Note 2. Securities

The amortized cost and fair value of securities available for sale, with unrealized gains and losses follows:

	September 30, 2013
	Amortized		Gross Unrealized		Gross Unrealized
(In thousands)	Cost		Gains		(Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	42,331	$	373	$	(474	)	$	42,230
Obligations of states and political subdivisions		6,782		297		(1	)		7,078
Corporate bonds		3,861		-		(3,421	)		440
Mutual funds		351		1		-			352
	$	53,325	$	671	$	(3,896	)	$	50,100

	December 31, 2012
	Amortized		Gross Unrealized		Gross Unrealized
	Cost		Gains		(Losses)			Fair Value
Obligations of U.S. Government corporations and agencies	$	39,240	$	794	$	(20	)	$	40,014
Obligations of states and political subdivisions		6,786		604		-			7,390
Corporate bonds		3,836		-		(3,511	)		325
Mutual funds		346		17		-			363
	$	50,208	$	1,415	$	(3,531	)	$	48,092

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

	September 30, 2013
(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,999	$	2,023
Due after one year through five years		10,044		9,961
Due after five years through ten years		13,816		14,111
Due after ten years		27,115		23,653
Equity securities		351		352
	$	53,325	$	50,100

There were no impairment losses on securities during the three and nine months ended September 30, 2013 and 2012.

During the nine months ended September 30, 2013, no securities were sold, and six securities totaling a fair value of $7.0 million were called or matured. Over the same period, fourteen securities totalling $16.8 million were purchased.

The following table shows the Company securities with 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, 2013 and December 31, 2012, respectively.

(In thousands)	Less than 12 Months					12 Months or More					Total
September 30, 2013	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)

Obligations of U.S. Government, corporations and agencies	$	22,412	$	(474	)	$	-	$	-		$	22,412	$	(474	)
Obligations of states and political subdivisions		513		(1	)		-		-			513		(1	)
Corporate bonds		-		-			440		(3,421	)		440		(3,421	)
Total temporary impaired securities	$	22,925	$	(475	)	$	440	$	(3,421	)	$	23,365	$	(3,896	)
(In thousands)	Less than 12 Months					12 Months or More					Total
December 31, 2012	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)

Obligations of U.S. Government, corporations and agencies	$	2,165	$	(20	)	$	-	$	-		$	2,165	$	(20	)
Obligations of states and political subdivisions		-		-			-		-			-		-
Corporate bonds		-		-			325		(3,511	)		325		(3,511	)
Total temporary impaired securities	$	2,165	$	(20	)	$	325	$	(3,511	)	$	2,490	$	(3,531	)

The nature of securities which were temporarily impaired for a continuous twelve month period or more at September 30, 2013 consisted of four corporate bonds with a cost basis net of other-than-temporary impairment ("OTTI") totaling $3.9 million and a temporary loss of approximately $3.4 million. The method for valuing these four corporate bonds came from Moody's Analytics. Moody's Analytics employs a two-step discounted cash-flow valuation process. The first step is to evaluate the financial condition of the individual creditors in order to estimate the credit quality of the collateral pool and the structural supports. Step two is to apply a discount rate to the cash flows to calculate a value. These four corporate bonds are the "Class B" or subordinated "mezzanine" tranche of pooled trust preferred securities. The trust preferred securities are collateralized by the interest and principal payments made on trust preferred capital offerings by a geographically diversified pool of approximately 59 different financial institutions per bond. They have an estimated maturity of 20 years. These bonds could have been called at par on the five year anniversary date of issuance, which has already passed for all four bonds. The bonds reprice every three months at a fixed rate index above the three-month London Interbank Offered Rate ("LIBOR"). These bonds have sufficient collateralization and cash flow projections to satisfy their valuation based on the cash flow portion of the OTTI test under authoritative accounting guidance as of September 30, 2013. Three bonds totaling $128,000 at fair value, are greater than 90 days past due, and are classified as nonperforming corporate bond investments in the nonperforming asset table in Note 3. One bond, totaling $312,000 at fair value, has been performing for five consecutive quarters, is projected to repay the full outstanding interest and principal, and is now classified as a performing corporate bond investment.

Additional information regarding each of the pooled trust preferred securities as of September 30, 2013 follows:

(Dollars in thousands)

Cost, net of OTTI loss		Fair Value		Percent of Underlying Collateral Performing			Percent of Underlying Collateral in Deferral			Percent of Underlying Collateral in Default			Estimated incremental defaults required to break yield (1)			Current Moody's Rating		Cumulative Amount of OTTI Loss		Cumulative Other Comprehensive Loss, net of tax benefit

$	357	$	33		65.10	%		5.90	%		29.00	%	broken				Caa3	$	584	$	213
	1,610		312		67.90	%		11.90	%		20.20	%		3.9	%		Caa3		348		856
	1,323		60		63.00	%		29.00	%		8.00	%	broken				Ca		677		834
	571		35		67.00	%		22.00	%		11.00	%	broken				C		429		354
$	3,861	$	440															$	2,038	$	2,257

(1)

A break in yield for a given tranche investment means that defaults and/or deferrals have reached such a level that the specific tranche would not receive all of the contractual principal and interest cash flow by its maturity, resulting in not a temporary shortfall, but an actual loss. This column represents the percentage of additional defaults among the currently performing and deferred collateral that would result in OTTI loss.

The Company monitors these pooled trust preferred securities in its portfolio as to collateral, issuer defaults and deferrals, which as a general rule, indicate that additional impairment may have occurred. Due to the continued stress on banks in general, and the issuer banks in particular, as a result of overall economic conditions, the Company acknowledges that it may have to recognize additional impairment in future periods; however the extent, timing, and probability of any additional impairment cannot be reasonably estimated at this time.

The following roll forward reflects the amount related to credit losses recognized in earnings (in accordance with FASB Accounting Standards Codification ("ASC") 320-10-35-34D):

(In thousands)

Beginning balance as of December 31, 2012	$	2,115
Add: Amount related to the credit loss for which an other-than- temporary impairment was not previously recognized		-
Add: Increases to the amount related to the credit loss for which an other-than temporary impairment was previously recognized		-
Less: Realized losses for securities sold		-
Less: Securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.		-
Less: Increases in cash flows expected to be collected that are recognized over the remaining life of the security (See FASB ASC 320-10-35-35)		(77	)
Ending balance as of September 30, 2013	$	2,038

The carrying value of securities pledged to secure deposits and for other purposes amounted to $43.3 million and $41.5 million at September 30, 2013 and December 31, 2012, respectively.