NOTE 2 – SECURITIES

Available for Sale

The amortized cost and fair value of securities available for sale as of March 31, 2014 and December 31, 2013 are summarized as follows:



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

March 31, 2014
U.S. government agencies	$	5,291	$	-	$	(62)	$	5,229
State and political subdivisions		28,806		39		(1,681)		27,164
Mortgage-backed securities -
U.S. government-sponsored enterprises		55,630		350		(561)		55,419
Equity securities-financial services industry and other		414		57		(10)		461
	$	90,141	$	446	$	(2,314)	$	88,273

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

Securities with a carrying value of approximately $40.7 million and $37.2 million at March 31, 2014 and December 31, 2013, 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 March 31, 2014, 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	$	-	$	-
Due after one year through five years		501		498
Due after five years through ten years		2,718		2,654
Due after ten years		25,587		24,012
Total bonds and obligations		28,806		27,164
U.S. government agencies		5,291		5,229
Mortgage-backed securities:
U.S. government-sponsored enterprises		55,630		55,419
Equity securities-financial services industry and other		414		461
Total available for sale securities	$	90,141	$	88,273

There were no gross realized gains or losses on sales of securities available for sale for the three months ended March 31, 2014. Gross realized gains or losses on sales of securities available for sale were $378 thousand and $8 thousand, respectively, for the three months ended March 31, 2013.

Temporarily Impaired Securities

The following table shows gross unrealized losses and fair value of securities with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by category and length of time that individual available for sale securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013.



	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

March 31, 2014
U.S. government agencies	$	5,229	$	(62)	$	-	$	-	$	5,229	$	(62)
State and political subdivisions		13,583		(615)		11,927		(1,066)		25,510		(1,681)
Mortgage-backed securities -								-
U.S. government-sponsored enterprises		21,720		(293)		13,168		(268)		34,888		(561)
Equity securities-financial services industry and other		-		-		133		(10)		133		(10)
Total temporarily impaired securities	$	40,532	$	(970)	$	25,228	$	(1,344)	$	65,760	$	(2,314)

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)

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. As of March 31, 2014, we reviewed our available for sale securities 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 and equity 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.

U.S. Government Agencies

At March 31, 2014 and 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 March 31, 2014, there were three securities with a fair value of $5.2 million that had an unrealized loss that amounted to $62 thousand. As of March 31, 2014, 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 March 31, 2014, were deemed to be other-than-temporarily impaired.

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.

State and Political Subdivisions

At March 31, 2014 and December 31, 2013, 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 March 31, 2014, there were 49 securities with a fair value of $25.5 million that had an unrealized loss that amounted to $1.7 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 March 31, 2014, 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 March 31, 2014, were deemed to be other-than-temporarily-impaired.

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.

Mortgage-Backed Securities

At March 31, 2014 and December 31, 2013, 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 March 31, 2014, there were 29 securities with a fair value of $34.9 million that had an unrealized loss that amounted to $561 thousand. As of March 31, 2014, 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 March 31, 2014, were deemed to be other-than-temporarily impaired.

At December 31, 2013, there were 32 securities with a fair value of $40.0 million that had an unrealized loss that amounted to $975 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 March 31, 2014, there was one security with a fair value of $133 thousand that had an unrealized loss of $10 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 do not consider it to be other-than-temporarily impaired at March 31, 2014.

At December 31, 2013, there was one security with a fair value of $130 thousand that had an unrealized loss of $13 thousand.

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 March 31, 2014 and December 31, 2013, are summarized as follows:



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

March 31, 2014
State and political subdivisions	$	5,800	$	108	$	(45)	$	5,863

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

The amortized cost and carrying value of securities held to maturity at March 31, 2014, 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	$	1,859	$	1,859
Due after one year through five years		-		-
Due after five years through ten years		1,278		1,277
Due after ten years		2,663		2,727
Total held to maturity securities	$	5,800	$	5,863

Temporarily Impaired Securities

The following table shows gross unrealized losses and fair value of held to maturity securities with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by category and length of time that individual held to maturity securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013:



	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

March 31, 2014
State and political subdivisions	$	527	$	(13)	$	792	$	(32)	$	1,319	$	(45)

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

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. As of March 31, 2014, we reviewed our held to maturity securities 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 and equity 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.

At March 31, 2014 and December 31, 2013, 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 March 31, 2014, there were three securities with a fair value of $1.3 million that had an unrealized loss that amounted to $45 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 March 31, 2014, 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 March 31, 2014, were deemed to be other-than-temporarily impaired.

At December 31, 2013, there were five securities with a fair value of $2.9 million that had an unrealized loss that amounted to $92 thousand.