SECURITIES

6 Months Ended

Jun. 30, 2011

SECURITIES [Abstract]

SECURITIES

NOTE 3 — SECURITIES

Securities are as follows:

			Gross		Gross
(000s omitted)			Unrealized		Unrealized
Available for Sale	Amortized Cost		Gains		Losses			Fair Value
June 30, 2011
U.S. Government and federal agency	$	5,991	$	25	$	0		$	6,016
Mortgage-backed residential		8,899		192		0			9,091
Collateralized mortgage obligations-agencies		32,114		636		(4	)		32,746
Collateralized mortgage obligations-private label		3,935		0		(425	)		3,510
Equity securities		2,155		84		(67	)		2,172
	$	53,094	$	937	$	(496	)	$	53,535
December 31, 2010
U.S. Government and federal agency	$	4,005	$	6	$	(11	)	$	4,000
Mortgage-backed residential		7,342		126		(36	)		7,432
Collateralized mortgage obligations-agencies		24,758		258		(114	)		24,902
Collateralized mortgage obligations-private label		4,215		0		(344	)		3,871
Equity securities		1,655		49		(34	)		1,670
	$	41,975	$	439	$	(539	)	$	41,875

			Gross		Gross
(000s omitted)			Unrealized		Unrealized
Held to Maturity	Amortized Cost		Gains		Losses			Fair Value
June 30, 2011
State and municipal	$	3,648	$	78	$	0		$	3,726
	$	3,648	$	78	$	0		$	3,726
December 31, 2010
State and municipal	$	4,350	$	41	$	(8	)	$	4,383
	$	4,350	$	41	$	(8	)	$	4,383

Contractual maturities of securities at June 30, 2011 were as follows. Securities not due at a single maturity date, mortgage-backed, collateralized mortgage obligations and equity securities are shown separately.

	Available for Sale
	Amortized		Fair
(000s omitted)	Cost		Value
U.S. Government and federal agency
Due from one to five years	$	2,000	$	1,999
Due from five to ten years		3,991		4,017
Mortgage-backed residential		8,899		9,091
Collateralized mortgage obligations-agencies		32,114		32,746
Collateralized mortgage obligations-private label		3,935		3,510
Equity securities		2,155		2,172
	$	53,094	$	53,535

	Held to Maturity
	Amortized		Fair
(000s omitted)	Cost		Value
Due in one year or less	$	715	$	720
Due from one to five years		1,737		1,770
Due from five to ten years		1,196		1,236
Due after ten years		0		0
	$	3,648	$	3,726

At June 30, 2011, there were 2 private label CMO securities, with aggregate holdings totaling $3,510,000 which exceeded 10% of shareholders’ equity. At June 30, 2010, there were holdings totaling $4,175,000 of private label CMO securities which exceeded 10% of shareholders equity.

Sales of available for sale securities were as follows:

(000s omitted)	Six months ended		Six months ended
	June 30, 2011		June 30, 2010
Proceeds	$	2,024	$	6,067
Gross gains		5		82
Gross losses		0		0

There was a sale of $2,024,000 of available for sale securities during the six months ended June 30, 2011. This is compared to sales totaling $6,067,000 of available for sale securities for the six months ended June 30, 2010.

The cost basis used to determine the unrealized gains or losses of securities sold was the amortized cost of the individual investment security as of the trade date.

Securities with unrealized losses are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:

	Less than 12 months					12 months or more					Total
June 30, 2011	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(000s omitted)	Value		Loss			Value		Loss			Value		Loss
Collateralized mortgage obligations-agencies	$	1,902	$	(4	)	$	0	$	0		$	1,902	$	(4	)
Collateralized mortgage obligations-private label		0		0			3,510		(425	)		3,510		(425	)
Equity securities		384		(63	)		1		(4	)		385		(67	)
Total temporarily impaired	$	2,286	$	(67	)	$	3,511	$	(429	)	$	5,797	$	(496	)

	Less than 12 months					12 months or more					Total
December 31, 2010	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(000s omitted)	Value		Loss			Value		Loss			Value		Loss
US Government and federal agency	$	1,989	$	(11	)	$	0	$	0		$	1,989	$	(11	)
State and municipal		365		(3	)		245		(5	)		610		(8	)
Mortgage-backed residential		2,062		(36	)		0		0			2,062		(36	)
Collateralized mortgage obligations-agencies		6,085		(114	)		0		0			6,085		(114	)
Collateralized mortgage obligations-private label		0		0			3,871		(344	)		3,871		(344	)
Equity securities		186		(14	)		439		(20	)		625		(34	)
Total temporarily impaired	$	10,687	$	(178	)	$	4,555	$	(369	)	$	15,242	$	(547	)

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In evaluating OTTI, management considers the factors presented in Note 1.

As of June 30, 2011, the Corporation’s security portfolio consisted of 83 securities, 4 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s collateralized mortgage obligations (CMOs) and equity securities, as discussed below.

Collateralized Mortgage Obligations

The decline in fair value of the Corporation’s private label collateralized mortgage obligations is primarily attributable to the lack of liquidity and the financial crisis affecting these markets and not necessarily the expected cash flows of the individual securities. The ratings held on the private label securities are AA and A-. The underlying collateral of these CMOs is comprised largely of 1-4 family residences. In each of these securities, the Corporation holds the senior tranche and receives payments before other tranches. For private label securities, management completes an analysis to review the recent performance of the mortgage pools underlying the instruments. At June 30, 2011, the two private label securities having an amortized cost of $3,935,000 have an unrealized loss of $425,000.

The Corporation has also been closely monitoring the performance of the CMO and MBS portfolios. Management monitors items such as payment streams and underlying default rates, and did not determine a severe change in these items. On a quarterly basis, management uses multiple assumptions to project the expected future cash flows of the private label CMOs with prepayment speeds, projected default rates and loss severity rates. The cash flows are then discounted using the effective rate on the securities determined at acquisition. Recent historical experience is the base for determining the cash flow assumptions and are adjusted when appropriate after considering characteristics of the underlying loans collateralizing the private label CMO security.

The Corporation has one agency collateralized mortgage obligation with an unrealized loss of $4,000. The decline in value is primarily due to changes in interest rates and other market conditions.

Equity securities

The Corporation’s equity investments with unrealized losses are investments in three non-public bank holding companies in Michigan. These securities receive a multi-faceted review utilizing call report data. Management reviews such performance indicators as earnings, ROE, ROA, non-performing assets, brokered deposits and capital ratios. Management draws conclusions from this information, as well as any published information or trading activity received from the individual institutions, to assist in determining if any unrealized loss is other than temporary impairment.

Additionally management considers the length of time the investments have been at an unrealized loss. At the end of the second quarter, management performed its review and determined that no additional other-than-temporary impairment was necessary on the equity securities in the portfolio.