NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at March 31, 2014 and December 31, 2013:


	(Expressed in thousands)
	March 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	50,595	$	20	$	(1,480	)	$	49,135
Obligations of states and political subdivisions		62,129		2,085		(513	)		63,701
Mortgage-backed securities		94,567		151		(2,071	)		92,647
Equity securities		164		33		(1	)		196

Total available-for-sale	$	207,455	$	2,289	$	(4,065	)	$	205,679


	(Expressed in thousands)
	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	50,598	$	18	$	(2,170	)	$	48,446
Obligations of states and political subdivisions		60,049		1,421		(1,056	)		60,414
Mortgage-backed securities		93,501		72		(2,673	)		90,900
Equity securities		165		32		(2	)		195

Total available-for-sale	$	204,313	$	1,543	$	(5,901	)	$	199,955

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 March 31, 2014 and December 31, 2013, was approximately $126,059,000 and $145,017,000, which is approximately 61.3% and 72.5%, respectively, of the Company’s available-for-sale investment portfolio.

The Company’s investment securities portfolio contains unrealized losses of direct obligations of the U.S. Government agency securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, and debt obligations of a U.S. state or political subdivision.

The unrealized losses on the Company’s investments in direct obligations of U.S. government corporations and agencies were caused by interest rate increases. 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 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 March 31, 2014.

The unrealized losses on the Company’s investments in residential mortgage-backed securities were caused by interest rate increases. The Company expects to recover the amortized cost basis 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 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 March 31, 2014.

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by interest rate increases. 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. Except for the four securities in an unrealized loss position that the Company intends to sell, the Company does not consider investments in states and political subdivisions to be other-than-temporarily impaired at March 31, 2014.

On a quarterly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio and the Company’s ability to hold the securities till they recover. Generally, impairment is considered other-than-temporary when an investment security has sustained a decline in market value for a period of twelve months. Except for four securities in an unrealized loss position that the Company intends to sell, the Company has concluded that any impairment of its investment securities portfolio is not other-than-temporary but is the result of interest rate changes that are not expected to result in the noncollection of principal and interest during the period. There are 87 positions that are temporarily impaired at March 31, 2014.

The following tables show the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2014 and December 31, 2013:


	(Expressed in thousands) March 31, 2014
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government corporations and agencies	$	44,110	$	(1,480	)	$	—	$	—		$	44,110	$	(1,480	)
Obligations of states and political subdivisions		9,986		(370	)		2,013		(143	)		11,999		(513	)
Mortgage-backed securities		58,262		(1,558	)		11,618		(513	)		69,880		(2,071	)

Total debt securities		112,358		(3,408	)		13,631		(656	)		125,989		(4,064	)
Equity securities		70		(1	)		—		—			70		(1	)

Total	$	112,428	$	(3,409	)	$	13,631	$	(656	)	$	126,059	$	(4,065	)


	(Expressed in thousands) December 31, 2013
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government corporations and agencies	$	46,416	$	(2,170	)	$	—	$	—		$	46,416	$	(2,170	)
Obligations of states and political subdivisions		19,009		(867	)		1,794		(189	)		20,803		(1,056	)
Mortgage-backed securities		65,915		(2,036	)		11,805		(637	)		77,720		(2,673	)

Total debt securities		131,340		(5,073	)		13,599		(826	)		144,939		(5,899	)
Equity securities		70		(1	)		8		(1	)		78		(2	)

Total	$	131,410	$	(5,074	)	$	13,607	$	(827	)	$	145,017	$	(5,901	)

The following is a tabular rollforward of the amount of credit related OTTI recognized in earnings (in thousands):


	March 31, 2014		March 31, 2013
Balance at beginning of period	$	—	$	—
Additions for credit-related OTTI not previously recognized		49		—
Reductions for securities sold during the period (realized)		—		—

Balance at end of period	$	49	$	—

No other-than-temporary impairment losses were recognized in accumulated other comprehensive income as of March 31, 2014 and 2013.

The amortized cost and fair value of investment securities at March 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	(Expressed in thousands) March 31, 2014
	Amortized Cost		Fair Value
Due in one year or less	$	1,291	$	1,312
Due after one year through five years		7,103		7,133
Due after five years through ten years		72,224		71,428
Due after ten years		32,106		32,963

		112,724		112,836
Mortgage-backed securities		94,567		92,647
Equity securities		164		196

Total	$	207,455	$	205,679

Proceeds from sales of securities available-for-sale during the three month periods ended March 31, 2014 and 2013, were $649 and $200, respectively. Gross gains of $95 and gross losses of $3 were realized during the three months ended March 31, 2014 and gross gains of $14 and gross losses of $0 were realized during the three months ended March 31, 2013. Assets carried at $65,030,000 and $65,339,000 at March 31, 2014 and December 31, 2013, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

The maturity distribution using book value including accretion of discounts and amortization of premiums and approximate yield of investment securities at March 31, 2014 and December 31, 2013 are presented in the following table. Tax equivalent yield basis was used on tax exempt obligations. Approximate yield was calculated using a weighted average of yield to maturities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(dollars in thousands)	March 31, 2014							December 31, 2013
	Amortized Cost		Fair Value		Yield			Amortized Cost		Fair Value		Yield
U.S. Government corporations and agencies
Within One Year	$	2	$	2		0.01	%	$	9	$	9		0.01	%
After One But Within Five Years		5,494		5,468		1.73			7,490		7,416		1.81
After Five But Within Ten Years		45,099		43,665		1.82			43,099		41,021		1.81
After Ten Years		—		—		—			—		—		—

		50,595		49,135		1.81			50,598		48,446		1.81
States & Political Subdivisions
Within One Year		1,288		1,310		6.59			1,288		1,321		6.59
After One But Within Five Years		1,610		1,665		5.99			1,246		1,305		5.95
After Five But Within Ten Years		27,125		27,763		5.10			25,960		26,125		5.11
After Ten Years		32,106		32,963		5.64			31,555		31,663		5.65

		62,129		63,701		5.43			60,049		60,414		5.44
Mortgage-Backed Securities		94,567		92,647		2.09			93,501		90,900		2.06
Equity Securities		164		196		3.64			165		195		4.02

Total	$	207,455	$	205,679		3.06	%	$	204,313	$	199,955		3.02	%