NOTE 2 – SECURITIES

Securities consist of the following at September 30, 2013 and December 31, 2012:


(Dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
September 30, 2013
Available-for-sale securities
U.S. Treasury securities	$	1,005	$	—	$	9	$	996
U.S. government agencies		23,998		10		590		23,418
Mortgage-backed securities		51,563		696		175		52,084
Asset-backed securities		2,764		22		—		2,786
States and political subdivisions		18,280		378		136		18,522
Corporate bonds		4,500		29		3		4,526
Equity securities		106		16		1		121

Total available-for-sale securities		102,216		1,151		914		102,453

Held-to-maturity securities
U.S. government agencies		15,169		—		583		14,586
Mortgage-backed securities		21,639		—		535		21,104

Total held-to-maturity securities		36,808		—		1,118		35,690

Restricted stock		5,463		—		—		5,463

Total securities	$	144,487	$	1,151	$	2,032	$	143,606


December 31, 2012
Available-for-sale securities
U.S. Treasury securities	$	100	$	—	$	—	$	100
U.S. government agencies		35,996		27		43		35,980
Mortgage-backed securities		66,933		2,107		1		69,039
Asset-backed securities		2,862		—		39		2,823
States and political subdivisions		16,194		701		12		16,883
Corporate bonds		4,313		112		28		4,397
Equity securities		69		9		9		69

Total available-for-sale securities		126,467		2,956		132		129,291
Restricted stock		5,463		—		—		5,463

Total securities	$	131,930	$	2,956	$	132	$	134,754

As of July 31, 2013, approximately $39 million par value U.S. government agency and U.S. agency mortgage-backed securities were transferred from Available for sale to Held to maturity. These bonds carried gross unrealized losses of $1.9 million at the transfer date. The bonds were transferred to provide stability to the other comprehensive income component in shareholders’ equity should interest rates continue to rise and to accurately reflect the strategic purpose of these investments.

The amortized cost and fair value of debt securities at September 30, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized cost		Fair value
Available-for-sale:
Due in one year or less	$	279	$	280
Due after one through five years		16,589		16,812
Due after five through ten years		26,318		25,955
Due after ten years		58,924		59,285

Total debt securities available-for-sale	$	102,110	$	102,332


Held-to-maturity:
Due in one year or less	$	—	$	—
Due after one through five years		—		—
Due after five through ten years		3,710		3,655
Due after ten years		33,098		32,035

Total debt securities held-to-maturity	$	36,808	$	35,690

Securities with a carrying value of approximately $89.5 million and $79.2 million were pledged at September 30, 2013 and December 31, 2012, respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law.

Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to approximately $5.0 million at September 30, 2013 and December 31, 2012. Federal Reserve Bank stock was $471 thousand at September 30, 2013 and December 31, 2012.

The following table shows the proceeds from sales of available-for-sale securities and the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of the sales.


	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2013		2012		2013		2012
Proceeds	$	3,809	$	—	$	4,309	$	—

Realized gains	$	149	$	—	$	159	$	—
Realized losses		—		—		—		—

Net securities gains	$	149	$	—	$	159	$	—

The following table presents gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2013 and December 31, 2012:


	Securities in a continuous unrealized loss position
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value
September 30, 2013
Available-for-sale
U.S. Treasury securities	$	9	$	996	$	—	$	—	$	9	$	996
U.S. Government agencies		590		19,408		—		—		590		19,408
Mortgage-backed securities		175		22,096		—		—		175		22,096
State and political subdivisions		134		3,599		2		301		136		3,900
Corporate bonds		2		573		1		499		3		1,072
Equity securities		—		—		1		1		1		1
Held-to-maturity
U.S. Government agencies		583		14,586		—		—		583		14,586
Mortgage-backed securities		535		21,103		—		—		535		21,103

Total temporarily impaired securities	$	2,028	$	82,361	$	4	$	801	$	2,032	$	83,162


December 31, 2012
Available-for-sale
U.S. Government agencies	$	43	$	15,957	$	—	$	—	$	43	$	15,957
Mortgage-backed securities		1		344		—		—		1		344
Asset-backed securities		39		1,833		—		—		39		1,833
State and political subdivisions		12		1,737		—		—		12		1,737
Corporate bonds		4		366		24		975		28		1,341
Equity securities		—		—		9		45		9		45

Total temporarily impaired securities	$	99	$	20,237	$	33	$	1,020	$	132	$	21,257

There were sixty-eight (68) securities in an unrealized loss position at September 30, 2013, three (3) of which were in a continuous loss position for twelve months or more. At least quarterly, the Company conducts a comprehensive security-level impairment assessment. The assessments are based on the nature of the securities, the extent and duration of the securities in an unrealized loss position, the extent and duration of the loss and management’s intent to sell or if it is more likely than not that management will be required to sell a security before recovery of its amortized cost basis, which may be maturity. Management believes the Company will fully recover the cost of these securities. It does not intend to sell these securities and likely will not be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, management concluded that these securities were not other-than-temporarily impaired at September 30, 2013.