2. SECURITIES

Securities are summarized as follows: (dollars in thousands)

	Dec 2011									Dec 2010
	Amortized		Gross Unrealized					Fair		Amortized		Gross Unrealized					Fair
	Cost		Gains		(Losses)			Value		Cost		Gains		(Losses)			Value

Available for Sale:
Municipal bonds	$	44,094	$	2,255	$	(36	)	$	46,313	$	62,925	$	1,509	$	(580	)	$	63,854
Asset backed securities		0		0		0			0		100		0		(58	)		42
Collateralized mortgage obligations issued by:
GSE agencies		27,354		422		(10	)		27,766		50,714		364		(479	)		50,599
Private label		49,156		319		(76	)		49,399		97,396		138		(1,127	)		96,407
Mortgage backed securities
issued by agencies		55,652		277		(112	)		55,817		13,386		107		(232	)		13,261
Corporate debt		1,969		0		(569	)		1,400		1,967		0		(508	)		1,459
Bond money market funds		0		0		0			0		768		0		0			768
Equity securities		75		0		0			75		75		0		0			75
Total Available for Sale	$	178,300	$	3,273	$	(803	)	$	180,770	$	227,331	$	2,118	$	(2,984	)	$	226,465

Certain securities, with amortized cost of $379,000 and fair value of $408,000 at December 31, 2010 were pledged as collateral for the Bank's treasury, tax and loan account at the Federal Reserve and for certain trust, IRA and KEOGH accounts. No securities were pledged at the Federal Reserve as of December 31, 2011. Certain securities, with amortized cost of $16.6 million and fair value of $16.9 million at December 31, 2011, and amortized cost of $1.3 million and fair value of $1.4 million at December 31, 2010 were pledged as collateral for borrowing purposes at the Federal Home Loan Bank of Indianapolis.

During the second quarter of 2010, securities classified as held to maturity with an amortized cost of $345,000 were transferred to available-for-sale securities and subsequently sold. The proceeds received on these sales totaled $349,000, and gains of $4,000 were realized on these sales. Management decided to transfer and sell these securities, as they believed that the investment strategy originally employed regarding these securities had changed. In conjunction with the transfer and sale of these securities, the Company transferred the remaining held-to-maturity securities with an amortized cost of $2.9 million and a fair value of $2.7 million to available-for-sale securities.

The amortized cost and fair value of securities at December 31, 2011 by contractual maturity are summarized as follows: (dollars in thousands)

	Available for Sale
	Amortized Cost		Fair Value		Yield

Municipal bonds:
Due in one year or less	$	2,220	$	2,244		5.66	%
Due after 1 year through 5 years		12,750		13,385		5.28	%
Due after 5 years through 10 years		26,605		28,066		3.97	%
Due after 10 years		2,519		2,618		4.18	%
Collateralized mortgage obligations issued by:
GSE agencies		27,354		27,766		2.44	%
Private label		49,156		49,399		3.72	%
Mortgage backed securities issued by agencies		55,652		55,817		2.15	%
Corporate debt:
Due after 10 years		1,969		1,400		1.14	%
Equity securities		75		75		0	%
Total	$	178,300	$	180,770		3.20	%

Activities related to the sales of securities available for sale and other realized losses are summarized as follows: (dollars in thousands)

	Year Ended		Year Ended
	Dec 2011		Dec 2010
Proceeds from sales	$	125,283	$	159,626
Gross gains on sales		2,957		774
Gross losses on sales		561		6
Other than temporary impairment losses		104		215
Tax expense on realized security gains		949		219

During 2011 and 2010 other than temporary impairment was recorded on certain available for sale securities. The entire unrealized loss on these securities was considered to be related to credit risk and the cost basis of these investments was reduced to zero based on the Company's analysis of expected cash flows. Therefore, no amounts were recognized in other comprehensive income.

Taxable interest income and non-taxable interest income earned on the investment portfolio are summarized as follows: (dollars in thousands)

	Year Ended		Year Ended
	Dec 2011		Dec 2010
Taxable interest income	$	4,383	$	4,634
Non-taxable interest income		581		732
Total Interest Income	$	4,964	$	5,366

Management reviews its investment portfolio for other than temporary impairment on a quarterly basis. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security's performance, the creditworthiness of the issuer, and the timely receipt of contractual payments. Additional consideration is given to the fact that it is not more-likely-than-not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. Investments that have been in a continuous unrealized loss position as of December 31, 2011 and 2010 are summarized as follows: (dollars in thousands)

As of December 31, 2011	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Collateralized mortgage obligations issued by:	$		$			$		$			$		$
GSE agencies		1,637		(10	)		0		0			1,637		(10	)
Private Label		6,079		(59	)		3,911		(17	)		9,990		(76	)
Mortgage backed securities issued by agencies		27,956		(112	)		0		0			27,956		(112	)
Corporate debt		0		0			1,400		(569	)		1,400		(569	)
Municipal bonds		983		(32	)		397		(4	)		1,380		(36	)
Total Temporarily Impaired Securities	$	36,655	$	(213	)	$	5,708	$	(590	)	$	42,363	$	(803	)

In reviewing its available for sale securities at December 31, 2011, for other than temporary impairment, management considered the change in market value of the securities during 2011, the expectation for the security's future performance based on the receipt, or non receipt, of required cash flows and Moody's and S&P ratings where available. Additionally, management considered that it is not more-likely-than-not that the Company would be required to sell a security before the recovery of its amortized cost basis. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if the market yields for such investments decline. Based on these criteria, management concluded that no additional OTTI charge was required

At December 31, 2011, the Company had two corporate debt securities in the available for sale portfolio with a face amount of $2.0 million and an unrealized loss of $569,000. These two securities are rated A2 and BA1 by Moodys indicating these securities are considered of low to moderate credit risk. The issuers of the two securities are two well capitalized banks. Management believes that the decline in market value is due primarily to the interest rate and maturity as these securities carry an interest rate of LIBOR plus 55 basis points with maturities beyond ten years.

As of December 31, 2010	Less than Twelve Months					Twelve Months Or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Asset backed securities	$	15	$	(3	)	$	27	$	(55	)	$	42	$	(58	)
Collateralized mortgage obligations issued by:
GSE agencies		20,969		(479	)		0		0			20,969		(479	)
Private Label		69,290		(967	)		468		(160	)		69,758		(1,127	)
Mortgage backed securities issued by agencies		9,914		(232	)		0		0			9,914		(232	)
Corporate debt		0		0			1,459		(508	)		1,459		(508	)
Municipal bonds		12,841		(543	)		855		(37	)		13,696		(580	)
Total Temporarily Impaired Securities	$	113,029	$	(2,224	)	$	2,809	$	(760	)	$	115,838	$	(2,984	)