Note 3: Investment Securities

A summary of the amortized cost and fair values of investment securities follows:



	Amortized		Gross Unrealized				Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
At December 31, 2012
Held to Maturity:
Obligations of state and political subdivisions	$	12,797	$	862	$	-	$	13,659
Total	$	12,797	$	862	$	-	$	13,659

Available for Sale:
Federal agency securities	$	114,159	$	1,474	$	(19)	$	115,614
Obligations of state and political subdivisions		34,754		887		(83)		35,558
Residential mortgage-backed securities		200,310		3,668		(303)		203,675
Asset-backed securities		7,794		-		(123)		7,671
Equity securities		1,300		497		-		1,797
Total	$	358,317	$	6,526	$	(528)	$	364,315

At December 31, 2011
Held to Maturity:
Obligations of state and political subdivisions	$	15,252	$	633	$	-	$	15,885
Total	$	15,252	$	633	$	-	$	15,885

Available for Sale:
Federal agency securities	$	64,524	$	1,051	$	(22)	$	65,553
Obligations of state and political subdivisions		10,926		196		(19)		11,103
Residential mortgage-backed securities		177,365		4,889		(107)		182,147
Equity securities		1,054		243		-		1,297
Total	$	253,869	$	6,379	$	(148)	$	260,100

Residential mortgage-backed securities consist of agency securities underwritten and guaranteed by Government National Mortgage Association (“Ginnie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Federal National Mortgage Association (“Fannie Mae”).

Securities with limited marketability, such as Federal Reserve Bank stock, Federal Home Loan Bank stock, and certain other investments, are carried at cost and included in other assets on our Consolidated Statement of Financial Condition. Total investments carried at cost were $8.5 million and $10.5 million at December 31, 2012 and 2011, respectively. There are no identified events or changes in circumstances that may have a significant adverse effect on the investments carried at cost.

A comparison of the amortized cost and approximate fair value of our investment securities by maturity date at December 31, 2012 follows:



	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
One year or less	$	34,192	$	34,302	$	1,001	$	1,002
More than one year through five years		177,437		181,420		1,944		1,981
More than five years through ten years		133,135		134,577		6,416		6,776
More than ten years		13,553		14,016		3,436		3,900
Total	$	358,317	$	364,315	$	12,797	$	13,659

The foregoing analysis assumes that our residential mortgage-backed securities mature during the period in which they are estimated to prepay. No other prepayment or repricing assumptions have been applied to our investment securities for this analysis.

Gain or loss on sale or call of investments is based upon the specific identification method. The 2012 gain on sales of investment securities was primarily the result of a single investment security held at cost. Sales of securities are as follows:


(Dollars in thousands)		2012		2011		2010
Proceeds from sales	$	6,588	$	-	$	57,782
Gross realized gains		45		-		2,497
Gross realized losses		(10)		-		(3)

The following table shows securities with gross unrealized losses and their fair values by the length of time that the individual securities had been in a continuous unrealized loss position at December 31, 2012 and 2011. Securities whose market values exceed cost are excluded from this table.



				Continuous Unrealized
		Amortized cost of		Loss Existing for:				Fair value of
	Number of	securities with		Less Than		More Than		securities with
(Dollars in thousands)	Securities	unrealized losses		12 Months		12 Months		unrealized losses
At December 31, 2012
Available for Sale:
Federal agency securities	5	$	9,887	$	(19)	$	-	$	9,868
Obligations of state and political subdivisions	9		10,457		(83)		-		10,374
Residential mortgage-backed securities	23		46,787		(288)		(15)		46,484
Asset-backed securities	4		7,794		(123)		-		7,671
Total	41	$	74,925	$	(513)	$	(15)	$	74,397

At December 31, 2011
Available for Sale:
Federal agency securities	3	$	5,461	$	(22)	$	-	$	5,439
Obligations of state and political subdivisions	3		3,853		(19)		-		3,834
Residential mortgage-backed securities	22		19,666		(107)		-		19,558
Total	28	$	28,980	$	(148)	$	-	$	28,831

We evaluate all securities on an individual basis for other-than-temporary impairment on at least a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of us to retain our investment in the issuer for a period of time sufficient to allow for an anticipated recovery in fair value.

Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time we expect to receive full value for the securities. Furthermore, as of December 31, 2012, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is not more likely than not that we will have to sell any such securities before a recovery of cost. The declines in fair value were attributable to increases in market interest rates over the yields available at the time the underlying securities were purchased or increases in spreads over market interest rates. Management does not believe any of the securities are impaired due to credit quality. Accordingly, as of December 31, 2012, management believes the impairment of these investments is not deemed to be other-than-temporary.

As required by law, available for sale investment securities are pledged to secure public and trust deposits, sweep agreements, and borrowings from the FHLB. Securities with an amortized cost of $284.2 million and $212.3 million were pledged to meet such requirements at December 31, 2012 and 2011, respectively. Any amount over-pledged can be released at any time.