Note 3. Investment Securities Available for Sale

The amortized cost and estimated market value of investment securities available for sale at June 30, 2013 and December 31, 2012 are as follows (in thousands):


June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value

U.S. agency obligations	$	148,199	$	479	$	(376	)	$	148,302
State and municipal obligations		27,047		14		(116	)		26,945
Corporate debt securities		55,000		—		(10,438	)		44,562
Equity investments		6,191		781		(28	)		6,944

	$	236,437	$	1,274	$	(10,958	)	$	226,753


December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value

U.S. agency obligations	$	138,105	$	945	$	—		$	139,050
State and municipal obligations		25,856		5		(81	)		25,780
Corporate debt securities		55,000		—		(11,530	)		43,470
Equity investments		4,992		424		(123	)		5,293

	$	223,953	$	1,374	$	(11,734	)	$	213,593

Realized gains on the sale of investment securities available for sale were $42,000 and $226,000, respectively, for the three and six months ended June 30, 2013 and 2012.

The amortized cost and estimated market value of investment securities available for sale, excluding equity investments, at June 30, 2013 by contractual maturity, are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At June 30, 2013, investment securities available for sale with an amortized cost and estimated market value of $55.0 million and $44.6 million, respectively, were callable prior to the maturity date.


			Estimated
	Amortized		Market
June 30, 2013	Cost		Value

Less than one year	$	50,482	$	50,711
Due after one year through five years		123,777		123,585
Due after five years through ten years		987		951
Due after ten years		55,000		44,562

	$	230,246	$	219,809

The estimated market value and unrealized loss for investment securities available for sale at June 30, 2013 and December 31, 2012 segregated by the duration of the unrealized loss are as follows (in thousands):


	Less than 12 months					12 months or longer					Total
June 30, 2013	Estimated Market Value		Unrealized Losses			Estimated Market Value		Unrealized Losses			Estimated Market Value		Unrealized Losses

U.S. agency obligations	$	56,007	$	(376	)	$	—	$	—		$	56,007	$	(376	)
State and municipal obligations		11,978		(114	)		1,183		(2	)		13,161		(116	)
Corporate debt securities		—		—			44,562		(10,438	)		44,562		(10,438	)
Equity investments		609		(28	)		—		—			609		(28	)

	$	68,594	$	(518	)	$	45,745	$	(10,440	)	$	114,339	$	(10,958	)


	Less than 12 months					12 months or longer					Total
December 31, 2012	Estimated Market Value		Unrealized Losses			Estimated Market Value		Unrealized Losses			Estimated Market Value		Unrealized Losses

State and municipal obligations	$	15,918	$	(81	)	$	—	$	—		$	15,918	$	(81	)
Corporate debt securities		—		—			43,470		(11,530	)		43,470		(11,530	)
Equity investments		1,264		(123	)		—		—			1,264		(123	)

	$	17,182	$	(204	)	$	43,470	$	(11,530	)	$	60,652	$	(11,734	)

At June 30, 2013, the amortized cost, estimated market value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):


Security Description	Amortized Cost		Estimated Market Value		Credit Rating Moody’s/S&P
BankAmerica Capital	$	15,000	$	11,875	Ba2/BB+
Chase Capital		10,000		8,112	Baa2/BBB
Wells Fargo Capital		5,000		4,125	A3/A-
Huntington Capital		5,000		3,950	Baa3/BB+
Keycorp Capital		5,000		4,050	Baa3/BBB-
PNC Capital		5,000		4,100	Baa2/BBB
State Street Capital		5,000		4,200	A3/BBB+
SunTrust Capital		5,000		4,150	Baa3/BB+

	$	55,000	$	44,562

At June 30, 2013, the market value of each corporate debt security was below cost. However, the estimated market value of the corporate debt securities portfolio increased as compared to December 31, 2012. The corporate debt securities are issued by other financial institutions with credit ratings ranging from a high of A3 to a low of Ba2 as rated by one of the internationally recognized credit rating services. These floating-rate securities were purchased during the period May 1998 to September 1998 and have paid coupon interest continuously since issuance. Floating-rate debt securities such as these pay a fixed interest rate spread over 90-day LIBOR. Following the purchase of these securities, the required spread increased for these types of securities causing a decline in the market price. The Company concluded that unrealized losses on available for sale securities were only temporarily impaired at June 30, 2013. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions were also considered well-capitalized. Recently, credit spreads have decreased for these types of securities and market prices have improved. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, although these investment securities are available for sale, the Company does not have the intent to sell these securities and it is more likely than not that the Company will not be required to sell the securities. The Company has held the securities continuously since 1998 and expects to receive its full principal at maturity in 2028 or prior if called by the issuer. The Company has historically not actively sold investment securities and does not utilize the securities portfolio as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

Capital markets in general and the market for these corporate securities in particular have been disrupted since the second half of 2007. In its analysis, the Company considered that the severity and duration of unrecognized losses was at least partly due to the illiquidity caused by market disruptions. Since that time, markets have stabilized partly due to steps taken by the U.S. Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation and foreign central banks to restore liquidity and confidence in the capital markets. Each of these issuers has been able to raise capital in recent years and the fair values of these securities have increased significantly since the lows reached in the second half of 2008.

Due to the reasons noted above, especially the continuing restoration of the capital markets, the improved valuation of the corporate securities portfolio from the 2008 lows, the capital position of the issuers and the uninterrupted payment of all contractually due interest, management has determined that only a temporary impairment existed at June 30, 2013.