Note 3 – Securities

The fair value of securities is as follows:


June 30, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	35,737	$	137	$	(342	)	$	35,532
State and municipal		47,691		1,778		(88	)		49,381
Federal agency collateralized mortgage obligations		115,503		1,159		(1,420	)		115,242
Federal agency mortgage-backed pools		158,907		4,367		(687	)		162,587
Private labeled mortgage-backed pools		892		28		—			920
Corporate notes		738		18		—			756

Total available for sale investment securities	$	359,468	$	7,487	$	(2,537	)	$	364,418


Held to maturity
U.S. Treasury and federal agencies	$	9,764	$	79	$	—		$	9,843
State and municipal		136,131		1,816		(19	)		137,928
Federal agency collateralized mortgage obligations		4,360		5		(1	)		4,364
Federal agency mortgage-backed pools		22,945		414		—			23,359

Total held to maturity investment securities	$	173,200	$	2,314	$	(20	)	$	175,494


December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	43,808	$	133	$	(807	)	$	43,134
State and municipal		176,670		4,405		(3,177	)		177,898
Federal agency collateralized mortgage obligations		116,047		1,242		(2,583	)		114,706
Federal agency mortgage-backed pools		170,006		3,172		(2,284	)		170,894
Private labeled mortgage-backed pools		1,188		38		—			1,226
Corporate notes		708		25		—			733

Total available for sale investment securities	$	508,427	$	9,015	$	(8,851	)	$	508,591

Held to maturity, State and Municipal	$	9,910	$	—	$	—		$	9,910

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. While these securities are held in the available for sale portfolio and held-to-maturity, Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. At June 30, 2014, no individual investment security had an unrealized loss that was determined to be other-than-temporary.

The unrealized losses on the Company’s investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at June 30, 2014.

The Company elected to transfer 319 available-for-sale (“AFS”) securities with an aggregate fair value of $167.1 million to a classification of held-to-maturity (“HTM”) on April 1, 2014. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding gain of $1.3 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities. The fair value of the transferred AFS securities became the book value of the HTM securities at April 1, 2014, with no unrealized gain or loss at this date. Future reporting periods, with potential changes in market value for these securities, would likely record an unrealized gain or loss for disclosure purposes.

The amortized cost and fair value of securities available for sale and held to maturity at June 30, 2014 and December 31, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
Within one year	$	4,738	$	4,778	$	3,643	$	3,663
One to five years		45,331		45,937		49,198		49,627
Five to ten years		28,584		29,278		106,225		107,424
After ten years		5,513		5,676		62,120		61,051

		84,166		85,669		221,186		221,765
Federal agency collateralized mortgage obligations		115,503		115,242		116,047		114,706
Federal agency mortgage-backed pools		158,907		162,587		170,006		170,894
Private labeled mortgage-backed pools		892		920		1,188		1,226

Total available for sale investment securities	$	359,468	$	364,418	$	508,427	$	508,591


Held to maturity
Within one year	$	5,951	$	5,951	$	9,910	$	9,910
One to five years		383		384		—		—
Five to ten years		89,024		90,139		—		—
After ten years		50,537		51,297		—		—

		145,895		147,771		9,910		9,910
Federal agency collateralized mortgage obligations		4,360		4,364		—		—
Federal agency mortgage-backed pools		22,945		23,359		—		—

Total held to maturity investment securities	$	173,200	$	175,494	$	9,910	$	9,910

The following table shows the gross unrealized losses and the fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	Less than 12 Months					12 Months or More					Total
June 30, 2014	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Treasury and federal agencies	$	3,064	$	(20	)	$	23,661	$	(322	)	$	26,725	$	(342	)
State and municipal		4,826		(27	)		4,405		(80	)		9,231		(107	)
Federal agency collateralized mortgage obligations		12,989		(35	)		42,578		(1,386	)		55,567		(1,421	)
Federal agency mortgage-backed pools		—		—			35,378		(687	)		35,378		(687	)

Total temporarily impaired securities	$	20,879	$	(82	)	$	106,022	$	(2,475	)	$	126,901	$	(2,557	)


	Less than 12 Months					12 Months or More					Total
December 31, 2013	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Treasury and federal agencies	$	32,099	$	(807	)	$	—	$	—		$	32,099	$	(807	)
State and municipal		57,078		(2,993	)		3,206		(184	)		60,284		(3,177	)
Federal agency collateralized mortgage obligations		64,445		(2,121	)		8,601		(462	)		73,046		(2,583	)
Federal agency mortgage-backed pools		87,919		(2,284	)		—		—			87,919		(2,284	)

Total temporarily impaired securities	$	241,541	$	(8,205	)	$	11,807	$	(646	)	$	253,348	$	(8,851	)


	Three months ended June 30				Six months ended June 30
	2014		2013		2014		2013
Sales of securities available for sale (Unaudited)
Proceeds	$	—	$	—	$	—	$	23,485
Gross gains		—		—		—		376
Gross losses		—		—		—		(8	)