INVESTMENT SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair values of the investment securities at the dates indicated were:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at March 31, 2014
U.S. Treasury	$	15,918	$	79	$	14	$	15,983
U.S. Government-sponsored agency securities	3,355		27				3,382
State and municipal	244,298		6,291		1,451		249,138
U.S. Government-sponsored mortgage-backed securities	326,329		4,869		661		330,537
Corporate obligations	6,361		428		2,028		4,761
Equity securities	1,706						1,706
Total available for sale	597,967		11,694		4,154		605,507
Held to maturity at March 31, 2014
State and municipal	144,787		1,977		28		146,736
U.S. Government-sponsored mortgage-backed securities	399,683		6,844		1,642		404,885
Total held to maturity	544,470		8,821		1,670		551,621
Total Investment Securities	$	1,142,437	$	20,515	$	5,824	$	1,157,128



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2013
U.S. Treasury	$	15,914	$	80	$	21	$	15,973
U.S. Government-sponsored agency securities	3,550		12		17		3,545
State and municipal	231,005		3,878		3,896		230,987
U.S. Government-sponsored mortgage-backed securities	279,299		3,926		1,973		281,252
Corporate obligations	6,374				3,636		2,738
Equity securities	1,706						1,706
Total available for sale	537,848		7,896		9,543		536,201
Held to maturity at December 31, 2013
State and municipal	145,941		62		91		145,912
U.S. Government-sponsored mortgage-backed securities	413,437		5,220		3,722		414,935
Total held to maturity	559,378		5,282		3,813		560,847
Total Investment Securities	$	1,097,226	$	13,178	$	13,356	$	1,097,048

The amortized cost and fair value of available for sale securities and held to maturity securities at March 31, 2014, 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 March 31, 2014:
Due in one year or less	$	11,621	$	11,769	$	3,867	$	3,867
Due after one through five years	27,954		28,496		17,378		17,633
Due after five through ten years	47,657		48,830		78,688		79,407
Due after ten years	182,700		184,169		44,854		45,829
	$	269,932	$	273,264	$	144,787	$	146,736
U.S. Government-sponsored mortgage-backed securities	326,329		330,537		399,683		404,885
Equity securities	1,706		1,706
Total Investment Securities	$	597,967	$	605,507	$	544,470	$	551,621

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $376,742,000 at March 31, 2014, and $373,533,000 at December 31, 2013.

The book value of securities sold under agreements to repurchase amounted to $131,366,000 at March 31, 2014, and $126,900,000 at December 31, 2013.

Gross gains and losses on the sales and redemptions of available for sale securities, and other-than-temporary impairment (“OTTI”) losses recognized for the three months ended March 31, 2014 and 2013 are shown below.



	Three Months Ended March 31,
	2014		2013
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	581	$	248
Gross losses
Other-than-temporary impairment losses

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 March 31, 2014, and December 31, 2013:



	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 March 31, 2014
U.S. Treasury	$	4,889	$	14					$	4,889	$	14
State and municipal	59,027		1,410		$	1,028	$	69	60,055		1,479
U.S. Government-sponsored mortgage-backed securities	255,204		1,762		14,098		541		269,302		2,303
Corporate obligations					3,190		2,028		3,190		2,028
Total Temporarily Impaired Investment Securities	$	319,120	$	3,186	$	18,316	$	2,638	$	337,436	$	5,824



	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, 2013
U.S. Treasury	$	4,875	$	21					$	4,875	$	21
U.S. Government-sponsored agency securities	3,433		17						3,433		17
State and municipal	129,109		3,931		$	767	$	56	129,876		3,987
U.S. Government-sponsored mortgage-backed securities	330,914		5,163		5,323		532		336,237		5,695
Corporate obligations					2,711		3,636		2,711		3,636
Total Temporarily Impaired Investment Securities	$	468,331	$	9,132	$	8,801	$	4,224	$	477,132	$	13,356

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost as indicated in the table below.



	March 31, 2014			December 31, 2013
Investments reported at less than historical cost:
Historical cost	$	343,258		$	490,488
Fair value	$	337,436		$	477,132
Percent of the Corporation's available for sale and held to maturity portfolio	29.3		%	43.6		%

The Corporation’s management has evaluated all securities with unrealized losses for other-than-temporary impairment ("OTTI") as of March 31, 2014. The evaluations are based on the nature of the securities, the extent and duration of the loss and the intent and ability of the Corporation to hold these securities either to maturity or through the expected recovery period.

The current unrealized losses are primarily concentrated within trust preferred securities held by the Corporation. Such investments have an amortized cost of $6.4 million and a fair value of $4.8 million, which is less than 1 percent of the Corporation’s entire investment portfolio. On all but one small pool investment, the Corporation utilized Moody's to determine their fair value.

In determining the fair value of the trust preferred securities, the Corporation utilizes a third party for portfolio accounting services, including market value input. The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor was classifying these securities based upon these inputs. From these discussions, the Corporation’s management is comfortable that the classifications are proper. The Corporation has gained trust in the data for two reasons: (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.

Discount rates used in the OTTI cash flow analysis on these variable rate securities were those margins in effect at the inception of the security added to the appropriate three-month LIBOR spot rate obtained from the forward LIBOR curve used to project future principal and interest payments. These spreads ranged from .85 percent to 1.57 percent spread over LIBOR.

Management believes the declines in fair value for these securities are temporary. Should any additional 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.

U.S. Government-Sponsored Mortgage-Backed Securities

The unrealized losses on the Corporation’s investment in U.S. Government-sponsored 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 March 31, 2014.

State and Municipal

The unrealized losses on the Corporation’s investments 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 March 31, 2014.

Corporate Obligations

The Corporation’s unrealized losses on Corporate Obligations were due to the decline in value related to the pooled trust preferred securities, and 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 compared expected discounted cash flows, based on performance indicators of the underlying assets in the security, to the carrying value of the investment to determine if OTTI existed. 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 March 31, 2014.

Credit Losses Recognized on Investments

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



	Accumulated Credit Losses in 2014		Accumulated Credit Losses in 2013
Credit losses on debt securities held:
Balance, January 1	$	11,355	$	11,355
Additions related to other-than-temporary losses not previously recognized
Balance, March 31	$	11,355	$	11,355