NOTE 2 – SECURITIES

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2013
U.S. Government agency debt obligations	$	108,279,000	$	263,000	$	(10,065,000	)	$	98,477,000
Mortgage-backed securities		12,456,000		1,102,000		0			13,558,000
Michigan Strategic Fund bonds		0		0		0			0
Municipal general obligation bonds		16,488,000		388,000		(4,000	)		16,872,000
Municipal revenue bonds		878,000		38,000		0			916,000
Mutual funds		1,386,000		0		(31,000	)		1,355,000

	$	139,487,000	$	1,791,000	$	(10,100,000	)	$	131,178,000

2012
U.S. Government agency debt obligations	$	78,447,000	$	1,039,000	$	(388,000	)	$	79,098,000
Mortgage-backed securities		20,182,000		1,814,000		0			21,996,000
Michigan Strategic Fund bonds		11,255,000		0		0			11,255,000
Municipal general obligation bonds		21,700,000		1,043,000		0			22,743,000
Municipal revenue bonds		1,726,000		91,000		0			1,817,000
Mutual funds		1,354,000		51,000		0			1,405,000

	$	134,664,000	$	4,038,000	$	(388,000	)	$	138,314,000

Securities with unrealized losses at year-end 2013 and 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:


	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss		Value		Loss		Value		Loss
2013
U.S. Government agency debt obligations	$	57,117,000	$	5,798,000	$	29,679,000	$	4,267,000	$	86,796,000	$	10,065,000
Mortgage-backed securities		0		0		0		0		0		0
Michigan Strategic Fund bonds		0		0		0		0		0		0
Municipal general obligation bonds		295,000		4,000		0		0		295,000		4,000
Municipal revenue bonds		0		0		0		0		0		0
Mutual funds		1,355,000		31,000		0		0		1,355,000		31,000

	$	58,767,000	$	5,833,000	$	29,679,000	$	4,267,000	$	88,446,000	$	10,100,000

2012
U.S. Government agency debt obligations	$	33,555,000	$	388,000	$	0	$	0	$	33,555,000	$	388,000
Mortgage-backed securities		0		0		0		0		0		0
Michigan Strategic Fund bonds		0		0		0		0		0		0
Municipal general obligation bonds		0		0		0		0		0		0
Municipal revenue bonds		0		0		0		0		0		0
Mutual funds		0		0		0		0		0		0

	$	33,555,000	$	388,000	$	0	$	0	$	33,555,000	$	388,000

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At December 31, 2013, 65 debt securities and one mutual fund with a combined fair value totaling $88.4 million have unrealized losses aggregating $10.1 million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that unrealized losses were due to changing interest rate environments.

As we do not intend to sell the securities, we believe it is more likely than not that we will not be required to sell the securities before recovery and we do expect to recover the entire amortized cost of the securities, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair values of debt securities at December 31, 2013, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.


	Weighted
	Average			Amortized		Fair
	Yield			Cost		Value
Due in one year or less		5.32	%	$	2,444,000	$	2,494,000
Due from one to five years		6.31			1,018,000		1,047,000
Due from five to ten years		3.13			32,373,000		31,008,000
Due after ten years		3.68			89,810,000		81,716,000
Mortgage-backed securities		5.17			12,456,000		13,558,000
Mutual funds		2.32			1,386,000		1,355,000

		3.73	%	$	139,487,000	$	131,178,000

During 2013, Michigan Strategic Fund bonds totaling $10.3 million were sold at par. No securities were sold during 2012 and 2011.

At year-end 2013 and 2012, the amortized cost of securities issued by the State of Michigan and all its political subdivisions totaled $17.4 million and $23.4 million, with an estimated fair value of $17.8 million and $24.6 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements was $94.4 million and $83.8 million at December 31, 2013 and 2012, respectively. In addition, substantially all of our municipal bonds have been pledged to the Discount Window of the Federal Reserve Bank of Chicago. Investments in FHLB stock are restricted and may only be resold to, or redeemed by, the issuer.