NOTE 2: Securities

Debt and equity securities, all of which were classified as available for sale, are summarized as follows:

	September 30, 2011
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agencies and corporations	$	11,007	$	55	$	(6	)	$	11,056
Mortgage-backed securities		2,397		102		-			2,499
Obligations of states and political subdivisions		121,683		6,529		(74	)		128,138
Preferred stock		27		73		-			100
	$	135,114	$	6,759	$	(80	)	$	141,793

	December 31, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agencies and corporations	$	13,629	$	57	$	(30	)	$	13,656
Mortgage-backed securities		2,229		78		(7	)		2,300
Obligations of states and political subdivisions		113,620		1,694		(1,026	)		114,288
Preferred stock		27		7		(3	)		31
	$	129,505	$	1,836	$	(1,066	)	$	130,275

The amortized cost and estimated fair value of securities, all of which were classified as available for sale, at September 30, 2011, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

	September 30, 2011
(Dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	28,327	$	28,563
Due after one year through five years		30,314		31,269
Due after five years through ten years		49,312		52,741
Due after ten years		27,134		29,120
Preferred stock		27		100
	$	135,114	$	141,793

Proceeds from the maturities, calls and sales of securities available for sale for the nine months ended September 30, 2011 were $21.77 million.

The Corporation pledges securities primarily as collateral for public deposits and repurchase agreements. Securities with an aggregate amortized cost of $92.47 million and an aggregate fair value of $97.20 million were pledged at September 30, 2011. Securities with an aggregate amortized cost of $93.56 million and an aggregate fair value of $94.28 million were pledged at December 31, 2010.

Securities in an unrealized loss position at September 30, 2011, by duration of the period of the unrealized loss, are shown below.

	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government agencies and corporations	$	2,754	$	6	$	-	$	-	$	2,754	$	6
Obligations of states and political subdivisions		1,668		28		501		46		2,169		74
Total temporarily impaired securities	$	4,422	$	34	$	501	$	46	$	4,923	$	80

There are 14 debt securities with fair values totaling $4.92 million considered temporarily impaired at September 30, 2011. The primary cause of the temporary impairments in the Corporation's investments in debt securities was fluctuations in interest rates. During the third quarter of 2011, the municipal bond sector, which is included in the Corporation's obligations of states and political subdivisions category of securities, experienced rising securities prices given overall lower interest rates and increased investor demand driven by relatively-improved fiscal conditions of state and local governments and the continued limited supply of new municipal bond issuances. The drop in supply was due to Congress not reauthorizing the Build America Bond program to continue after 2010 and reluctance on the part of municipalities to incur more debt service given challenging economic conditions. The vast majority of the Corporation's municipal bond portfolio is made up of securities where the issuing municipalities have unlimited taxing authority to support their debt servicing obligations. At September 30, 2011, approximately 95 percent of the Corporation's obligations of states and political subdivisions, as measured by market value, were rated “A” or better by Standard & Poor's or Moody's Investors Service. Of those in a net unrealized loss position, approximately 74 percent were rated “A” or better, as measured by market value, at September 30, 2011. Because the Corporation intends to hold these investments in debt securities to maturity and it is more likely than not that the Corporation will not be required to sell these investments before a recovery of unrealized losses, the Corporation does not consider these investments to be other-than-temporarily impaired at September 30, 2011 and no other-than-temporary impairment has been recognized.

Securities in an unrealized loss position at December 31, 2010, by duration of the period of the unrealized loss, are shown below.

	Less Than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government agencies and corporations	$	4,345	$	30	$	-	$	-	$	4,345	$	30
Mortgage-backed securities		590		7		-		-		590		7
Obligations of states and political subdivisions		38,585		925		1,178		101		39,763		1,026
Subtotal-debt securities		43,520		962		1,178		101		44,698		1,063
Preferred stock		8		3		-		-		8		3
Total temporarily impaired securities	$	43,528	$	965	$	1,178	$	101	$	44,706	$	1,066

The Corporation's investment in Federal Home Loan Bank (FHLB) stock totaled $3.80 million at September 30, 2011 and $3.89 million at December 31, 2010. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Corporation does not consider this investment to be other-than-temporarily impaired at September 30, 2011 and no impairment has been recognized. FHLB stock is shown as a separate line item on the balance sheet and is not a part of the available for sale securities portfolio.