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 September 30, 2014
U.S. Treasury
U.S. Government-sponsored agency securities	$	100	$	9			$	109
State and municipal	225,402		10,601		$	206	235,797
U.S. Government-sponsored mortgage-backed securities	323,254		6,560		283		329,531
Corporate obligations	1,570				717		853
Equity securities	1,706						1,706
Total available for sale	552,032		17,170		1,206		567,996
Held to maturity at September 30, 2014
State and municipal	191,660		4,935		64		196,531
U.S. Government-sponsored mortgage-backed securities	430,158		8,847		981		438,024
Total held to maturity	621,818		13,782		1,045		634,555
Total Investment Securities	$	1,173,850	$	30,952	$	2,251	$	1,202,551



	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 September 30, 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 September 30, 2014:
Due in one year or less	$	5,184	$	5,214	$	5,167	$	5,195
Due after one through five years	9,676		9,989		18,087		18,429
Due after five through ten years	47,127		49,113		83,138		85,034
Due after ten years	165,085		172,443		85,268		87,873
	$	227,072	$	236,759	$	191,660	$	196,531
U.S. Government-sponsored mortgage-backed securities	323,254		329,531		430,158		438,024
Equity securities	1,706		1,706
Total Investment Securities	$	552,032	$	567,996	$	621,818	$	634,555

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $461,303,000 at September 30, 2014, and $373,533,000 at December 31, 2013.

The book value of securities sold under agreements to repurchase amounted to $114,070,000 at September 30, 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 and nine months ended September 30, 2014 and 2013 are shown below.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	909	$	—	$	2,335	$	487
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 September 30, 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 Available for Sale Securities at September 30, 2014
State and municipal	$	3,239	$	5	$	13,678	$	201	$	16,917	$	206
U.S. Government-sponsored mortgage-backed securities	18,096		100		5,615		183		23,711		283
Corporate obligations					821		717		821		717
Total Temporarily Impaired Available for Sale Securities	21,335		105		20,114		1,101		41,449		1,206
Temporarily Impaired Held to Maturity Securities at September 30, 2014
State and municipal	8,475		64						8,475		64
U.S. Government-sponsored mortgage-backed securities	58,004		687		18,639		294		76,643		981
Total Temporarily Impaired Held to Maturity Securities	66,479		751		18,639		294		85,118		1,045
Total Temporarily Impaired Investment Securities	$	87,814	$	856	$	38,753	$	1,395	$	126,567	$	2,251



	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 Available for Sale 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	111,791		3,840		$	583	$	56	$	112,374	$	3,896
U.S. Government-sponsored mortgage-backed securities	117,866		1,701		2,683		272		120,549		1,973
Corporate obligations					2,711		3,636		2,711		3,636
Total Temporarily Impaired Available for Sale Securities	237,965		5,579		5,977		3,964		243,942		9,543
Temporarily Impaired Held to Maturity Securities at December 31, 2013
State and municipal	17,318		91		184				17,502		91
U.S. Government-sponsored mortgage-backed securities	213,048		3,462		2,640		260		215,688		3,722
Total Temporarily Impaired Held to Maturity Securities	230,366		3,553		2,824		260		233,190		3,813
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.



	September 30, 2014			December 31, 2013
Investments reported at less than historical cost:
Historical cost	$	128,819		$	490,488
Fair value	$	126,567		$	477,132
Percent of the Corporation's available for sale and held to maturity portfolio	10.6		%	43.6		%

The Corporation’s management has evaluated all securities with unrealized losses for other-than-temporary impairment ("OTTI") as of September 30, 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.

In the second quarter of 2014, the Corporation sold four of its six trust preferred securities with an amortized cost of $4.8 million, which resulted in a net gain of $641,000. The Corporation has two remaining trust preferred securities. Such investments have an amortized cost of $1.5 million and a fair value of $821,000, which is less than 1 percent of the Corporation’s entire investment portfolio. The Corporation utilized Standard and Poor's to determine the fair value of the two remaining trust preferred securities.

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 September 30, 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 September 30, 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 September 30, 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, September 30	$	11,355	$	11,355