total	$	87,557	$	1,463	$	1,521	$	87,499

As of December 31, 2012:

The amortized cost and estimated fair values of securities available-for-sale were as follows:

	Adjusted Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. Government and agency obligations	$	16,821	$	134	$	18	$	16,937
Corporate bonds		5,081		86		2		5,165
States and municipal obligations		19,874		918		31		20,761
Mortgage-backed securities		43,432		931		29		44,334
Total	$	85,208	$	2,069	$	80	$	87,197

The amortized cost and estimated fair values of securities held-to-maturity were as follows:

	Adjusted Amortized Cost		Gross Unrealized Gains		Estimated Fair Value

Collateralized debt obligations	$	1,149	$	941	$	2,090

There were no credit losses recognized on investments in the three and six months ended June 30, 2013 and 2012.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 2013 and December 31, 2012:

June 30, 2013

	(Less than 12 months)						(12 months or longer)					Total
Description of securities	Number of investments		Fair value		Unrealized losses		Number of investments	Fair value		Unrealized losses		Number of investments		Fair value		Unrealized losses
U.S. Government and agency obligations		9	$	8,968	$	156	-	$	-	$	-		9	$	8,968	$	156
Collateralized debt obligations		-		-		-	1		1,004		912		1		1,004		912
Corporate bonds		6		2,497		58	-		-		-		6		2,497		58
State and municipal obligations		17		5,971		152	1		498		11		18		6,469		163
Mortgage-backed securities and other		14		10,807		230	1		476		2		15		11,283		232
Total temporarily impaired securities		46	$	28,243	$	596	2	$	974	$	13		48	$	29,217	$	609

December 31, 2012

	(Less than 12 months)						(12 months or longer)						Total
Description of securities	Number of investments		Fair value		Unrealized losses		Number of investments		Fair value		Unrealized losses		Number of investments		Fair value		Unrealized losses
U.S. Government and agency obligations		3	$	3,649	$	18		-	$	-	$	-		3	$	3,649	$	18
Corporate bonds		1		501		2		-		-		-		1		501		2
State and municipal obligations		5		1,630		31		-		-		-		5		1,630		31
Mortgage-backed securities and other		6		4,065		29		-		-		-		6		4,065		29
Total temporarily impaired securities		15	$	9,845	$	80		-	$	-	$	-		15	$	9,845	$	80

The unrealized losses on the Corporation’s investments in U.S. Government and agency obligations, state and political subdivision obligations, corporate bonds and mortgage-backed securities were caused primarily by changes in interest rates. 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 the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation did not consider those investments to be OTTI June 30, 2013 or December 31, 2012.

The Corporation’s investments in collateralized debt obligations relate to an original investment of $8,000 in pooled trust securities. In 2009, the Corporation recognized an OTTI on these securities and recognized a loss equal to the credit loss, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. The Corporation evaluates the investments on a quarterly basis for OTTI and other unrealized gains or losses due to temporary market factors. Historically these securities were classified as held-to-maturity. As previously mentioned above, one security was sold from this portfolio during the six months ended June 30, 2013. In connection with this sale, the remaining securities in this portfolio have been reclassified as available-for-sale as of June 30, 2013.

Substantially all mortgage-backed securities are backed by pools of mortgages that are insured or guaranteed by the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”).

At June 30, 2013, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

The amortized cost and estimated fair value of all debt securities at June 30, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

	Available-for-sale				Held-to-maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	1,547	$	1,557	$	-	$	-
Due after one to five years		8,041		8,110		-		-
Due after five to ten years		25,011		25,150		-		-
Due after ten years		12,493		11,707		-		-
Mortgage-backed and related securities		40,465		40,975		-		-
Total	$	87,557	$	87,499	$	-	$	-

Securities with a fair value of $76,709 at June 30, 2013 were pledged to secure public deposits and other obligations.