Note 3. Investment Securities

The following table sets forth the amortized cost and fair values of the Company’s investment securities, all of which are reported as available for sale:

(dollar amounts in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2013	Cost		Gains		Losses			Fair Value
Obligations of U.S. government agencies	$	4,735	$	71	$	(2	)	$	4,804
Mortgage backed securities
U.S. government sponsored entities and agencies	148,458		579		(3,060		)	145,977
Non-agency	19,933		528		(46		)	20,415
State and municipal securities	35,079		640		(1,326		)	34,393
Asset backed securities	31,982		316		(347		)	31,951

Total	$	240,187	$	2,134	$	(4,781	)	$	237,540

December 31, 2012
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

Other than Temporary Impairment (“OTTI”)

At the end of the first quarter of 2013, as part of its repositioning of the longer duration portion of the investment portfolio, the Company sold the two private labeled mortgage backed securities in which OTTI losses had been recognized, thereby eliminating all securities in the portfolio for which OTTI losses had been incurred. These securities had an aggregate recorded fair value of $0.7 million ($1.0 million historical cost) at December 31, 2012. The following tables provide information related to these two securities:

		For the Three Months Ended June 30, 2013										For the Three Months Ended June 30, 2012
					OTTI Related									OTTI Related
		OTTI Related			to All Other			Total				OTTI Related		to All Other			Total
(dollars in thousands)		to Credit Loss			Factors			OTTI				to Credit Loss		Factors			OTTI
Balance, beginning of the period	$		-		$	-		$	-		$		109	$	323		$	432
Change in value attributable to other factors		-			-			-				-		(40		)	(40		)

Balance, end of the period	$		-		$	-		$	-		$		109	$	283		$	392


		For the Six Months Ended June 30, 2013										For the Six Months Ended June 30, 2012
					OTTI Related									OTTI Related
		OTTI Related			to All Other			Total				OTTI Related		to All Other			Total
(dollars in thousands)		to Credit Loss			Factors			OTTI				to Credit Loss		Factors			OTTI
Balance, beginning of the period	$		109		$	170		$	279		$		109	$	361		$	470
Less: losses related to OTTI securities sold		(109		)	(170		)	(279		)		-		-			-
Change in value attributable to other factors		-			-			-				-		(78		)	(78		)

Balance, end of the period	$		-		$	-		$	-		$		109	$	283		$	392

The following table provides a summary of investment securities in an unrealized loss position:

	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
June 30, 2013	Value		Loss			Value		Loss			Value		Loss
Obligations of U.S. government agencies	$	-	$	-		$	42	$	(2	)	$	42	$	(2	)
Mortgage backed securities
U.S. government sponsored entities and agencies	110,642		(2,931		)	3,511		(129		)	114,153		(3,060		)
Non-agency	2,659		(46		)	-		-			2,659		(46		)
State and municipal securities	20,384		(1,326		)	-		-			20,384		(1,326		)
Asset backed securities	17,721		(347		)	-		-			17,721		(347		)

Total	$	151,406	$	(4,650	)	$	3,553	$	(131	)	$	154,959	$	(4,781	)

December 31, 2012
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 June 30, 2013, the Company believes that unrealized losses on its investment securities are not attributable to credit quality, but rather fluctuations in market prices for these investments. Additionally, these securities have maturity dates that range from 1 to 40 years and in the case of the agency mortgage related securities have contractual cash flows guaranteed by agencies of the U.S. Government. Management does not intend to sell and it is unlikely that management will be required to sell the securities prior to their anticipated recovery. As of June 30, 2013, the Company does not believe unrealized losses related to any of its securities are other than temporary.

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

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
(dollar amounts in thousands)	2013			2012			2013			2012
Proceeds	$	15,851		$	41,408		$	105,641		$	53,890
Gross gains	175			1,409			4,379			1,712
Gross losses	(170		)	(345		)	(788		)	(345		)

The income tax expense related to these net realized gains was $2 thousand and $0.4 million, for the three months ended June 30, 2013 and 2012, respectively and $1.5 million and $0.6 million for the six months ended June 30, 2013 and 2012, respectively.

The amortized cost and fair value maturities of available for sale investment securities at June 30, 2013 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.

(dollar amounts in thousands)
June 30, 2013	One Year Or Less		Over 1 Through 5 Years		Over 5 Years Through 10 Years		Over 10 Years		Total
Obligations of U.S. government agencies	$	92	$	407	$	1,838	$	2,467	$	4,804
Mortgage backed securities
U.S. government sponsored entities and agencies	20,034		59,527		34,030		32,386		145,977
Non-agency	5,977		11,456		1,548		1,434		20,415
State and municipal securities	-		7,569		22,662		4,162		34,393
Asset backed securities	-		5,361		10,554		16,036		31,951
Total available for sale securities	$	26,103	$	84,320	$	70,632	$	56,485	$	237,540

Amortized cost	$	26,119	$	84,222	$	71,829	$	58,017	$	240,187

Weighted average yield	2.32%		2.50%		2.40%		2.64%		2.48%

Securities having an amortized cost and a fair value of $14.2 million and $13.8 million, respectively at June 30, 2013, and $8.7 million and $9.0 million, respectively at December 31, 2012 were pledged to secure public deposits. As of June 30, 2013 and December 31, 2012, 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.

The following table summarizes earnings on both taxable and tax-exempt investment securities:

	For The Three Months				For The Six Months
	Ended June 30,				Ended June 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Taxable earnings on investment securities
Obligations of U.S. government agencies	$	22	$	29	$	53	$	53
Mortgage backed securities	793		940		1,623		1,998
State and municipal securities	-		75		5		178
Corporate debt securities	-		148		-		324
Asset backed securities	125		49		237		74
Non-taxable earnings on investment securities
State and municipal securities	273		489		728		901

Total	$	1,213	$	1,730	$	2,646	$	3,528