3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

At September 30, 2011 and December 31, 2010, the amortized cost and fair value of securities available-for-sale aggregated by investment category are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2011
U.S. Government agencies and sponsored enterprises	$	32,744	$	3,231			$	35,975
State and Municipals:
Taxable		18,125		1,864				19,989
Tax-exempt		38,216		1,445	$	294		39,367
Corporate debt securities		4,463		281		701		4,043
Mortgage-backed securities-residential		28,688		272		150		28,810
Equity securities:
Preferred		54		111				165
Common		688		27		108		607
Total	$	122,978	$	7,231	$	1,253	$	128,956

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 September 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	$	732	$	735
Due after one year through five years		14,157		14,420
Due after five years through ten years		33,751		36,665
Due after ten years		44,908		47,554
		93,548		99,374
Mortgage-backed securities-residential		28,688		28,810
Total	$	122,236	$	128,184

Securities with a carrying value of $90,698 and $84,281 at September 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.

The fair value and gross unrealized losses of available-for-sale securities with unrealized losses for which an other-than-temporary impairment has not been recognized at September 30, 2011 and December 31, 2010, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

September 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
State and Municipals:
Taxable
Tax-Exempt	$	1,119	$	63	$	3,001	$	231	$	4,120	$	294
Corporate debt securities		1,007		24		2,335		677		3,342		701
Mortgage-backed securities-residential		12,133		150						12,133		150
Common equity securities						230		108		230		108
	$	14,259	$	237	$	5,566	$	1,016	$	19,825	$	1,253

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 September 30, 2011, the securities portfolio had eight (two less than 12 months, six greater than 12 months) state and municipal obligations with unrealized losses totaling $294, three (One less than 12 months, two greater than 12 months) corporate debt securities with unrealized losses of $701, six (all less than 12 months) mortgage-backed securities with unrealized losses of $150, and five (all greater than 12 months) common equity securities with unrealized losses of $108. The unrealized losses of $108 in common equity securities was a direct reflection of reductions in stock values in the financial industry sector, as a whole, and was not a result of credit or other issues that would cause the Company to realize an OTTI charge. 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 September 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.

Other than temporary impairments of $3 and $87 were recognized for the three and nine month periods ended September 30, 2011. The impairments were the result of writing down two common equity securities. 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 securities, 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 impairments were other-than-temporary and that a charge to operating results was appropriate for the securities. The charges were 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.

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.