Note 2: Securities Available For Sale

A summary of the amortized cost and market values of securities available for sale follows:


	December 31, 2011
Available for Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Obligations of US Government sponsored enterprises	$	1,000	$	23	$	---	$	1,023
Mortgage-backed securities:
US Government-sponsored enterprises		225,962		9,414		127		235,249
US Government agency		72,585		2,932		23		75,494
Private label		13,504		201		1,492		12,213
Obligations of states and political subdivisions thereof		58,160		2,199		2,458		57,901
Total	$	371,211	$	14,769	$	4,100	$	381,880


	December 31, 2010
Available for Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Obligations of US Government-sponsored enterprises	$	1,000	$	34	$	---	$	1,034
Mortgage-backed securities:
US Government-sponsored enterprises		217,319		7,812		578		224,553
US Government agency		56,083		1,216		356		56,943
Private-label		22,720		311		2,201		20,830
Obligations of states and political subdivisions thereof		60,245		327		6,050		54,522
Total	$	357,367	$	9,700	$	9,185	$	357,882

Securities Impairment: As a part of the Company's ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired.

For the year ended December 30, 2011, the Company recorded total OTTI losses of $2,796 (before taxes), related to fourteen, available for sale, 1-4 family, private-label MBS, all but three of which the Company had previously determined was other-than-temporarily impaired. Of the $2,796 in total OTTI losses, $2,219 (before taxes) represented estimated credit losses on the collateral underlying the securities, while $577 (before taxes) represented unrealized losses for the same securities resulting from factors other than credit. The $2,219 in estimated credit losses were recorded in earnings (before taxes) with the $577 non-credit portion of the unrealized losses recorded within accumulated other comprehensive income (net of taxes). The additional credit losses principally reflected an increase in the future loss severity and constant default rate estimates resulting from depressed and still declining real estate markets, extended foreclosure and collateral liquidation timelines, and depressed economic conditions that affected the expected performance of the mortgage loans underlying these securities.

For the year ended December 31, 2010, total OTTI losses recorded in earnings amounted to $898 (before taxes). These OTTI losses related to nine, available-for-sale, private-label mortgage-backed securities, all but one of which the Company had previously determined were other-than-temporarily impaired. The $898 in OTTI losses recognized in 2010 earnings represented estimated credit losses on the collateral underlying the securities.

The 2011 and 2010 OTTI losses recognized in earnings represented management's best estimate of credit losses inherent in the securities based on discounted, bond-specific future cash flow projections using assumptions about cash flows associated with the pools of loans underlying each security. In estimating those cash flows the Company considered loan level credit characteristics, current delinquency and non-performing loan rates, current levels of subordination and credit support, recent default rates and future constant default rate estimates, loan to collateral value ratios, recent collateral loss severities and future collateral loss severity estimates, recent prepayment rates and future prepayment rate assumptions, and other estimates of future collateral performance.

Effective April 1, 2009, the Company adopted FSP FAS 115-2, Recognition and Presentation of Other-than Temporary Impairments, now included in the FASB Accounting Standards Codification as part of FASB ASC 320-10-65, Investments – Debt and Equity Securities. This new accounting standard amended the OTTI guidance included in GAAP for debt securities, which among other things clarified the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired and changed the presentation and calculation of OTTI on debt securities in the financial statements. Additionally, when adopting this accounting standard, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income (loss) if the entity does not intend to sell the security and it is not likely that the entity will be required to sell the security before recovery of its amortized cost. Upon the adoption of this accounting standard the Company recognized the effect of applying it as a change in accounting principle. The Company recognized a $937 cumulative effect of initially applying this standard as an adjustment to retained earnings as of April 1, 2009, with a corresponding adjustment to accumulated other comprehensive income (loss).

Prior to the adoption of the new accounting standard, in the first quarter of 2009 the Company recorded other-than-temporary impairment losses of $1,007 related to private label MBS. This charge represented the total amount of unrealized losses on these securities at March 31, 2009 and was recorded within net securities gains in the Company's consolidated statement of income.

Despite some rising levels of delinquencies, defaults and losses in the underlying residential mortgage loan collateral, given credit enhancements resulting from the structures of the individual securities, the Company currently expects that as of December 31, 2011 it will recover the amortized cost basis of its private-label mortgage-backed securities as depicted in the table below and has therefore concluded that such securities were not other-than-temporarily impaired as of that date. Nevertheless, given recent market conditions, it is possible that adverse changes in repayment performance and fair value could occur in future periods that could impact the Company's current best estimates.

