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
September 30, 2013	Cost		Gains		Losses			Fair Value
Obligations of U.S. government agencies	$	7,738	$	37	$	(47	)	$	7,728
Mortgage backed securities
U.S. government sponsored entities and agencies	178,856		446		(3,870		)	175,432
Non-agency	13,266		168		(44		)	13,390
State and municipal securities	45,333		385		(1,658		)	44,060
Asset backed securities	26,936		-		(367		)	26,569

Total	$	272,129	$	1,036	$	(5,986	)	$	267,179

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, the Company sold the two private labeled mortgage backed securities in which OTTI losses had been recognized, as part of its repositioning of the longer duration portion of the investment portfolio, 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 September 30, 2013						For the Three Months Ended September 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	$	283		$	392
Change in value attributable to other factors	-		-		-		-		(140		)	(140		)

Balance, end of the period	$	-	$	-	$	-	$	109	$	143		$	252

	For the Nine Months Ended September 30, 2013									For the Nine Months Ended September 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	-			-			-			-		(218		)	(218		)

Balance, end of the period	$	-		$	-		$	-		$	109	$	143		$	252

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
September 30, 2013	Value		Loss			Value		Loss			Value		Loss
Obligations of U.S. government agencies	$	3,100	$	(46	)	$	41	$	(1	)	$	3,141	$	(47	)
Mortgage backed securities
U.S. government sponsored entities and agencies	111,209		(3,566		)	5,749		(304		)	116,958		(3,870		)
Non-agency	1,218		(44		)	-		-			1,218		(44		)
State and municipal securities	25,638		(1,658		)	-		-			25,638		(1,658		)
Asset backed securities	17,700		(367		)	-		-			17,700		(367		)

Total	$	158,865	$	(5,681	)	$	5,790	$	(305	)	$	164,655	$	(5,986	)

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 September 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. In the case of the agency mortgage related securities, they have contractual cash flows guaranteed by agencies of the U.S. Government. While the Company’s investment security holdings have contractual maturity dates that range from 1 to 40 years, they have a much shorter effective duration dependent on the instrument’s priority in the overall cash flow structure and the characteristics of the loans underlying the investment security. 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 September 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 Nine Months
	Ended September 30,						Ended September 30,
(dollar amounts in thousands)	2013			2012			2013			2012
Proceeds	$	38,930		$	41,899		$	144,571		$	95,789
Gross gains	970			448			5,349			2,160
Gross losses	(626		)	(119		)	(1,414		)	(464		)

The income tax expense related to these net realized gains was $0.1 million, for both the three months ended September 30, 2013 and 2012 and $1.6 million and $0.7 million for the nine months ended September 30, 2013 and 2012, respectively.

The amortized cost and fair value maturities of available for sale investment securities at September 30, 2013 are shown below. The table reflects the expected lives of mortgage backed securities, based on the Company’s historical prepayment 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)
September 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	$	100	$	3,481	$	1,729	$	2,418	$	7,728
Mortgage backed securities
U.S. government sponsored entities and agencies	24,910		75,551		29,616		45,355		175,432
Non-agency	5,426		6,443		1,521		-		13,390
State and municipal securities	40		6,516		34,300		3,204		44,060
Asset backed securities	-		-		14,569		12,000		26,569
Total available for sale securities	$	30,476	$	91,991	$	81,735	$	62,977	$	267,179

Amortized cost	$	30,658	$	93,028	$	83,805	$	64,638	$	272,129

Weighted average yield	2.35%		2.26%		2.54%		2.67%		2.45%

Securities having an amortized cost and a fair value of $42.8 million and $41.7 million, respectively at September 30, 2013, and $8.7 million and $9.0 million, respectively at December 31, 2012 were pledged to secure public deposits. As of September 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 Nine Months
	Ended September 30,				Ended September 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Taxable earnings on investment securities
Obligations of U.S. government agencies	$	33	$	25	$	86	$	79
Mortgage backed securities	847		973		2,470		2,971
State and municipal securities	-		5		5		183
Corporate debt securities	-		181		-		504
Asset backed securities	113		72		350		146
Non-taxable earnings on investment securities
State and municipal securities	354		527		1,082		1,428

Total	$	1,347	$	1,783	$	3,993	$	5,311