Note 3 – Interest-bearing Time Deposits in Banks and Securities

Interest-bearing time deposits in banks totaled $45,172,000 and $49,005,000 at March 31, 2013 and December 31, 2012, respectively, and have original maturities generally ranging from one to two years. Of these amounts, $40,943,000 and $44,776,000 are time deposits with balances greater than $100,000 at March 31, 2013 and December 31, 2012, respectively.

The Company records its available-for-sale and trading securities portfolio at fair value.

Management classifies debt and equity securities as held-to-maturity, available-for-sale, or trading based on its intent. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at estimated fair value, with all unrealized gains and unrealized losses judged to be temporary, net of deferred income taxes, excluded from earnings and reported in the consolidated statements of comprehensive earnings. Available-for-sale securities that have unrealized losses that are judged other than temporary are included in gain (loss) on sale of securities and a new cost basis is established. Securities classified as trading are recorded at estimated fair value with unrealized gains and losses included in earnings.

Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity, (ii) whether it is more likely than not that we will have to sell our securities prior to recovery and/or maturity, (iii) the length of time and extent to which the fair value has been less than costs, and (iv) the financial condition of the issuer. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

The Company’s investment portfolio consists of traditional investments, substantially all in U.S. Treasury securities, obligations of U.S. government sponsored-enterprises and agencies, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third party pricing services to assist in valuing its investment securities. The Company reviews the prices supplied by the independent pricing services as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The Company validates quarterly, on a sample basis, prices supplied by the independent pricing services by comparison to prices obtained from other third party sources.

A summary of available-for-sale and held-to-maturity securities follows (in thousands):


	March 31, 2013
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
Securities available-for-sale:
U.S. Treasury securities	$	6,017	$	23	$	—		$	6,040
Obligations of U.S. government sponsored-enterprises and agencies		189,913		3,451		—			193,364
Obligations of states and political subdivisions		865,282		53,191		(558	)		917,915
Corporate bonds and other		111,669		5,553		—			117,222
Residential mortgage-backed securities		592,911		23,866		(213	)		616,564
Commercial mortgage-backed securities		106,898		1,408		(1,260	)		107,046

Total securities available-for-sale	$	1,872,690	$	87,492	$	(2,031	)	$	1,958,151

Securities held-to-maturity:
Obligations of states and political subdivisions	$	595	$	5	$	—		$	600
Residential mortgage-backed securities		308		12		—			320

Total debt securities held-to-maturity	$	903	$	17	$	—		$	920


	December 31, 2012
	Amortized Cost Basis		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
Securities available-for-sale:
U.S. Treasury securities	$	6,042	$	48	$	—		$	6,090
Obligations of U.S. government sponsored-enterprises and agencies		219,420		4,060		—			223,480
Obligations of states and political subdivisions		786,278		57,541		(129	)		843,690
Corporate bonds and other		117,244		6,020		(73	)		123,191
Residential mortgage-backed securities		564,434		23,285		(443	)		587,276
Commercial mortgage-backed securities		33,819		1,739		(250	)		35,308

Total securities available-for-sale	$	1,727,237	$	92,693	$	(895	)	$	1,819,035

Securities held-to-maturity:
Obligations of states and political subdivisions	$	735	$	7	$	—		$	742
Residential mortgage-backed securities		294		11		—			305
Commercial mortgage-backed securities		32		1		—			33

Total debt securities held-to-maturity	$	1,061	$	19	$	—		$	1,080

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at March 31, 2013, were computed by using scheduled amortization of balances and historical prepayment rates. At March 31, 2013 and December 31, 2012, the Company did not hold any CMOs that entail higher risks than standard mortgage-backed securities.

The amortized cost and estimated fair value of debt securities at March 31, 2013, by contractual and expected maturity, are shown below (in thousands):


	Available-for-Sale				Held-to-Maturity
	Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value
Due within one year	$	142,205	$	144,366	$	595	$	600
Due after one year through five years		509,641		532,461		—		—
Due after five years through ten years		495,789		530,064		—		—
Due after ten years		25,246		27,650		—		—
Mortgage-backed securities		699,809		723,610		308		320

Total	$	1,872,690	$	1,958,151	$	903	$	920

The following tables disclose, as of March 31, 2013 and December 31, 2012, the Company’s investment securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 months or longer (in thousands):


	Less than 12 Months				12 Months or Longer				Total
March 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	42,102	$	558	$	—	$	—	$	42,102	$	558
Residential mortgage-backed securities		8,664		9		14,885		204		23,549		213
Commercial mortgage-backed securities		38,472		1,260		—		—		38,472		1,260

Total	$	89,238	$	1,827	$	14,885	$	204	$	104,123	$	2,031


	Less than 12 Months				12 Months or Longer				Total
December 31, 2012	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	36,480	$	129	$	—	$	—	$	36,480	$	129
Residential mortgage-backed securities		17,344		401		3,574		42		20,918		443
Commercial mortgage-backed securities		12,453		250		—		—		12,453		250
Corporate bonds and other		4,994		73		—		—		4,994		73

Total	$	71,271	$	853	$	3,574	$	42	$	74,845	$	895

The number of investment positions in an unrealized loss position totaled 108 at March 31, 2013. We do not believe these unrealized losses are “other than temporary” as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. In making the determination, we also consider the length of time and extent to which fair value has been less than cost and the financial condition of the issuer. The unrealized losses noted are interest rate related due to the level of interest rates at March 31, 2013 compared to the time of purchase. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies.

Securities, carried at approximately $870,328,000 at March 31, 2013, were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law.

During the quarter ended March 31, 2013 and 2012, sales of investment securities that were classified as available-for-sale totaled $5,227,000 and $21,003,000, respectively. Gross realized gains from securities sales and calls during the first quarter of 2013 and 2012 totaled $223,000 and $346,000, respectively. Gross realized losses from securities sales and calls during the first quarter of 2013 totaled $1,000. There were no losses realized on securities sales and calls during the first quarter of 2012. The specific identification method was used to determine cost in order to compute the realized gains and losses.