NOTE 4 – SECURITIES

Available for Sale

The amortized cost and fair value of securities available for sale as of December 31, 2013 and 2012 are summarized as follows:



				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)		Cost		Gains		Losses		Value

December 31, 2013
U.S. government agencies	$	5,421	$	8	$	(49)	$	5,380
State and political subdivisions		28,788		3		(2,916)		25,875
Mortgage-backed securities:
U.S. government-sponsored enterprises		59,640		272		(975)		58,937
Equity securities-financial services industry and other		412		85		(13)		484
	$	94,261	$	368	$	(3,953)	$	90,676

December 31, 2012
State and political subdivisions	$	27,341	$	594	$	(194)	$	27,741
Mortgage-backed securities:
U.S. government-sponsored enterprises		90,487		671		(449)		90,709
Equity securities-financial services industry and other		460		16		(45)		431
	$	118,288	$	1,281	$	(688)	$	118,881

Securities with a carrying value of approximately $37.2 million and $26.1 million at December 31, 2013 and 2012, respectively, were pledged to secure public deposits and for other purposes required or permitted by applicable laws and regulations.

The amortized cost and fair value of securities available for sale at December 31, 2013 are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments which pay principal on a periodic basis are not included in the maturity categories.



	Amortized		Fair
(Dollars in thousands)	Cost		Value

Due in one year or less	$	-	$	-
Due after one year through five years		501		496
Due after five years through ten years		2,711		2,599
Due after ten years		25,576		22,780
Total bonds and obligations		28,788		25,875
U.S. government agencies		5,421		5,380
Mortgage-backed securities:
U.S. government-sponsored enterprises		59,640		58,937
Equity securities-financial services industry and other		412		484
Total available for sale securities	$	94,261	$	90,676

Gross gains on sales of securities available for sale were $407 thousand and $1.8 million and gross losses were $14 thousand and $20 thousand for the years ended December 31, 2013 and 2012, respectively. In addition, we realized gross gains of $8 thousand on debt securities that were called during the year ended December 31, 2012.

Temporarily Impaired Securities

The following table shows our investments’ gross unrealized losses and fair values with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual available for sale securities have been in a continuous unrealized loss position, at December 31, 2013 and 2012.



	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses

December 31, 2013
U.S. government agencies	$	3,246	$	(49)	$	-	$	-	$	3,246	$	(49)
State and political subdivisions		19,610		(2,046)		6,065		(870)		25,675		(2,916)
Mortgage-backed securities:								-
U.S. government-sponsored enterprises		30,830		(694)		9,147		(281)		39,977		(975)
Equity securities-financial services industry and other		-		-		130		(13)		130		(13)
Total temporarily impaired securities	$	53,686	$	(2,789)	$	15,342	$	(1,164)	$	69,028	$	(3,953)

December 31, 2012
State and political subdivisions	$	9,788	$	(194)	$	-	$	-	$	9,788	$	(194)
Mortgage-backed securities:
U.S. government-sponsored enterprises		31,901		(305)		4,658		(144)		36,559		(449)
Equity securities-financial services industry and other		106		(37)		109		(8)		215		(45)
Total temporarily impaired securities	$	41,795	$	(536)	$	4,767	$	(152)	$	46,562	$	(688)

As of December 31, 2013, we reviewed our investment portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt securities is evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. For each security (including but not limited to those whose fair value is less than their amortized cost basis), a review is conducted to determine if an other-than-temporary impairment has occurred.

U.S. Government Agencies

At December 31, 2013, the decline in fair value and the unrealized losses for our U.S. government agencies securities were primarily due to changes in spreads and market conditions and not credit quality. At December 31, 2013, there were two securities with a fair value of $3.2 million that had an unrealized loss that amounted to $49 thousand. As of December 31, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of the U.S. government agency securities at December 31, 2013, were deemed to be other-than-temporarily impaired.

State and Political Subdivisions

At December 31, 2013 and 2012, the decline in fair value and the unrealized losses for our state and political subdivisions securities were caused by changes in interest rates and spreads and were not the result of credit quality. At December 31, 2013, there were 52 securities with a fair value of $25.7 million that had an unrealized loss that amounted to $2.9 million. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of December 31, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at December 31, 2013, were deemed to be other-than-temporarily-impaired.

