NOTE 2 – SECURITIES

Securities consist of the following at September 30, 2012 and December 31, 2011:

The amortized cost and fair value of debt securities at September 30, 2012, 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.

Realized Gains and Losses

There were no sales of available-for-sale securities for the three month or nine month periods ending September 30, 2012. Proceeds of $3.2 million from sales of available-for-sale securities and gross realized gains of $237 thousand were included in earnings for both the three month and nine month periods ending September 30, 2011. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined by the specific identification method.

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, 2012 and December 31, 2011:

There were sixteen (16) securities in an unrealized loss position at September 30, 2012, four (4) of which were in a continuous loss position for twelve months or more. There were seventeen (17) securities in an unrealized loss position at December 31, 2011, two (2) 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 and 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, 2012 and has recognized the total amount of the impairment in other comprehensive income, net of tax.