Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities

Note 2. Investment Securities

The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at June 30, 2011 and December 31, 2010 are as follows:

	2011				2010
				Market				Market
		Cost		Value		Cost		Value
Securities held to maturity
U. S. Treasury and agency obligations	$	109	$	109	$	109	$	109
Total	$	109	$	109	$	109	$	109
		June 30, 2011
		Unrealized
								Market
		Cost		Gains		Losses		Value
Securities available for sale
Government sponsored enterprises	$	10,001	$	37	$	—	$	10,038
Equity securities		1,941		569		20		2,490
Mortgage-backed securities		3,027		205		3		3,229
Total	$	14,969	$	811	$	23	$	15,757
		December 31, 2010
		Unrealized
								Market
		Cost		Gains		Losses		Value
Securities available for sale
Government sponsored enterprises	$	7,997	$	7	$	3	$	8,001
Equity securities		2,643		711		39		3,315
Mortgage-backed securities		3,724		209		2		3,931
Total	$	14,364	$	927	$	44	$	15,247

The amortized cost and fair value of securities at June 30, 2011, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity		Securities Available for Sale
	Amortized	Fair	Amortized	Fair
	Cost	Value	Cost	Value
Due in one year or less	$                        109	$                109	$                    248	$                  245
Due after one year through five years	-	-	10,001	10,038
Due after five years	-	-	2,779	2,984
	109	109	13,028	13,267
Marketable equities	-	-	1,941	2,490
Total	$                        109	$                109	$               14,969	$             15,757

There were no sales of debt securities during the six month periods ending June 30, 2011 and 2010. Following is a table reflecting gains and losses on sales of equity securities:

	Six Months Ended					Three Months Ended
	June 30,  2011		June 30,  2011			June 30, 2010		June 30, 2010
Gains	$	346	$	113		$	346	$	—
Losses		—		(83	)		—		—
Net Gains	$	346	$	30		$	346	$	—

Securities Impairment

The Company follows the guidance in ASC 320-10 and Staff Accounting Bulletin (SAB) Topic 5M, Other Than Temporary Impairment in evaluating if these impairments are temporary or other than temporary in nature. This determination is made on an investment by investment basis and includes all available evidence at the time of the determination including the following:

·         The length of time of impairment;

·         The extent of the impairment relative to the cost of the investment;

·         Recent volatility in the market value of the investment;

·         The financial condition and near-term prospects of the issuer, including any specific events which may impair the earnings potential of the issuer; or

·         The intent and ability of the Company to hold its investment for a period of time sufficient to allow for any anticipated recovery in market value.

The following description provides our policies/procedures for the evaluation for Other Than Temporary Impairment (OTTI):

·         We begin our evaluation using a default position that OTTI has occurred and then use all available evidence to determine whether prospects for the individual security are sufficient to support temporary impairment at the date of the SEC filing. This evaluation will be conducted at each filing date.

·         For purposes of determining OTTI, the security value recovery period will be projected for a maximum of a two year holding period. This will be the maximum; a shorter period may be used when there are particular conditions related to the individual security which make recovery unlikely.

·         The primary focus in determining whether a security is OTTI, and projecting potential recovery, is the prospects for the individual security, rather than broad market indices. All available evidentiary material is considered, including the Company’s public filings with the SEC, press releases, analyst reports, etc.

·         Secondary consideration is given to historic returns, but only to the extent that this evidence is instructive in determining whether the individual security has shown a history of outperforming (or underperforming) the market (or industry) in prior economic cycles. These factors are only considered when the declines in value are not limited to the individual security, but were prevalent over the broader market. This measure is considered to aid in determining whether OTTI should be recognized earlier, rather than later (i.e. a security which underperforms relative to the industry or market will result in early recognition of OTTI). In no event will OTTI recognition be delayed beyond the two year projection period.

·         OTTI may be recognized as early as quarter 1, regardless of holding period projections, when there are specific factors relative to the security which make recovery unlikely. These factors could include evidence contained in the aforementioned SEC filings, press releases, analyst reports, but may also be based on the severity of the impairment.

·         Situations where a security has declined in value more rapidly than the industry (or market), absent strong evidence supporting prospects for recovery, will result in OTTI being recognized in quarter 1 or quarter 2 rather than continuing to evaluate the security over several quarters, based on holding period projections.

·         Declines determined to be other than temporary are charged to operations; as of June 30, 2011 we determined that one financial institution equity security met the above definition of OTTI and the charge to operations totaled $57,000. There were no such charges at June 30, 2010.

·         The Bank also held several small dollar Mortgage Backed Securities that had estimated unrealized losses of $3,000 as of June 30, 2011. These losses have existed for over twelve months, but are considered immaterial. These securities were liquidated shortly after quarter end resulting in a realized gain of approximately $3,000. & M BANK CORP.

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at June 30, 2011 and December 31, 2010 were as follows (dollars in thousands):

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2011
Government sponsored Enterprises	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage backed Obligations		—		—			245		(3	)		245		(3	)
Marketable equities		208		(19	)		—		(1	)		208		(20	)
Total	$	208	$	(19	)	$	245	$	(4	)	$	453	$	(23	)
December 31, 2010
Government sponsored Enterprises	$	2,004	$	(4	)	$	—	$	—		$	2,004	$	(4	)
Mortgage backed Obligations		—		—			260		(2	)		260		(2	)
Marketable equities		—		—			575		(39	)		575		(39	)
Total	$	2,004	$	(4	)	$	835	$	(41	)	$	2,839	$	(45	)

Other investments, which consists of stock of correspondent banks and investments in low income housing projects, decreased since December 31, 2010. This decrease is due to a stock repurchase by the FHLB and regular amortization of the carrying value of the investment in low income housing projects.