5. Securities

9 Months Ended

Sep. 30, 2013

Available-for-sale Securities [Abstract]

Securities

The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at September 30, 2013, December 31, 2012, and September 30, 2012 are summarized as follows:

	September 30, 2013
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities:
U. S. Government agencies
and corporations	$	27,740	$	757	$	67	$	28,430
Residential mortgage-backed securities:
Government-sponsored agencies		149,569		2,444		1,226		150,787
Nongovernment-sponsored agencies		13,134		315		9		13,440
State and political subdivisions:
General obligations		9,064		-		383		8,681
Water and sewer revenues		3,234		1		91		3,144
Other revenues		3,298		-		112		3,186
Corporate debt securities		3,970		25		45		3,950
Total taxable debt securities		210,009		3,542		1,933		211,618
Tax-exempt debt securities:
State and political subdivisions:
General obligations		49,569		1,048		1,112		49,505
Water and sewer revenues		10,132		89		290		9,931
Lease revenues		8,869		1		441		8,429
Lottery/casino revenues		4,457		68		166		4,359
Other revenues		7,490		61		212		7,339
Total tax-exempt debt securities		80,517		1,267		2,221		79,563
Equity securities		77		-		-		77
Total available for sale securities	$	290,603	$	4,809	$	4,154	$	291,258

	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:
General obligations		8,847		58		57		8,848
Water and sewer revenues		1,920		-		32		1,888
Other revenues		1,420		13		-		1,433
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:
General obligations		54,948		3,259		145		58,062
Water and sewer revenues		5,773		171		47		5,897
Lease revenues		6,910		159		13		7,056
Lottery/casino revenues		4,500		305		9		4,796
Other revenues		7,272		210		23		7,459
Residential mortgage-backed securities:
Government-sponsored agencies		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

	September 30, 2012
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
Available for Sale
Taxable debt securities:
U. S. Government agencies
and corporations	$	25,857	$	1,009	$	4	$	26,862
Residential mortgage-backed securities:
Government-sponsored agencies		150,233		3,741		453		153,521
Nongovernment-sponsored agencies		21,199		712		290		21,621
State and political subdivisions		10,176		57		56		10,177
Corporate debt securities		1,955		29		74		1,910
Total taxable debt securities		209,420		5,548		877		214,091
Tax-exempt debt securities:
State and political subdivisions		70,678		4,358		70		74,966
Residential mortgage-backed securities:
Government-sponsored agencies		2,858		-		-		2,858
Total tax-exempt debt securities		73,536		4,358		70		77,824
Equity securities		77		-		-		77
Total available for sale securities	$	283,033	$	9,906	$	947	$	291,992

The below information is relative to the five states where issuers with the highest volume of state and political subdivision securities held in our portfolio are located. We own no such securities of any single issuer which we deem to be a concentration.

	September 30, 2013
	Amortized		Unrealized				Estimated
Dollars in thousands	Cost		Gains		Losses		Fair Value
West Virginia	$	14,286	$	97	$	267	$	14,116
Illinois		10,435		59		535		9,959
California		8,102		107		241		7,968
Texas		7,155		234		178		7,211
Washington		4,409		110		80		4,439

Management performs pre-purchase and ongoing analysis to confirm that all investment securities meet applicable credit quality standards. Prior to July 1, 2013, we principally used credit ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”) to support analyses of our portfolio of securities issued by state and political subdivisions, as we generally do not purchase securities that are rated below the six highest NRSRO rating categories. Beginning July 1, 2013, in addition to considering a security’s NRSRO rating, we now also assess or confirm through an internal review of an issuer’s financial information and other applicable information that: 1) the issuer’s risk of default is low; 2) the characteristics of the issuer’s demographics and economic environment are satisfactory; and 3) the issuer’s budgetary position and stability of tax or other revenue sources are sound.

