NOTE 2. Investment Securities

The amortized cost and approximate fair values of securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at June 30, 2011
U.S. Government-sponsored agency securities	$	99	$	14			$	113
State and municipal		229,743		9,059	$	289		238,513
Mortgage-backed securities		342,582		7,131		568		349,145
Corporate obligations		5,610				5,434		176
Equity securities		3,265						3,265
Total available for sale		581,299		16,204		6,291		591,212
Held to maturity at June 30, 2011
State and municipal		13,152		35		9		13,178
Mortgage-backed securities		334,002		5,799		1,114		338,687
Total held to maturity		347,154		5,834		1,123		351,865
Total Investment Securities	$	928,453	$	22,038	$	7,414	$	943,077

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2010
U.S. Government-sponsored agency securities	$	600	$	16			$	616
State and municipal		233,622		7,108	$	740		239,990
Mortgage-backed securities		293,311		4,293		2,287		295,317
Corporate obligations		5,856				5,674		182
Equity securities		3,265						3,265
Total available for sale		536,654		11,417		8,701		539,370
Held to maturity at December 31, 2010
State and municipal		10,070		389		5		10,454
Mortgage-backed securities		277,357		2,064		3,605		275,816
Total held to maturity		287,427		2,453		3,610		286,270
Total Investment Securities	$	824,081	$	13,870	$	12,311	$	825,640

The amortized cost and fair value of available for sale securities and held to maturity securities at June 30, 2011, 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.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at June 30, 2011:
Due in one year or less	$	4,379	$	4,398	$	3,234	$	3,234
Due after one through five years		13,602		13,917		1,447		1,450
Due after five through ten years		51,766		54,546		4,883		4,901
Due after ten years		165,705		165,941		3,588		3,593
	$	235,452	$	238,802	$	13,152	$	13,178

Mortgage-backed securities		342,582		349,145		334,002		338,687
Equity securities		3,265		3,265

Total Investment Securities	$	581,299	$	591,212	$	347,154	$	351,865

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $285,731,000 at June 30, 2011 and $271,091,000 at December 31, 2010.

The book value of securities sold under agreements to repurchase amounted to $98,718,000 at June 30, 2011, and $84,965,000 at December 31, 2010.

For the three and six months ended June 30, 2011 gross gains of $825,000 and $1,288,000 were realized from sales and redemptions of available for sale securities. For the three and six months ended June 30, 2010 gross gains of $482,000 and $2,324,000 were realized from sales and redemptions of available for sale securities. There were no gross losses resulting from sales and redemptions of available for sale securities realized for the three and six months ended June 30, 2011. Gross losses of $225,000 resulting from the sales and redemptions of available for sale securities were recognized for both the three and six months ended June 30, 2010. The Corporation did not recognize any other-than-temporary (“OTTI”) loss in the three months ending June 30, 2011, but did recognize a $400,000 OTTI loss in the three months ended June 30, 2010, equal to the credit loss, establishing a new, lower amortized cost basis. The Corporation has recognized OTTI losses of $400,000 and $888,000 in the six months ended June 30, 2011 and 2010, equal to the credit loss, establishing a new, lower amortized cost basis.

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost. The historical cost of these investments totaled $184,106,000 and $273,853,000 at June 30, 2011, and December 31, 2010, respectively. Total fair value of these investments at June 30, 2011, and December 31, 2010, was $176,691,000 and $261,542,000, which is approximately 18.8 percent and 31.6 percent of the Corporation’s available for sale and held to maturity investment portfolio at June 30, 2011, and December 31, 2010.

Except as discussed below, management believes the declines in fair value for these securities are temporary. 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 OTTI is identified.

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2011, and December 31, 2010:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at June 30, 2011
State and municipal	$	18,760	$	(298	)						$	18,760	$	(298	)
Mortgage-backed securities		157,787		(1,682	)							157,787		(1,682	)
Corporate obligations						$	144	$	(5,434	)		144		(5,434	)
Total Temporarily Impaired Investment Securities	$	176,547	$	(1,980	)	$	144	$	(5,434	)	$	176,691	$	(7,414	)

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at December 31, 2010
State and municipal	$	31,796	$	(745	)						$	31,796	$	(745	)
Mortgage-backed securities		229,441		(5,892	)	$	154					229,595		(5,892	)
Corporate obligations							151	$	(5,674	)		151		(5,674	)
Total Temporarily Impaired Investment Securities	$	261,237	$	(6,637	)	$	305	$	(5,674	)	$	261,542	$	(12,311	)

Mortgage-backed Securities

The unrealized losses of $1.7 million on the Corporation’s investment in mortgage-backed securities were a result of changes in interest rates. The Corporation expects to recover the amortized cost basis over the term of the securities as the decline in market value is attributable to changes in interest rates and not credit quality. The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity. The Corporation does not consider the investment securities to be other-than-temporarily impaired at June 30, 2011.

State and Municipal

The unrealized losses of $298,000 on the Corporation’s investment in securities of state and political subdivisions were caused by changes in interest rates. 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 Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity. The Corporation does not consider the investment securities to be other-than-temporarily impaired at June 30, 2011.

Corporate Obligations

The Corporation’s unrealized losses on pooled trust preferred securities total $5.4 million on a book value of $5.6 million at June 30, 2011. The decline in value is attributable to temporary illiquidity and the financial crisis affecting these markets coupled with the potential credit loss resulting from the adverse change in expected cash flows. Due to the illiquidity in the market, it is unlikely that the Corporation would be able to recover its investment in these securities if the Corporation sold the securities at this time. Management has analyzed the cash flow characteristics of the securities and this analysis included utilizing the most recent trustee reports and any other relevant market information, including announcements of deferrals or defaults of trust preferred securities. The Corporation did not recognize any OTTI losses in the three months ending June 30, 2011. The Corporation has recognized an OTTI loss of $400,000 in the six months ended June 30, 2011, equal to the credit loss, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity. The Corporation does not consider the remainder of the investment securities, which are classified as Level 3 inputs in the fair value hierarchy, to be other-than-temporarily impaired at June 30, 2011.

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses and other market factors. The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

	Accumulated Credit Losses in 2011		Accumulated Credit Losses in 2010
Credit losses on debt securities held:
Balance, January 1	$	10,955	$	9,411
Additions related to other-than-temporary losses not previously recognized		400		888
Balance, June 30	$	11,355	$	10,299