Note 3. Investment Securities

The investment securities portfolio was comprised solely of securities classified as available for sale. The tables below set forth the fair values of investment securities available for sale at December 31, 2012 and 2011:

(dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized
As of December 31, 2012	Cost		Gains		Losses			Fair Value
Obligations of U.S. government agencies	$	7,307	$	262	$	(2	)	$	7,567
Mortgage backed securities
U.S. government sponsored entities and agencies	145,430		1,136		(798		)	145,768
Non-agency	43,402		1,578		(185		)	44,795
State and municipal securities	64,824		4,240		(96		)	68,968
Asset backed securities	20,049		568		(33		)	20,584

Total	$	281,012	$	7,784	$	(1,114	)	$	287,682

As of December 31, 2011
Obligations of U.S. government agencies	$	4,209	$	118	$	(1	)	$	4,326
Mortgage backed securities
U.S. government sponsored entities and agencies	116,732		890		(297		)	117,325
Non-agency	34,667		465		(600		)	34,532
State and municipal securities	49,661		2,262		-			51,923
Corporate debt securities	28,909		-		(2,053		)	26,856
Asset backed securities	2,059		-		(39		)	2,020

Total	$	236,237	$	3,735	$	(2,990	)	$	236,982

Other than Temporary Impairment (“OTTI”)

As of December 31, 2012, the Company continues to hold two PMBS securities in which OTTI losses had been recognized. These securities had an aggregate recorded fair value of $0.7 million ($1.0 million historical cost) at December 31, 2012 and $0.6 million ($1.1 million historical cost) at December 31, 2011. As the Company has the ability and intent to hold these securities and it is likely that it will not be required to sell the securities before their recovery, it continues to report this component of OTTI as part of accumulated other comprehensive income. The following tables provide information related to the two securities for which the Company has recognized OTTI losses as of December 31, 2012 and 2011:

	December 31, 2012
			OTTI Related
	OTTI Related		to All Other			Total
(dollars in thousands)	to Credit Loss		Factors			OTTI
Balance, beginning of the period	$	109	$	361		$	470
Less: losses related to OTTI securities sold	-		-			-
Change in value attributable to other factors	-		(191		)	(191		)

Balance, end of the period	$	109	$	170		$	279

	December 31, 2011
				OTTI Related
	OTTI Related			to All Other			Total
(dollars in thousands)	to Credit Loss			Factors			OTTI
Balance, beginning of the period	$	534		$	943		$	1,477
Less: losses related to OTTI securities sold	(425		)	$	(518	)	(943		)
Change in value attributable to other factors	-			(64		)	(64		)

Balance, end of the period	$	109		$	361		$	470

Those investment securities available for sale which have an unrealized loss position at December 31, 2012 and 2011 are detailed below:

	Securities In A Loss Position For
(dollar amounts in thousands)	Less Than Twelve Months					Twelve Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
As of December 31, 2012	Value		Loss			Value		Loss			Value		Loss
Obligations of U.S. government agencies	$	-	$	-		$	44	$	(2	)	$	44	$	(2	)
Mortgage backed securities
U.S. government sponsored entities and agencies	83,092		(798		)	-		-			83,092		(798		)
Non-agency	7,204		(15		)	719		(170		)	7,923		(185		)
State and municipal securities	9,813		(96		)	-		-			9,813		(96		)
Asset backed securities	9,828		(33		)	-		-			9,828		(33		)

Total	$	109,937	$	(942	)	$	763	$	(172	)	$	110,700	$	(1,114	)

As of December 31, 2011
Obligations of U.S. government agencies	$	-	$	-		$	89	$	(1	)	$	89	$	(1	)
Mortgage backed securities
U.S. government sponsored entities and agencies	39,895		(297		)	-		-			39,895		(297		)
Non-agency	17,396		(238		)	586		(361		)	17,982		(599		)
Corporate debt securities	26,857		(2,053		)	-		-			26,857		(2,053		)
Asset backed securities	2,020		(39		)	-		-			2,020		(39		)

Total	$	86,168	$	(2,627	)	$	675	$	(362	)	$	86,843	$	(2,989	)

As of December 31, 2012, the Company believes that unrealized losses on all other mortgage related securities such as U.S. government sponsored entity and agency securities, including those issued by the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association (“GNMA”), as well as corporate bonds, are not attributable to credit quality, but rather fluctuations in market prices for these types of investments. Additionally, these securities have maturity dates that range from 1 to 30 years and in the case of the agency mortgage related securities have contractual cash flows guaranteed by agencies of the U.S. Government. As of December 31, 2012, the Company does not believe unrealized losses related to these securities are other than temporary.

The proceeds from the sales and calls of securities and the associated gains and losses are listed below:


(dollar amounts in thousands)	2012			2011			2010
Proceeds	$	141,166		$	147,646		$	34,063
Gross gains	3,152			3,173			1,286
Gross losses	(533		)	(1,190		)	(503		)

The income tax expense related to these net realized gains was $1.1 million, $0.8 million, and $0.3 million, in 2012, 2011 and 2010 respectively.

The amortized cost and fair values of investment securities available for sale at December 31, 2012 and 2011, are shown below. The table reflects the expected lives of mortgage-backed securities, based on the Company’s historical experience, because borrowers have the right to prepay obligations without prepayment penalties. Contractual maturities are reflected for all other security types. 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.

	2012				2011
	Amortized				Amortized
(dollar amounts in thousands)	Cost		Fair Value		Cost		Fair Value
Due one year or less	$	35,586	$	35,714	$	17,484	$	17,471
Due after one year through five years	97,899		99,522		144,941		144,107
Due after five years through ten years	99,138		103,595		63,070		64,383
Due after ten years	48,389		48,851		10,742		11,021

Total	$	281,012	$	287,682	$	236,237	$	236,982

Securities having an amortized cost and a fair value of $8.7 million and $9.0 million, respectively at December 31, 2012, and $5.1 million and $5.2 million, respectively at December 31, 2011 were pledged to secure public deposits and for other purposes as required by law. At year-end 2012 and 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of total securities.

Interest earnings by type of investment security are summarized below:

	For the years ended
	December 31,
(dollar amounts in thousands)	2012		2011		2010
Taxable earnings on investment securities
Obligations of U.S. government agencies	$	105	$	190	$	32
Mortgage backed securities	3,776		4,288		5,200
State and municipal securities	191		497		161
Corporate debt securities	631		309		-
Asset backed securities	241		20		-
Non-taxable earnings on investment securities
State and municipal securities	1,952		1,490		1,146

Total	$	6,896	$	6,794	$	6,539