NOTE 2 – SECURITIES

Available for Sale

The amortized cost and approximate fair value of securities available for sale as of June 30, 2012, and December 31, 2011 are summarized as follows:


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

June 30, 2012
State and political subdivisions	$	26,820	$	1,201	$	(52	)	$	27,969
Mortgage-backed securities:
U.S. government-sponsored enterprises		85,612		842		(260	)		86,194
Equity securities-financial services industry and other		1,351		23		(29	)		1,345
	$	113,783	$	2,066	$	(341	)	$	115,508

December 31, 2011
State and political subdivisions	$	19,706	$	883	$	(19	)	$	20,570
Mortgage-backed securities:
U.S. government-sponsored enterprises		71,684		786		(472	)		71,998
Private mortgage-backed securities		2,423		58		(4	)		2,477
Equity securities-financial services industry and other		1,349		1		(34	)		1,316
	$	95,162	$	1,728	$	(529	)	$	96,361

Securities with a carrying value of approximately $26.5 million and $21.5 million at June 30, 2012, and December 31, 2011, 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 June 30, 2012, 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		-		-
Due after five years through ten years		1,076		1,129
Due after ten years		25,744		26,840
Total bonds and obligations		26,820		27,969
Mortgage-backed securities:
U.S. government-sponsored enterprises		85,612		86,194
Equity securities-financial services industry and other		1,351		1,345
Total available for sale securities	$	113,783	$	115,508

Gross gains on sales of securities available for sale were $214 thousand and $269 thousand for the six months ended June 30, 2012 and 2011, respectively, and gross losses were $20 thousand for the six months ended June 30, 2012. There were no gross losses on the sales of securities in the first six months of 2011.

Temporarily Impaired Securities

The following table shows our 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 available for sale securities have been in a continuous unrealized loss position at June 30, 2012, and December 31, 2011.


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

June 30, 2012
State and political subdivisions	$	4,965	$	(50	)	$	139	$	(2	)	$	5,104	$	(52	)
Mortgage-backed securities:
U.S. government-sponsored enterprises		26,933		(260	)		-		-			26,933		(260	)
Equity securities-financial services industry
and other		122		(21	)		206		(8	)		328		(29	)
Total temporarily impaired securities	$	32,020	$	(331	)	$	345	$	(10	)	$	32,365	$	(341	)

December 31, 2011
State and political subdivisions	$	115	$	(2	)	$	124	$	(17	)	$	239	$	(19	)
Mortgage-backed securities:
U.S. government-sponsored enterprises		34,576		(472	)		-		-			34,576		(472	)
Private mortgage-backed securities		518		(4	)		-		-			518		(4	)
Equity securities-financial services industry
and other		-		-			1,025		(34	)		1,025		(34	)
Total temporarily impaired securities	$	35,209	$	(478	)	$	1,149	$	(51	)	$	36,358	$	(529	)

As of June 30, 2012, we reviewed our available for sale 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 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. 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 June 30, 2012, the decline in fair value and the unrealized losses for our state and political subdivisions portfolio were caused by changes in interest rates and spreads and were not the result of credit quality. At June 30, 2012, there were 10 securities with a fair value of $5.1 million that had an unrealized loss that amounted to $52 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 June 30, 2012, 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 June 30, 2012 were deemed to be other-than-temporarily-impaired.

Mortgage-Backed Securities

At June 30, 2012, the decline in fair value and the unrealized losses for our mortgaged-backed securities backed by U.S. government-sponsored enterprises were primarily due to changes in spreads and market conditions and not credit quality. At June 30, 2012, there were 13 securities with a fair value of $26.9 million that had an unrealized loss that amounted to $260 thousand. As of June 30, 2012, 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 June 30, 2012, were deemed to be other-than-temporarily impaired.

Equity Securities

Our investments in marketable equity securities consist primarily of a mutual fund, one equity portfolio fund and common stock of entities in the financial services industry. At June 30, 2012, there were three securities with a fair value of $328 thousand that had an unrealized loss of $29 thousand. These securities have been adversely impacted by the effects of the current economic environment on the financial services industry. We evaluated each of the underlying banks for credit impairment based on its financial condition and performance. Based on our evaluation and our ability and intent to hold those investments for a reasonable period of time sufficient for a forecasted recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2012. 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 approximate fair value of securities held to maturity as of June 30, 2012, and December 31, 2011 are summarized as follows:


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

June 30, 2012
State and political subdivisions	$	5,168	$	169	$	(21	)	$	5,316

December 31, 2011
State and political subdivisions	$	4,220	$	125	$	-		$	4,345

The amortized cost and carrying value of securities held to maturity at June 30, 2012, 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	$	1,146	$	1,146
Due after five years through ten years		1,052		1,100
Due after ten years		2,970		3,070
Total held to maturity securities	$	5,168	$	5,316

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 June 30, 2012. There were no securities with unrealized losses on December 31, 2011.


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

June 30, 2012

State and political subdivisions	$	1,374	$	(21	)	$	-	$	-	$	1,374	$	(21	)

As of June 30, 2012, 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 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. 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 June 30, 2012, the decline in fair value and the unrealized losses for our state and political subdivisions portfolio were caused by changes in interest rates and spreads and were not the result of credit quality. At June 30, 2012, there were 3 securities with a fair value of $1.4 million that had an unrealized loss that amounted to $21 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 June 30, 2012, 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 June 30, 2012, were deemed to be other-than-temporarily impaired.