The following table displays the beginning balance of OTTI related to historical credit losses on debt securities held by the Company at the beginning of the current reporting period as well as changes in estimated credit losses recognized in pre-tax earnings for the year ended December 31, 2011, and 2010.


	2011		2010		2009
Estimated credit losses as of prior year-end,	$	3,373	$	2,475	$	1,021
Additions for credit losses for securities on which OTTI has been previously recognized		462		444		987
Additions for credit losses for securities on which OTTI has not been previously recognized		1,757		454		467
Reductions for securities paid off during the period		895	-	--	-	-
Estimated credit losses as of December 31,	$	4,697	$	3,373	$	2,475

Upon initial impairment of a security, total OTTI losses represent the excess of the amortized cost over the fair value. For subsequent impairments of the same security, total OTTI losses represent additional credit losses and or declines in fair value subsequent to the previously recorded OTTI losses, if applicable. Unrealized OTTI losses recognized in accumulated other comprehensive income ("OCI") represent the non-credit component of OTTI losses on debt securities. Net impairment losses recognized in earnings represent the credit component of OTTI losses on debt securities.

As of December 31, 2011, the Company held fifteen private-label MBS (debt securities) with a total amortized cost (i.e. carrying value) of $5,036 where OTTI losses have been historically recognized in pre-tax earnings (dating back to the fourth quarter of 2008). For nine of these securities, the Company recognized credit losses in excess of the unrealized losses in accumulated OCI, creating an unrealized gain of $115, net of tax, as included in accumulated OCI as of December 31, 2011. For the remaining six securities, the total OTTI losses included in accumulated OCI amounted to $538, net of tax, as of December 31, 2011. As of December 31, 2011, the total net unrealized losses included in accumulated OCI for securities held where OTTI has been historically recognized in pre-tax earnings amounted to $423, net of tax, compared with $525 at December 31, 2010.

As of December 31, 2011, based on a review of each of the remaining securities in the securities portfolio, the Company concluded that it expects to recover its amortized cost basis for such securities. This conclusion was based on the issuers' continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that they will continue to do so through the maturity of the security, the expectation that the Company will receive the entire amount of future contractual cash flows, as well as the evaluation of the fundamentals of the issuers' financial condition and other objective evidence. Accordingly, the Company concluded that the declines in the values of those securities were temporary and that any additional other-than-temporary impairment charges were not appropriate at December 31, 2011. As of that date, the Company did not intend to sell nor believed it is more likely than not that it would be required to sell any of its impaired securities, that is, where fair value is less than the cost basis of the security.

The following tables summarize the fair value of securities with continuous unrealized losses for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or longer as of December 31, 2011 and 2010. All securities referenced are debt securities. At December 31, 2011 and 2010, the Company did not hold any common stock or other equity securities in its securities portfolio.


	Less than 12 months					12 months or longer					Total
December 31, 2011	Estimated Fair Value		Number of Investments	Unrealized Losses		Estimated Fair Value		Number of Investments	Unrealized Losses		Estimated Fair Value		Number of Investments	Unrealized Losses
Description of Securities:

Mortgage-backed securities:
US Government- sponsored enterprises	$	15,870	13	$	127	$	20	1	$	---	$	15,890	14	$	127
US Government agency		9,934	10		22		59	3		1		9,993	13		23
Private label		1,613	8		219		6,807	26		1,273		8,420	34		1,492
Obligations of states and political subdivisions thereof		703	4		25		14,770	61		2,433		15,473	65		2,458
Total	$	28,120	35	$	393	$	21,656	91	$	3,707	$	49,776	126	$	4,100


	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Number of Investments	Unrealized Losses		Estimated Fair Value		Number of Investments	Unrealized Losses		Estimated Fair Value		Number of Investments	Unrealized Losses

December 31, 2010
Description of Securities:

Mortgage-backed securities:
US Government- sponsored enterprises	$	34,940	37	$	578	$	20	1	$	---	$	34,960	38	$	578
US Government agency		27,966	25		353		270	9		3		28,236	34		356
Private label		51	1		1		13,361	38		2,200		13,412	39		2,201
Obligations of states and political subdivisions thereof		23,223	54		1,635		11,951	59		4,415		35,174	113		6,050
Total	$	86,180	117	$	2,567	$	25,602	107	$	6,618	$	111,782	224	$	9,185

