NOTE 3, Securities Portfolio

The amortized cost and fair value, with gross unrealized gains and losses, of securities held-to-maturity were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2013
Obligations of U.S. Government agencies	$	400	$	1	$	(5	)	$	396
Obligations of state and political subdivisions		30,120		29		(715	)		29,434
Mortgage-backed securities		66,327		1,296		0			67,623
Total	$	96,847	$	1,326	$	(720	)	$	97,453

December 31, 2012
Obligations of U.S. Government agencies	$	570	$	4	$	0		$	574

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2013
Obligations of U.S. Government agencies	$	15,189	$	263	$	(428	)	$	15,024
Obligations of state and political subdivisions		51,032		86		(4,018	)		47,100
Mortgage-backed securities		94,685		0		(3,935	)		90,750
Money market investments		691		0		0			691
Corporate bonds		2,098		1		(25	)		2,074
Total	$	163,695	$	350	$	(8,406	)	$	155,639

December 31, 2012
Obligations of U.S. Government agencies	$	35,787	$	1,314	$	(13	)	$	37,088
Obligations of state and political subdivisions		43,276		712		(214	)		43,774
Mortgage-backed securities		246,132		1,966		(743	)		247,355
Money market investments		541		0		0			541
Corporate bonds		700		0		(2	)		698
Total	$	326,436	$	3,992	$	(972	)	$	329,456

Securities with a fair value of $127.7 million and $89.5 million at December 31, 2013 and 2012, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, FHLB advances and for other purposes required or permitted by law.

At December 31, 2013, the Company held no securities of any single issuer (excluding U.S. Government agencies) with a book value that exceeded 10 percent of stockholders' equity.

The amortized cost and fair value of securities by contractual maturity are shown below.

	December 31, 2013
	Available-for-Sale						Held-to-Maturity
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
	(in thousands)

Due in one year or less		$	170		$	171		$	300		$	301
Due after one year through five years			13,004			13,256			1,273			1,264
Due after five years through ten years			8,860			8,707			16,841			16,612
Due after ten years			140,970			132,814			78,433			79,276
Total debt securities			163,004			154,948			96,847			97,453
Other securities without stated maturities			691			691			0			0

Total securities		$	163,695		$	155,639		$	96,847		$	97,453

The following table provides information about securities sold in the years ended December 31:

	2013			2012
	(in thousands)

Proceeds from sales		$	63,637		$	198,217

Gross realized gains		$	191		$	2,313

Gross realized losses		$	217		$	0

OTHER-THAN-TEMPORARILY IMPAIRED SECURITIES

Management assesses whether the Company intends to sell or it is more-likely-than-not that the Company will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the Company separates the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security's amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security's fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The present value of expected future cash flows is determined using the best-estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best-estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds, and structural support, including subordination and guarantees.

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts, and cash flow projections as indicators of credit issues. On a quarterly basis, management reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. Management considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (a) the extent and length of time the fair value has been below cost; (b) the reasons for the decline in value; (c) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (d) for fixed maturity securities, the Company's intent to sell a security or whether it is more-likely-than-not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, the Company's ability and intent to hold the security for a period of time that allows for the recovery in value.

The Company has not recorded impairment charges on securities for the years ended December 31, 2013, and 2012.

The following table shows the number of securities with unrealized losses, the gross unrealized losses and fair value of the Company's investments with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	December 31, 2013
	Less Than Twelve Months				More Than Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Number of Securities
	(in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies	$	0	$	0	$	428	$	4,403	$	428	$	4,403		1
Obligations of state and political subdivisions		3,246		36,235		772		6,450		4,018		42,685		82
Mortgage-backed securities		3,321		81,664		614		9,086		3,935		90,750		12
Corporate bonds and other securities		19		1,279		6		295		25		1,574		12
Total securities available-for-sale	$	6,586	$	119,178	$	1,820	$	20,234	$	8,406	$	139,412		107

Securities Held-to-Maturity
Obligations of U.S. Government agencies	$	0	$	0	$	5	$	95	$	5	$	95		1
Obligations of state and political subdivisions		715		23,765		0		0		715		23,765		50
Total securities held-to-maturity	$	715	$	23,765	$	5	$	95	$	720	$	23,860		51

Total Securities	$	7,301	$	142,943	$	1,825	$	20,329	$	9,126	$	163,272		158

	December 31, 2012
	Less Than Twelve Months						More Than Twelve Months						Total
	Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Number of Securities
	(in thousands)
Securities Available-for-Sale
Obligations of U.S. Government agencies		$	13		$	5,103		$	0		$	0		$	13		$	5,103		1
Obligations of state and political subdivisions			214			9,535			0			0			214			9,535		24
Mortgage-backed securities			743			104,066			0			0			743			104,066		9
Corporate bonds and other securities		$	2		$	700		$	0		$	0		$	2		$	700		2
Total securities available-for-sale		$	972		$	119,404		$	0		$	0		$	972		$	119,404		36

Certain investments within the Company's portfolio had unrealized losses at December 31, 2013 and December 31, 2012, as shown in the tables above. The unrealized losses were caused by increases in market interest rates. Because the Company does not intend to sell the investments and management believes it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider the investments to be other-than-temporarily impaired at December 31, 2013 or December 31, 2012.

Restricted Securities

The restricted security category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and the securities lack a market. Therefore, FHLB and Federal Reserve Bank stock is carried at cost and evaluated for impairment. When evaluating these stocks for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Restricted stock is viewed as a long-term investment and management believes that the Company has the ability and the intent to hold this stock until its value is recovered.