3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

At June 30, 2011 and December 31, 2010, the amortized cost and fair values of securities available-for-sale are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2011
U.S. Government agencies and sponsored enterprises	$	32,815	$	1,852	$	31	$	34,636
State and Municipals:
Taxable		18,624		620		67		19,177
Tax-exempt		41,435		816		468		41,783
Corporate debt securities		4,464		362		347		4,479
Mortgage-backed securities-residential		12,456		181		25		12,612
Equity securities:
Preferred		54		172				226
Common		1,157		114		88		1,183
Total	$	111,005	$	4,117	$	1,026	$	114,096

December 31, 2010
U.S. Government agencies and sponsored enterprises	$	38,133	$	1,094	$	109	$	39,118
State and Municipals:
Taxable		18,634		127		387		18,374
Tax-exempt		51,789		146		1,626		50,309
Corporate debt securities		4,467		208		655		4,020
Mortgage-backed securities-residential		8,682		85		97		8,670
Equity securities:
Preferred		54						54
Common		1,277		114		164		1,227
Total	$	123,036	$	1,774	$	3,038	$	121,772

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

	Amortized Cost		Fair Value
Due in one year or less	$	480	$	483
Due after one year through five years		10,615		11,024
Due after five years through ten years		35,254		36,808
Due after ten years		50,989		51,760
		97,338		100,075

Mortgage-backed securities-residential		12,456		12,612
Total	$	109,794	$	112,687

Securities with a carrying value of $83,397 and $84,281 at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.

The following tables show the Company's investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2011 and December 31, 2010:

June 30, 2011:

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and sponsored enterprises	$	1,171	$	31					$	1,171	$	31
State and Municipals:
Taxable		977		23	$	450	$	44		1,427		67
Tax-Exempt		1,348		29		2,881		439		4,229		468
Corporate debt securities						2,665		347		2,665		347
Mortgage-backed securities-residential		3,323		25						3,323		25
Common equity securities						366		88		366		88
	$	6,819	$	108	$	6,362	$	918	$	13,181	$	1,026

December 31, 2010:

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and sponsored enterprises	$	4,414	$	109					$	4,414	$	109
State and Municipals:
Taxable		12,576		324	$	430	$	63		13,006		387
Tax-Exempt		33,643		977		2,645		649		36,288		1,626
Corporate debt securities						2,358		655		2,358		655
Mortgage-backed securities-residential		3,562		97						3,562		97
Common equity securities						374		164		374		164
	$	54,195	$	1,507	$	5,807	$	1,531	$	60,002	$	3,038

At June 30, 2011, the securities portfolio contained one (less than 12 months) agency security with an unrealized loss of $31, 12 (four less than 12 months, eight greater than 12 months) state and municipal obligations with unrealized losses totaling $535, two (both greater than 12 months) corporate debt securities with unrealized losses of $347, two (both less than 12 months) mortgage-backed securities with unrealized losses of $25, and six (all greater than 12 months) common equity securities with unrealized losses of $88. Management does not consider the unrealized losses, as a result of changes in interest rates, to be other-than-temporary impairment (“OTTI”) based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuer or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at June 30, 2011.

In comparison, at December 31, 2010, the Company had four (all less than 12 months) U.S. Government Agency securities with unrealized losses of $109, 90 (82 less than 12 months, eight greater than 12 months) state and municipal obligations with unrealized losses of $2,013, four ( all less than 12 months) mortgage-backed securities with unrealized losses of $97, two (both greater than 12 months) corporate debt securities with unrealized losses of $655, and six ( all greater than 12 months) common equity securities with unrealized losses of $164.

An other than temporary impairment of $84 was recognized for the six-months ended June 30, 2011. The impairment was the result of writing down a common equity security. The write-down was determined based on public market prices. In reaching the determination to record the impairment, management reviewed the facts and circumstances available surrounding the security, including the duration and amount of the unrealized loss, the financial condition of the issuer and the prospects for a change in market value within a reasonable period of time. Based on its assessment, management determined that the impairment was other-than-temporary and that a charge to operating results was appropriate for the security. The charge was recognized based entirely on the assessment of the credit quality deterioration of the underlying company.

None of the corporate debt securities are private label trust preferred issuances. Rather, this portfolio contains corporate bond issuances in large, national financial institutions.

The common equity securities consist of equity investments in stocks of financial institutions. The Company does not invest in bank stocks with the intent to turn them over for a profit in the near term.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. All of the investment securities classified as available-for-sale are evaluated for OTTI under the rules for accounting for certain investments in debt and equity securities.

In determining OTTI under the rules for accounting for certain debt and equity securities, management considers many factors, including: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of the issuer, (iii) whether the market decline was affected by macroeconomic conditions, and (iv) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses or in other comprehensive income, depending on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss. If the Company intends to sell the security or more likely than not it will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI impairment shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI shall be separated into (i) the amount representing the credit loss and (ii) the amount related to all other factors. The amount of the total OTTI related to the credit loss shall be recognized in earnings. The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. As described previously, the Company recognized an OTTI of $84 for the six months ended June 30, 2011.