For securities with unrealized losses, the following information was considered in determining that the impairments were not other-than-temporary:

Mortgage-backed securities issued by U.S. Government-sponsored enterprises: As of December 31, 2011, the total unrealized losses on these securities amounted to $127, compared with $578 at December 31, 2010. All of these securities were credit rated "AA+" by the major credit rating agencies. Company management believes these securities have minimal credit risk, as these enterprises play a vital role in the nation's financial markets. Management's analysis indicates that the unrealized losses at December 31, 2011 were attributed to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at December 31, 2011.
Mortgage-backed securities issued by U.S. Government agencies: As of December 31, 2011, the total unrealized losses on these securities amounted to $23, compared with $356 at December 31, 2010. All of these securities were credit rated "AA+" by the major credit rating agencies.
Management's analysis indicates that these securities bear little or no credit risk because they are backed by the full faith and credit of the United States. The Company attributes the unrealized losses at December 31, 2011 to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at December 31, 2011.

Private-label mortgage-backed securities: As of December 31, 2011, the total unrealized losses on the Bank's private-label mortgage-backed securities amounted to $1,492, compared with $2,201 at December 31 2010. The Company attributes the unrealized losses at December 31, 2011 to the current illiquid market for non-agency mortgage-backed securities, a seriously depressed and still declining housing market, significantly elevated levels of home foreclosures, risk-related market pricing discounts for non-agency mortgage-backed securities and credit rating downgrades on certain private-label MBS owned by the Company. Based upon the foregoing considerations, and the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities at December 31, 2011.
Obligations of states of the U.S. and political subdivisions thereof: As of December 31, 2011, the total unrealized losses on the Bank's municipal securities amounted to $2,458, compared with $6,050 at December 31, 2010. The Bank's municipal securities primarily consist of general obligation bonds and to a lesser extent, revenue bonds. General obligation bonds carry less risk, as they are supported by the full faith, credit and taxing authority of the issuing government and in the cases of school districts, are additionally supported by state aid. Revenue bonds are generally backed by municipal revenue streams generated through user fees or lease payments associated with specific municipal projects that have been financed. At December 31, 2011, all municipal bond issuers were current on contractually obligated interest and principal payments.
At December 30, 2011, the Bank's municipal bond portfolio did not contain any below investment grade securities as reported by major credit rating agencies.
The Company attributes the unrealized losses at December 31, 2011, to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, driven in part by current media attention and market concerns about the prolonged recovery from economic recession and the impact it might have on the future financial stability of municipalities throughout the country. Accordingly, the Company does not consider these municipal securities to be other-than-temporarily impaired at December 31, 2011.

At December 31, 2011, the Company had no intent to sell nor believed it is more likely than not that it would be required to sell any of its impaired securities as identified and discussed immediately above, and therefore did not consider these securities to be other-than-temporarily impaired as of that date.

Maturity Distribution: The following table summarizes the maturity distribution of the amortized cost and estimated fair value of securities available for sale as of December 31, 2011.


Securities Available for Sale	Amortized Cost		Estimated Fair Value

Due one year or less	$	50	$	50
Due after one year through five years		1,772		1,842
Due after five years through ten years		18,336		19,030
Due after ten years		351,053		360,958
	$	371,211	$	381,880

Actual maturities may differ from the final contractual maturities depicted above because of securities call or prepayment provisions with or without call or prepayment penalties. The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities monthly pay downs cause the average lives of the securities to be much different than their stated lives. Mortgage-backed securities are allocated among the maturity groupings based on their final maturity dates.

Realized Securities Gains and Losses:

The following table summarizes realized gains and losses and other than temporary impairment losses on securities available for sale for the years ended December 31, 2011, 2010 and 2009.


	Proceeds from Sale of Securities Available for Sale		Realized Gains		Realized Losses	Other Than Temporary Impairment Losses		Net

2011	$	48,468	$	2,689	$ ---	$	2,219	$	470
2010	$	31,070	$	2,127	$ ---	$	898	$	1,229
2009	$	62,357	$	1,521	$ ---	$	1,454	$	67

Pledged Securities:

At December 31, 2011 and 2010, securities available-for-sale, at fair value, totaling $40,262 and $30,736, respectively, were pledged as collateral for securities sold under repurchase agreements and for other purposes required by law.