Securities

9 Months Ended

Sep. 30, 2011

Securities [Abstract]

SECURITIES

NOTE 3 – SECURITIES

Securities are as follows:

(000s omitted)	Amortized		Gross Unrealized		Gross Unrealized			Fair
Available for Sale	Cost		Gains		Losses			Value
September 30, 2011
U.S. Government and federal agency	$	8,143	$	35	$	0		$	8,178
Mortgage-backed residential		16,959		313		(43	)		17,229
Collateralized mortgage obligations-agencies		32,531		579		(6	)		33,104
Collateralized mortgage obligations-private label		3,797		0		(564	)		3,233
Equity securities		2,155		112		(107	)		2,160
	$	63,585	$	1,039	$	(720	)	$	63,904
December 31, 2010
U.S. Government and federal agency	$	4,005	$	6	$	(11	)	$	4,000
Mortgage-backed residential		7,342		126		(36	)		7,432
Collateralized mortgage obligations-agencies		24,758		258		(114	)		24,902
Collateralized mortgage obligations-private label		4,215		0		(344	)		3,871
Equity securities		1,655		49		(34	)		1,670
	$	41,975	$	439	$	(539	)	$	41,875

(000s omitted)	Amortized		Gross Unrealized		Gross Unrealized			Fair
Held to Maturity	Cost		Gains		Losses			Value
September 30, 2011
State and municipal	$	3,423	$	83	$	0		$	3,506
	$	3,423	$	83	$	0		$	3,506
December 31, 2010
State and municipal	$	4,350	$	41	$	(8	)	$	4,383
	$	4,350	$	41	$	(8	)	$	4,383

Contractual maturities of securities at September 30, 2011 were as follows. Securities not due at a single maturity date, mortgage-backed, collateralized mortgage obligations and equity securities are shown separately.

	Available for Sale
(000s omitted)	Amortized Cost		Fair Value
U.S. Government and federal agency
Due from one to five years	$	2,000	$	2,000
Due from five to ten years		6,143		6,178
Mortgage-backed residential		16,959		17,229
Collateralized mortgage obligations-agencies		32,531		33,104
Collateralized mortgage obligations-private label		3,797		3,233
Equity securities		2,155		2,160
	$	63,585	$	63,904

	Held to Maturity
(000s omitted)	Amortized Cost		Fair Value
Due in one year or less	$	490	$	493
Due from one to five years		1,552		1,582
Due from five to ten years		1,381		1,431
	$	3,423	$	3,506

At September 30, 2011, there were 2 private label CMO securities, with aggregate holdings totaling $3,233,000, which exceeded 10% of shareholders’ equity. At September 30, 2010, there were 3 private label CMO securities, with aggregate holdings totaling $4,079,000 of private label CMO securities which exceeded 10% of shareholders equity.

Sales of available for sale securities were as follows:

(000s omitted)	Nine months ended September 30, 2011		Nine months ended September 30, 2010
Proceeds	$	2,024	$	6,765
Gross gains		5		97
Gross losses		0		(26	)

The basis used to determine the unrealized gains or losses of securities sold was the amortized cost of the individual investment security as of the trade date.

Securities with unrealized losses are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

September 30, 2011	Less than 12 months					12 months or more					Total
(000s omitted)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Mortgage-backed residential	$	8,256	$	(43	)	$	0	$	0		$	8,256	$	(43	)
Collateralized mortgage obligations-agencies		0		0			1,824		(6	)		1,824		(6	)
Collateralized mortgage obligations-private label		0		0			3,233		(564	)		3,233		(564	)
Equity securities		359		(103	)		1		(4	)		360		(107	)
Total temporarily impaired	$	8,615	$	(146	)	$	5,058	$	(574	)	$	13,673	$	(720	)

December 31, 2010	Less than 12 months					12 months or more					Total
(000s omitted)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
US Government and federal agency	$	1,989	$	(11	)	$	0	$	0		$	1,989	$	(11	)
State and municipal		365		(3	)		245		(5	)		610		(8	)
Mortgage-backed residential		2,062		(36	)		0		0			2,062		(36	)
Collateralized mortgage obligations-agencies		6,085		(114	)		0		0			6,085		(114	)
Collateralized mortgage obligations-private label		0		0			3,871		(344	)		3,871		(344	)
Equity securities		186		(14	)		439		(20	)		625		(34	)
Total temporarily impaired	$	10,687	$	(178	)	$	4,555	$	(369	)	$	15,242	$	(547	)

Collateralized Mortgage Obligations

The decline in fair value of the Corporation’s private label collateralized mortgage obligations is primarily attributable to the lack of liquidity and the financial crisis affecting these markets and not the expected cash flows of the individual securities. The ratings held on the private label securities held are Baa3 and B1. The underlying collateral of these CMOs is comprised largely of 1-4 family residences. In each of these securities, the Corporation holds the senior tranche and receives payments before other tranches. For private label securities, management completes an analysis to review the recent performance of the mortgage pools underlying the instruments. At September 30, 2011, the two private label securities having an amortized cost of $3,797,000 have an unrealized loss of $564,000.

The Corporation has also been closely monitoring the performance of the CMO and MBS portfolios. Management monitors items such as payment streams and underlying default rates, and did not determine a severe change in these items. On a quarterly basis, management uses multiple assumptions to project the expected future cash flows of the private label CMOs with prepayment speeds, projected default rates and loss severity rates. The cash flows are then discounted using the effective rate on the securities determined at acquisition. Recent historical experience is the base for determining the cash flow assumptions and is adjusted when appropriate after considering characteristics of the underlying loans collateralizing the private label CMO security.

The Corporation has 19 agency collateralized mortgage obligations at September 30, 2011 with one having an unrealized loss of $6,000. The remaining 18 instruments have unrealized gains totaling $579,000 at September 30, 2011.

Equity securities

The Corporation’s equity investments with unrealized losses are investments in three non-public bank holding companies in Michigan. These securities receive a multi-faceted review utilizing call report data. Management reviews such performance indicators as earnings, ROE, ROA, non-performing assets, brokered deposits and capital ratios. Management draws conclusions from this information, as well as any published information or trading activity received from the individual institutions, to assist in determining if any unrealized loss is other than temporary impairment.

Additionally management considers the length of time the investments have been at an unrealized loss. At the end of the third quarter, management performed its review and determined that no additional other-than-temporary impairment was necessary on the equity securities in the portfolio.

Other-Than-Temporary-Impairment

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In evaluating OTTI, management considers the factors presented in Note 1.

As of September 30, 2011, the Corporation’s security portfolio consisted of 92 securities, 10 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s collateralized mortgage obligations (CMOs) and equity securities, previously discussed. At the end of the third quarter, management performed its review and determined that no additional other-than-temporary impairment was necessary on the equity securities in the portfolio.

During the period ending September 30, 2010 $307,000 of additional OTTI losses were recognized through earnings.