Note 2 - Investment Securities

12 Months Ended

Dec. 31, 2012

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 2. Investment Securities

The amortized cost and fair value of securities available for sale are as follows:

(Dollars In Thousands)	December 31, 2012
	Amortized  Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government agency securities	$	28,825	$	1,049	$	(32	)	$	29,842
Mortgage-backed securities		21,533		486		(35	)		21,984
Municipal securities		10,965		698		(23	)		11,640
	$	61,323	$	2,233	$	(90	)	$	63,466

(Dollars In Thousands)	December 31, 2011
	Amortized Cost		Gross Unrealized  Gains		Gross  Unrealized  Losses			Estimated  Fair Value
U.S. Government agency securities	$	33,558	$	480	$	(16	)	$	34,022
Mortgage-backed securities		26,673		495		(19	)		27,149
Municipal securities		7,897		235		(96	)		8,036
	$	68,128	$	1,210	$	(131	)	$	69,207

At December 31, 2012, the Company does not consider any security in an unrealized loss position to be other than temporarily impaired.

U.S. Government and federal agency securities. The unrealized losses on four of the Company’s investments in obligations of the U.S. government were caused by increases in market interest rates over the yields available at the time the securities were purchased.  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 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, 2012.

Mortgage-backed securities. The unrealized losses in seven of the Company’s investments in government-sponsored entity mortgage-backed securities were caused by increases in market interest rates over the yields available at the time the securities were purchased.  Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2012.

Municipal securities. The unrealized losses on the Company’s five investments in obligations of municipal securities were caused by increases in market interest rates over the yields available at the time the securities were purchased. All municipal securities are investment grade. Because the decline in market value is attributable to changes in interest rates, credit spreads, ratings and not credit quality, and because the Company does not intend 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, 2012.

The following tables demonstrate the unrealized loss position of securities available for sale at December 31, 2012 and 2011.

(Dollars In Thousands)	December 31, 2012
	Less than 12 months				12 months or more					Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss
U.S. Government agency securities	$	–	$	–	$	3,400	$	(32	)	$	3,400	$	(32	)
Mortgage-backed securities		–		–		3,701		(35	)		3,701		(35	)
Municipal securities		–		–		1,595		(23	)		1,595		(23	)
	$	–	$	–	$	8,696	$	(90	)	$	8,696	$	(90	)

(Dollars In Thousands)	December 31, 2011
	Less than 12 months					12 months or more					Total
	Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss			Estimated  Fair Value		Unrealized Loss
U.S. Government agency securities	$	6,201	$	(16	)	$	–	$	–		$	6,201	$	(16	)
Mortgage-backed securities		2,957		(14	)		725		(5	)		3,682		(19	)
Municipal securities		3,371		(96	)		–		–			3,371		(96	)
	$	12,529	$	(126	)	$	725	$	(5	)	$	13,254	$	(131	)

The amortized cost and estimated fair value of securities at December 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or prepayment penalties.

(Dollars In Thousands)	Amortized Cost		Estimated Fair Value
Less than one year	$	–	$	–
Over one through five years		701		724
Over five through ten years		9,423		9,704
Greater than 10 years		51,199		53,038
	$	61,323	$	63,466

Proceeds from the sales, maturities and calls of securities available for sale in 2012 and 2011 were $24.8 million and $28.2 million, respectively. The Company realized $131 thousand in gains on sales of six available for sale securities in 2012, compared to $196 thousand from six securities sold in the prior year.  Total pledged securities had a fair market value of $16.1 million at December 31, 2012 and $13.0 million at December 31, 2011. Securities having a fair market value of $5.6 million were pledged to secure public deposits, while securities pledged to secure Federal Home Loan Bank borrowings totaled $10.1 million. $400 thousand in securities were pledged for other purposes at December 31, 2012.

The primary purpose of the investment portfolio is to generate income, diversify earning assets, and meet liquidity needs of the Company through readily saleable financial instruments. The portfolio is made up primarily of fixed rate bonds, whose prices move inversely with rates. At the end of any accounting period, the investment portfolio has unrealized gains and losses. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes, and credit risk changes, to see if adjustments are needed. The primary concern in a loss situation is the credit quality of the business or entity behind the instrument. The primary cause of unrealized losses is the increase in market interest rates over the yields available at the time the securities were purchased.