Securities

9 Months Ended

Sep. 30, 2011

Securities

Securities

NOTE 9 — Securities

ASC Topic 320, Investments — Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. For equity securities, consideration is given to management's intention and ability to hold the securities until recovery of unrealized losses in assessing potential other-than-temporary impairment. More specifically, considerations used to determine other-than-temporary impairment status for individual equity holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent developments that would affect expectations for recovery or further decline.

In instances when a determination is made that an other-than-temporary impairment exists and the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impaired related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

The Corporation's investment portfolio includes primarily bonds issued by U.S. Government sponsored agencies (approximately 59%) and municipalities (approximately 37%) as of September 30, 2011. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years. The remaining 4% of the portfolio includes mortgage-backed securities issued by Government-sponsored agencies and backed by residential mortgages, corporate notes and a group of equity investments in other financial institutions. The amortized cost and fair value of securities as of September 30, 2011 and December 31, 2010, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

	September 30, 2011
					Gross		Gross
Securities Available for Sale	Amortized		Fair		Unrealized		Unrealized
Type and maturity	Cost		Value		Gains		Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations
Within one year	$	1,928	$	1,953	$	25	$	—
After one year but within five years		50,659		51,204		601		(56	)
After five years but within ten years		13,497		13,522		40		(15	)
		66,084		66,679		666		(71	)
Obligations of state and political subdivisions
Within one year		11,179		11,235		56		—
After one year but within five years		25,315		25,779		479		(15	)
After five years but within ten years		4,150		4,273		132		(9	)
		40,644		41,287		667		(24	)
Corporate notes
After one year but within five years		1,000		1,011		11		—
		1,000		1,011		11		—
Mortgage-backed securities		2,497		2,583		86		—
Equity securities		985		795		54		(244	)
Total	$	111,210	$	112,355	$	1,484	$	(339	)
	December 31, 2010
					Gross		Gross
Securities Available for Sale	Amortized		Fair		Unrealized		Unrealized
Type and maturity	Cost		Value		Gains		Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations
After one year but within five years	$	34,607	$	34,783	$	348	$	(172	)
After five years but within ten years		3,000		2,913		—		(87	)
		37,607		37,696		348		(259	)
Obligations of state and political subdivisions
Within one year		12,219		12,390		175		(4	)
After one year but within five years		24,493		24,877		488		(104	)
After five years but within ten years		1,826		1,626		—		(200	)
		38,538		38,893		663		(308	)
Corporate notes
After one year but within five years		1,000		1,028		28		—
		1,000		1,028		28		—
Mortgage-backed securities		1,246		1,345		99		—
Equity securities		935		961		106		(80	)
Total	$	79,326	$	79,923	$	1,244	$	(647	)

The following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010 (in thousands):

	Unrealized Losses at September 30, 2011
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$	18,429	$	(71	)	$	—	$	—		$	18,429	$	(71	)
Obligations of state and political subdivisions		3,114		(24	)		—		—			3,114		(24	)
Debt securities		21,543		(95	)		—		—			21,543		(95	)
Equity securities		388		(124	)		225		(120	)		613		(244	)
Total temporarily impaired securities	$	21,931	$	(219	)	$	225	$	(120	)	$	22,156	$	(339	)

	Unrealized Losses at December 31, 2010
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$	17,859	$	(259	)	$	—	$	—		$	17,859	$	(259	)
Obligations of state and political subdivisions		9,719		(304	)		881		(4	)		10,600		(308	)
Debt securities		27,578		(563	)		881		(4	)		28,459		(567	)
Equity securities		389		(5	)		270		(75	)		659		(80	)
Total temporarily impaired securities	$	27,967	$	(568	)	$	1,151	$	(79	)	$	29,118	$	(647	)

The unrealized losses noted above are considered to be temporary impairments. There are 24 debt securities that were in an unrealized loss position on September 30, 2011, but none that have had unrealized losses for more than 12 months. We believe that the decline in the value of our debt securities is due only to interest rate fluctuations, rather than erosion of quality. As a result, we also believe that the payment of contractual cash flows, including principal repayment, is not at risk. As management does not intend to sell the securities, does not believe the Corporation will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, none of the debt securities are deemed to be other-than-temporarily impaired.

Equity securities owned by the Corporation consist of common stock of various financial services providers ("Bank Stocks") and are evaluated quarterly for evidence of other-than-temporary impairment. There were 14 equity securities that were in an unrealized loss position on September 30, 2011, and six of those that comprise a group of securities with unrealized losses for 12 months or more. Individually, none of these six have significant unrealized losses. Management has identified no new other-than-temporary impairment as of September 30, 2011 in the equity portfolio.

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The fair value of the pledged assets amounted to $30,152,000 and $31,951,000 at September 30, 2011 and December 31, 2010, respectively.

In addition to cash received from the scheduled maturities of securities, some investment securities available for sale are sold at current market values during the course of normal operations, and some securities are called pursuant to call features built into the bonds. Following is a summary of proceeds received from all investment securities transactions, and the resulting realized gains and losses (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Gross proceeds from sales of securities	$	—	$	—	$	—	$	—
Securities available for sale:
Gross realized gains from called securities	$	—	$	4	$	6	$	31
Gross realized losses