Note 3. Securities

Amortized costs and fair values of securities available for sale at September 30, 2012 are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	13,246	$	411	$	(3	)	$	13,654
Obligations of states and
political subdivisions		70,460		3,852		(8	)		74,304
Mortgage-backed securities:
Agency		159,790		5,994		(272	)		165,512
Non-agency		15,015		298		(8	)		15,305
Other asset backed securities		31,575		703		(86	)		32,192
Corporate preferred stock		68		—		(7	)		61
Corporate securities		8,230		11		(895	)		7,346
Total	$	298,384	$	11,269	$	(1,279	)	$	308,374

Amortized costs and fair values of securities available for sale at December 31, 2011 are summarized as follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
U.S. government agencies	$	9,068	$	293	$	(18	)	$	9,343
Obligations of states and
political subdivisions		65,090		2,503		(51	)		67,542
Mortgage-backed securities:
Agency		181,797		5,482		(209	)		187,070
Non-agency		18,737		67		(598	)		18,206
Other asset backed securities		16,110		90		(404	)		15,796
Corporate preferred stock		68		—		(28	)		40
Corporate securities		10,612		5		(641	)		9,976
Trust-preferred securities		497		—		(228	)		269
Total	$	301,979	$	8,440	$	(2,177	)	$	308,242

The amortized cost and fair value of securities available for sale as of September 30, 2012, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed, other asset-backed, and corporate securities because the mortgages, loans, and securities underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,863	$	4,892
Due after one year through
five years		22,698		22,772
Due after five years through
ten years		31,943		33,717
Due after ten years		32,432		33,923
Mortgage-backed securities		174,805		180,817
Other asset backed securities		31,575		32,192
Corporate preferred stock		68		61
Total	$	298,384	$	308,374

Proceeds from the sale of securities during the nine months ended September 30, 2012 were $39.5 million and net gains of $452,000 were realized on those sales. The tax expense applicable to the net realized gains amounted to $154,000. Additionally, no loss on securities with other than temporary impairment was recognized during the nine months ended September 30, 2012.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $143.2 million at September 30, 2012.

At September 30, 2012, investments in an unrealized loss position that were temporarily impaired are as follows:

	September 30, 2012
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,568	$	(3	)	$	57	$	—		$	2,625	$	(3	)
Obligations of states and
political subdivisions	1,302		(8		)	—		—			1,302		(8		)
Mortgage backed securities:
Agency	16,213		(272		)	—		—			16,213		(272		)
Non-agency	2,760		(8		)	—		—			2,760		(8		)
Other asset backed securities	4,231		(56		)	1,431		(30		)	5,662		(86		)
Corporate preferred stock	—		—			32		(7		)	32		(7		)
Corporate securities	—		—			7,105		(895		)	7,105		(895		)
Total	$	27,074	$	(347	)	$	8,625	$	(932	)	$	35,699	$	(1,279	)

At December 31, 2011, investments in an unrealized loss position that were temporarily impaired are as follows:

	December 31, 2011
						(In thousands)
	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agencies	$	2,045	$	(18	)	$	26	$	—		$	2,071	$	(18	)
Obligations of states and
political subdivisions	43		—			2,243		(51		)	2,286		(51		)
Mortgage backed securities:
Agency	22,768		(209		)	—		—			22,768		(209		)
Non-agency	4,773		(103		)	4,522		(495		)	9,295		(598		)
Other asset backed securities	10,572		(362		)	1,467		(42		)	12,039		(404		)
Corporate preferred stock	—		—			11		(28		)	11		(28		)
Corporate securities	7,775		(227		)	2,057		(414		)	9,832		(641		)
Trust-preferred securities	—		—			269		(228		)	269		(228		)
Total	$	47,976	$	(919	)	$	10,595	$	(1,258	)	$	58,571	$	(2,177	)

A total of 51 securities have been identified by the Company as temporarily impaired at September 30, 2012. Of the 51 securities, 50 are investment grade and 1 is speculative grade. Agency, non-agency mortgage-backed securities, and corporate debt securities make up the majority of temporarily impaired securities at September 30, 2012. The speculative grade security is an asset backed security that is collateralized by trust preferred issuances of financial institutions. Market prices change daily and are affected by conditions beyond the control of the Company. Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered. No such sales are anticipated or required as of September 30, 2012. Investment decisions reflect the strategic asset/liability objectives of the Company.

Trust preferred securities

As of September 30, 2012, the Company held no trust preferred securities in its investment portfolio.

The Company previously held trust preferred securities that were identified as other-than-temporarily impaired. These securities were sold during the second quarter of 2012 with a recognized net loss of approximately $142,000. Additionally, these securities incurred cumulative other-than-temporary credit losses recognized in prior period earnings of approximately $2.4 million through December 31, 2011.

The Company also previously held one trust preferred security that was not considered other-than-temporarily impaired while held in its investment portfolio. The security was sold during the third quarter of 2012 with a recognized net loss of approximately $149,000. No credit losses were recognized on this security while held.

Other-than-temporary impairment losses

At September 30, 2012, the Company concluded that no adverse change in cash flows occurred during the quarter and did not consider any portfolio securities to be other-than-temporarily impaired. Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity; and, for debt securities related to corporate securities, determined that there was no other adverse change in the cash flows as viewed by a market participant, the Company does not consider the investments in these assets to be other than temporarily impaired at September 30, 2012. However, there is a risk that the Company's continuing reviews could result in recognition of other-than-temporary impairment charges in the future. Accordingly, during the nine months ended September 30, 2012, no credit related impairment losses were recognized by the Company compared to $22,000 recognized for the nine months ended September 30, 2011.