The maturities, amortized cost and estimated fair values of securities at September 30, 2013, are summarized as follows:

	Available for Sale
	Amortized		Estimated
Dollars in thousands	Cost		Fair Value
Due in one year or less	$	68,076	$	68,631
Due from one to five years		88,188		89,189
Due from five to ten years		33,174		33,187
Due after ten years		101,088		100,174
Equity securities		77		77
	$	290,603	$	291,258

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 nine months ended September 30, 2013 are as follows:

			Calls and		Principal
Dollars in thousands	Sales		Maturities		Payments		Gains		Losses
Securities available for sale	$	41,188	$	1,258	$	50,650	$	362	$	246

During the three and nine months ended September 30, 2013 and 2012, we recorded other-than-temporary impairment losses on residential mortgage-backed nongovernment sponsored entity securities as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
In thousands	2013			2012			2013			2012
Total other-than-temporary impairment losses	$	(38	)	$	(233	)	$	(155	)	$	(1,115	)
Portion of loss recognized in
other comprehensive income		-			194			37			740
Net impairment losses recognized in earnings	$	(38	)	$	(39	)	$	(118	)	$	(375	)

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 and nine months ended September 30, 2013 is as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
In thousands	Total		Total
Beginning Balance	$	2,984	$	2,904
Additions for the credit component on debt securities in which
other-than-temporary impairment was not previously recognized		38		118
Securities sold during the period		-		-
Ending Balance	$	3,022	$	3,022

At September 30, 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 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.

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 September 30, 2013 and December 31, 2012, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income.

	September 30, 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	$	7,770	$	(67	)	$	-	$	-		$	7,770	$	(67	)
Residential mortgage-backed securities:
Government-sponsored agencies		48,957		(1,011	)		11,754		(215	)		60,711		(1,226	)
Nongovernment-sponsored entities		355		(1	)		858		(8	)		1,213		(9	)
State and political subdivisions:
General obligations		5,806		(316	)		876		(67	)		6,682		(383	)
Water and sewer revenues		634		(35	)		1,175		(56	)		1,809		(91	)
Other revenues		3,185		(112	)		-		-			3,185		(112	)
Corporate debt securities		2,954		(45	)		-		-			2,954		(45	)
Tax-exempt debt securities
State and political subdivisions:
General obligations		21,134		(1,112	)		-		-			21,134		(1,112	)
Water and sewer revenues		6,505		(290	)		-		-			6,505		(290	)
Lease revenues		7,522		(424	)		366		(17	)		7,888		(441	)
Lottery/casino revenues		3,292		(166	)		-		-			3,292		(166	)
Other revenues		5,407		(212	)		-		-			5,407		(212	)
Total temporarily impaired securities		113,521		(3,791	)		15,029		(363	)		128,550		(4,154	)
Other-than-temporarily impaired securities
Taxable debt securities
Residential mortgage-backed securities:
Nongovernment-sponsored entities		-		-			-		-			-		-
Total other-than-temporarily
impaired securities		-		-			-		-			-		-
Total	$	113,521	$	(3,791	)	$	15,029	$	(363	)	$	128,550	$	(4,154	)

	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 securities:
Government-sponsored agencies		36,498		(414	)		8,997		(78	)		45,495		(492	)
Nongovernment-sponsored entities		-		(4	)		1,478		(14	)		1,478		(18	)
State and political subdivisions:
General obligations		2,526		(57	)		-		-			2,526		(57	)
Water and sewer revenues		1,240		(28	)		387		(4	)		1,627		(32	)
Other revenues		-		-			-		-			-		-
Corporate debt securities		-		-			962		(38	)		962		(38	)
Tax-exempt debt securities
State and political subdivisions:
General obligations		11,926		(145	)		-		-			11,926		(145	)
Water and sewer revenues		2,534		(47	)		-		-			2,534		(47	)
Lease revenues		1,013		(13	)		-		-			1,013		(13	)
Lottery/casino revenues		1,777		(9	)		-		-			1,777		(9	)
Other revenues		2,684		(23	)		-		-			2,684		(23	)
Other equity securties		-		-			-		-			-		-
Total temporarily impaired securities		60,198		(740	)		11,824		(134	)		72,022		(874	)
Other-than-temporarily impaired securities
Taxable debt securities
Residential mortgage-backed securities:
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 127 available for sale securities having an unrealized loss at September 30, 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.