Note 5 - Investment Securities Available For Sale

6 Months Ended

Jun. 30, 2012

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

NOTE 5 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE

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

	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollar amounts in thousands)
U.S. government agency securities	$	12,989	$	583	$	-		$	13,572
Obligations of states and political subdivisions:
Taxable		8,201		956		-			9,157
Tax-exempt		74,842		4,611		(23	)		79,430
Mortgage-backed securities in government-sponsored entities		62,437		1,863		(26	)		64,274
Private-label mortgage-backed securities		5,819		484		(41	)		6,262
Total debt securities		164,288		8,497		(90	)		172,695
Equity securities in financial institutions		750		1		-			751
Total	$	165,038	$	8,498	$	(90	)	$	173,446

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	31,520	$	427	$	(14	)	$	31,933
Obligations of states and political subdivisions:
Taxable		8,207		766		-			8,973
Tax-exempt		75,807		3,681		(61	)		79,427
Mortgage-backed securities in government-sponsored entities		63,808		1,819		(54	)		65,573
Private-label mortgage-backed securities		7,005		411		(95	)		7,321
Total debt securities		186,347		7,104		(224	)		193,227
Equity securities in financial institutions		750		-		-			750
Total	$	187,097	$	7,104	$	(224	)	$	193,977

The amortized cost and fair value of debt securities at June 30, 2012, 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.

	Amortized Cost		Fair Value
(Dollar amounts in thousands)
Due in one year or less	$	2,784	$	2,842
Due after one year through five years		5,809		6,149
Due after five years through ten years		15,903		16,866
Due after ten years		139,792		146,838
Total	$	164,288	$	172,695

Proceeds from the sales of securities available-for-sale and the gross realized gains and losses are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Proceeds from sales	$	21,804		$	-		$	21,804		$	10,072
Gross realized gains		308			-			308			15
Gross realized losses		(12	)		(37	)		(12	)		(37	)

Gross realized losses for the three and six months ended June 30, 2011 were the result of OTTI taken on equity securities.

Investment securities with an approximate carrying value of $52,927,000 and $55,809,000 at June 30, 2012 and 2011, respectively, were pledged to secure deposits and other purposes as required by law.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	June 30, 2012
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
(Dollar amounts in thousands)
Obligations of states and political subdivisions	$	742	$	(12	)	$	289	$	(11	)	$	1,031	$	(23	)
Mortgage-backed securities in government-sponsored entities		8,523		(26	)		-		-			8,523		(26	)
Private-label mortgage-backed securities		335		(6	)		358		(35	)		693		(41	)
Total	$	9,600	$	(44	)	$	647	$	(46	)	$	10,247	$	(90	)

	December 31, 2011
	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 agency securities	$	1,986	$	(14	)	$	-	$	-		$	1,986	$	(14	)
Obligations of states and political subdivisions		2,707		(40	)		919		(21	)		3,626		(61	)
Mortgage-backed securities in government-sponsored entities		8,992		(54	)		-		-			8,992		(54	)
Private-label mortgage-backed securities		1,628		(42	)		398		(53	)		2,026		(95	)
Total	$	15,313	$	(150	)	$	1,317	$	(74	)	$	16,630	$	(224	)

There were 10 and 51 securities that were considered temporarily impaired at June 30, 2012 and 2011.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 96% of the total available-for-sale portfolio as of June 30, 2012 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of significant unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company’s assessment was concentrated mainly on private-label collateralized mortgage obligations of approximately $6.3 million for which the Company evaluates credit losses on a quarterly basis. The gross unrealized gain position related to these private-label collateralized mortgage obligations amounted to $484,000 and the gross unrealized loss position was $41,000 on June 30, 2012. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the three and six months ended June 30, 2012, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI.