NOTE 5. SECURITIES

The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at March 31, 2013, December 31, 2012, and March 31, 2012 are summarized as follows:


				March 31, 2013
		Amortized		Unrealized				Estimated
Dollars in thousands		Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities:
U. S. Government agencies
and corporations	$	30,782	$	1,035	$	-	$	31,817
Residential mortgage-backed securities:
Government-sponsored agencies		142,534		3,444		647		145,331
Nongovernment-sponsored agencies		13,691		483		83		14,091
State and political subdivisions		13,889		122		93		13,918
Corporate debt securities		2,962		33		18		2,977
Total taxable debt securities		203,858		5,117		841		208,134
Tax-exempt debt securities:
State and political subdivisions		68,945		3,527		271		72,201
Residential mortgage-backed securities:
Government-sponsored agencies		2,642		-		-		2,642
Total tax-exempt debt securities		71,587		3,527		271		74,843
Equity securities		77		-		-		77
Total available for sale securities	$	275,522	$	8,644	$	1,112	$	283,054


				December 31, 2012
		Amortized		Unrealized				Estimated
Dollars in thousands		Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities
U. S. Government agencies
and corporations	$	28,128	$	892	$	-	$	29,020
Residential mortgage-backed securities:
Government-sponsored agencies		133,812		3,250		492		136,570
Nongovernment-sponsored entities		15,380		509		144		15,745
State and political subdivisions		12,187		71		89		12,169
Corporate debt securities		1,959		29		38		1,950
Total taxable debt securities		191,466		4,751		763		195,454
Tax-exempt debt securities
State and political subdivisions		79,403		4,104		237		83,270
Residential mortgage-backed securities		2,738		-		-		2,738
Total tax-exempt debt securities		82,141		4,104		237		86,008
Equity securities		77		-		-		77

Total available for sale securities	$	273,684	$	8,855	$	1,000	$	281,539


				March 31, 2012
		Amortized		Unrealized				Estimated
Dollars in thousands		Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities:
U. S. Government agencies
and corporations	$	9,721	$	475	$	16	$	10,180
Residential mortgage-backed securities:
Government-sponsored agencies		161,928		3,435		525		164,838
Nongovernment-sponsored agencies		32,028		627		715		31,940
State and political subdivisions		5,661		-		37		5,624
Corporate debt securities		1,947		12		97		1,862
Total taxable debt securities		211,285		4,549		1,390		214,444
Tax-exempt debt securities:
State and political subdivisions		70,913		3,837		306		74,444
Residential mortgage-backed securities:
Government-sponsored agencies		3,037		-		-		3,037
Total tax-exempt debt securities		73,950		3,837		306		77,481
Equity securities		77		-		-		77
Total available for sale securities	$	285,312	$	8,386	$	1,696	$	292,002

The maturities, amortized cost and estimated fair values of securities at March 31, 2013, are summarized as follows:


		Available for Sale
		Amortized		Estimated
Dollars in thousands		Cost		Fair Value
Due in one year or less	$	68,134	$	69,092
Due from one to five years		85,865		87,851
Due from five to ten years		15,870		16,339
Due after ten years		105,576		109,695
Equity securities		77		77
	$	275,522	$	283,054

The proceeds from sales, calls and maturities of available for sale securities, including principal payments received on mortgage-backed obligations, and the related gross gains and losses realized, for the three months ended March 31, 2013 are as follows:


				Proceeds from				Gross realized
				Calls and		Principal
Dollars in thousands		Sales		Maturities		Payments		Gains		Losses

Securities available for sale	$	11,893	$	808	$	15,712	$	141	$	99

During the three months ended March 31, 2013 and 2012, we recorded other-than-temporary impairment losses on residential mortgage-backed nongovernment sponsored entity securities as follows:


		Three Months Ended March 31,
Dollars in thousands		2013			2012

Total other-than-temporary impairment losses	$	(91	)	$	(511	)
Portion of loss recognized in
other comprehensive income		37			282
Net impairment losses recognized in earnings	$	(54	)	$	(229	)

Activity related to the credit component recognized on debt securities available for sale for which a portion of other-than-temporary impairment was recognized in other comprehensive income for the three months ended March 31, 2013 is as follows:


		Three Months Ended
		March 31, 2013

Dollars in thousands		Total
Beginning Balance	$	(2,903	)
Additions for the credit component on debt securities in which
other-than-temporary impairment was not previously recognized		(54	)
Securities sold during the period		-
Ending Balance	$	(2,957	)

At March 31, 2013, our debt securities with other-than-temporary impairment in which only the amount of loss related to credit was recognized in earnings consisted solely of residential mortgage-backed securities issued by nongovernment-sponsored entities. We utilize third party vendors to estimate the portion of loss attributable to credit using a discounted cash flow models. The vendors estimate cash flows of the underlying collateral of each mortgage-backed security using models that incorporate their best estimates of current key assumptions, such as

default rates, loss severity and prepayment rates. Assumptions utilized could vary widely from security to security, and are influenced by such factors as underlying loan interest rates, geographical location of underlying borrowers, collateral type and other borrower characteristics. Specific such assumptions utilized by our vendors in their valuation of our other-than-temporarily impaired residential mortgage-backed securities issued by nongovernment-sponsored entities were as follows at March 31, 2013:


	Weighted		Range
	Average		Minimum		Maximum
Constant voluntary prepayment rates	14.0	%	14.0	%	14.0	%
Constant default rates	5.6	%	5.6	%	5.6	%
Loss severities	40.0	%	40.0	%	40.0	%

Our vendors performing these valuations also analyze the structure of each mortgage-backed instrument in order to determine how the estimated cash flows of the underlying collateral will be distributed to each security issued from the structure. Expected principal and interest cash flows on the impaired debt securities are discounted predominantly using unobservable discount rates which the vendors assume that market participants would utilize in pricing the specific security. Based on the discounted expected cash flows derived from our vendor's models, we expect to recover the remaining unrealized losses on residential mortgage-backed securities issued by nongovernment sponsored entities.

Provided below is a summary of securities available for sale which were in an unrealized loss position at March 31, 2013 and December 31, 2012, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income.


							March 31, 2013
		Less than 12 months				12 months or more						Total
		Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
Dollars in thousands		Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Temporarily impaired securities
Taxable debt securities
U. S. Government agencies
and corporations	$	-	$	-		$	-	$	-		$	-	$	-
Residential mortgage-backed securities:
Government-sponsored agencies		39,272		(579	)		4,228		(68	)		43,500		(647	)
Nongovernment-sponsored entities		1		(5	)		1,287		(10	)		1,288		(15	)
State and political subdivisions		4,317		(89	)		387		(4	)		4,704		(93	)
Corporate debt securities		-		-			981		(18	)		981		(18	)
Tax-exempt debt securities
State and political subdivisions		17,231		(271	)		-		-			17,231		(271	)
Total temporarily impaired securities		60,821		(944	)		6,883		(100	)		67,704		(1,044	)
Other-than-temporarily impaired securities
Taxable debt securities
Residential mortgage-backed securities:
Nongovernment-sponsored entities		-		-			305		(68	)		305		(68	)
Total other-than-temporarily
impaired securities		-		-			305		(68	)		305		(68	)
Total	$	60,821	$	(944	)	$	7,188	$	(168	)	$	68,009	$	(1,112	)


							December 31, 2012
		Less than 12 months					12 months or more					Total
		Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
Dollars in thousands		Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
Temporarily impaired securities
Taxable debt securities
U. S. Government agencies
and corporations	$	-	$	-		$	-	$	-		$	-	$	-
Residential mortgage-backed s ecurities :
Government-sponsored agencies		36,498		(414	)		8,997		(78	)		45,495		(492	)
Nongovernment-sponsored entities		-		(4	)		1,478		(14	)		1,478		(18	)
State a nd political subdivisions		3,766		(85	)		387		(4	)		4,153		(89	)
Corporate debt s ecurities		-		-			962		(38	)		962		(38	)
Tax-exempt debt securities
State a nd political subdivisions		19,934		(237	)		-		-			19,934		(237	)
Total temporarily impaired securities		60,198		(740	)		11,824		(134	)		72,022		(874	)
Other-than-temporarily impaired securities
Taxable debt securities
Residential mortgage-backed s ecurities :
Nongovernment-sponsored entities		265		(6	)		593		(120	)		858		(126	)
Total other-than-temporarily
impaired securities		265		(6	)		593		(120	)		858		(126	)
Total	$	60,463	$	(746	)	$	12,417	$	(254	)	$	72,880	$	(1,000	)

We held 61 available for sale securities, including debt securities with other-than-temporary impairment in which a portion of the impairment remains in other comprehensive income, having an unrealized loss at March 31, 2013. We do not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost bases. We believe that this decline in value is primarily attributable to the lack of market liquidity and to changes in market interest rates and not due to credit quality. Accordingly, no additional other-than-temporary impairment charge to earnings is warranted at this time.