At December 31, 2012, there were 17 securities with a fair value of $9.8 million that had an unrealized loss of $194 thousand. These securities typically have maturity dates greater than ten years and the fair values are more sensitive to changes in market interest rates.

Mortgage-Backed Securities

At December 31, 2013 and 2012, the decline in fair value and the unrealized losses for our mortgaged-backed securities guaranteed by U.S. government-sponsored enterprises were primarily due to changes in spreads and market conditions and not credit quality. At December 31, 2013, there were 32 securities with a fair value of $40.0 million that had an unrealized loss of $975 thousand. As of December 31, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our mortgage-backed securities at December 31, 2013, were deemed to be other-than-temporarily impaired.

At December 31, 2012, there were twenty-two securities with a fair value of $36.6 million that had an unrealized loss of $449 thousand.

Equity Securities

Our marketable equity securities portfolio consists primarily of one equity fund and common stock of entities in the financial services industry. At December 31, 2013, there was one security with a fair value of $130 thousand that had an unrealized loss of $13 thousand. This security has been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated the underlying bank for credit impairment based on its financial condition and performance. Based on our evaluation and expectation that this security will recover within a reasonable period of time, we did not consider the investment to be other-than-temporarily impaired at December 31, 2013.

At December 31, 2012, there were two securities with a fair value of $215 thousand that had an unrealized loss of $45 thousand. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry.

We continue to closely monitor the performance of the securities we own as well as the impact from any further deterioration in the economy or in the banking industry that may adversely affect these securities. We will continue to evaluate them for other-than-temporary impairment, which could result in a future non-cash charge to earnings.

Held to Maturity Securities

The amortized cost and fair value of securities held to maturity as of December 31, 2013 and 2012 are summarized as follows:



				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)		Cost		Gains		Losses		Value

December 31, 2013
State and political subdivisions	$	6,074	$	78	$	(92)	$	6,060

December 31, 2012
State and political subdivisions	$	5,221	$	260	$	(9)	$	5,472

The amortized cost and fair value of securities held to maturity at December 31, 2013 are shown below by contractual maturity. Actual maturities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.



		Amortized		Fair
(Dollars in thousands)		Cost		Value

Due in one year or less	$	2,122	$	2,122
Due after one year through five years		-		-
Due after five years through ten years		1,284		1,265
Due after ten years		2,668		2,673
Total held to maturity securities	$	6,074	$	6,060

Temporarily Impaired Securities

The following table shows our held to maturity investments’ gross unrealized losses and fair value with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual held to maturity securities have been in a continuous unrealized loss position, at December 31, 2013 and 2012.



	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses

December 31, 2013
State and political subdivisions	$	2,080	$	(45)	$	780	$	(47)	$	2,860	$	(92)

December 31, 2012
State and political subdivisions	$	830	$	(9)	$	-	$	-	$	830	$	(9)

As of December 31, 2013, we reviewed our held to maturity investment portfolio for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and likelihood of selling the security. The intent and likelihood of sale of debt securities is evaluated based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. For each security whose fair value is less than their amortized cost basis, a review is conducted to determine if an other-than-temporary impairment has occurred.

State and Political Subdivisions

At December 31, 2013 and 2012, the decline in fair value and the unrealized losses for our state and political subdivisions securities were caused by changes in interest rates and spreads and were not the result of credit quality. At December 31, 2013, there were five securities with a fair value of $2.9 million that had an unrealized loss of $92 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates. As of December 31, 2013, we did not intend to sell and it was not more-likely-than-not that we would be required to sell any of these securities before recovery of their amortized cost basis. Therefore, none of our state and political subdivision securities at December 31, 2013, were deemed to be other-than-temporarily impaired.

At December 31, 2012, there were two securities with a fair value of $830 thousand that had an unrealized loss of $9 thousand. These securities typically have maturity dates greater than 10 years and the fair values are more sensitive to changes in market interest rates.