NOTE 3. SECURITIES

The amortized cost and estimated fair value of securities available for sale with gross unrealized gains and losses are summarized as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)

December 31, 2012:
U.S. Government sponsored agencies	$	6,605	$	271	$	(6	)	$	6,870
State, county and municipal securities		109,736		4,864		(210	)		114,390
Corporate debt securities		10,545		330		(547	)		10,328
Mortgage-backed securities		209,824		5,701		(204	)		215,321

Total debt securities	$	336,710	$	11,166	$	(967	)	$	346,909


December 31, 2011:
U.S. Government sponsored agencies	$	14,670	$	267	$	-		$	14,937
State, county and municipal securities		75,665		3,558		(90	)		79,133
Corporate debt securities		11,640		167		(406	)		11,401
Mortgage-backed securities		228,085		6,559		(148	)		234,496

Total debt securities	$	330,060	$	10,551	$	(644	)	$	339,967

The following table shows the gross unrealized losses and estimated fair value of securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2012 and 2011.


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in Thousands)
December 31, 2012:
U. S. Government sponsored agencies	$	4,994	$	(6	)	$	-	$	-		$	4,994	$	(6	)
State, county and municipal securities		15,595		(199	)		505		(11	)		16,100		(210	)
Corporate debt securities		-		-			4,560		(547	)		4,560		(547	)
Mortgage-backed securities		23,951		(181	)		3,617		(23	)		27,568		(204	)

Total temporarily impaired securities	$	44,540	$	(386	)	$	8,682	$	(581	)	$	53,222	$	(967	)


December 31, 2011:
U. S. Government sponsored agencies	$	-	$	-		$	-	$	-		$	-	$	-
State, county and municipal securities		10,134		(90	)		-		-			10,134		(90	)
Corporate debt securities		100		-			6,681		(406	)		6,781		(406	)
Mortgage-backed securities		20,929		(148	)		-		-			20,929		(148	)

Total temporarily impaired securities	$	31,163	$	(238	)	$	6,681	$	(406	)	$	37,844	$	(644	)

Additional information concerning the Company’s investments in corporate debt securities is included in the following table.


Class	Amortized Cost		Estimated Fair Value		Average Maturity (years)		Average Book Yield
	(Dollars in Thousands)
Subordinated debt	$	3,438	$	3,768		3.8		6.16	%
Preferred securities		7,107		6,560		16.9		6.61	%

Total	$	10,545	$	10,328		12.6		6.46	%

During 2012 and 2011, the Company received timely and current interest and principal payments on all of the securities classified as corporate debt securities, except for one security that began deferring interest during the fourth quarter of 2010. The Company’s investments in subordinated debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information or credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at December 31, 2012 or 2011.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at December 31, 2012, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at December 31, 2012, these investments are not considered impaired on an other-than-temporary basis.

At December 31, 2012 and 2011, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

The amortized cost and estimated fair value of debt securities available for sale as of December 31, 2012, by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary.


	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)

Due in one year or less	$	4,499	$	4,528
Due from one year to five years		23,499		24,331
Due from five to ten years		59,376		62,815
Due after ten years		39,512		39,914
Mortgage-backed securities		209,824		215,321

	$	336,710	$	346,909

Securities with a carrying value of approximately $240.5 million and $216.6 million at December 31, 2012 and 2011, respectively, serve as collateral to secure public deposits and for other purposes required or permitted by law.

Gains and losses on sales of securities available for sale consist of the following:


	December 31,
	2012			2011			2010
	(Dollars in Thousands)

Gross gains on sales of securities	$	420		$	1,401		$	201
Gross losses on sales of securities		(98	)		(1,163	)		(1	)

Net realized gains on sales of securities available for sale	$	322		$	238		$	200