SECURITIES

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

SECURITIES

NOTE 5. SECURITIES

Information related to the fair value and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) is provided in the tables below.

			Gross		Gross
	Fair		Unrealized		Unrealized			Amortized
	Value		Gain		Losses			Cost
March 31, 2013
U.S. Treasury securities	$	1,032	$	31	$	0		$	1,001
U.S. government sponsored agencies		5,289		265		0			5,024
Agency residential mortgage-backed securities		375,468		7,446		(1,400	)		369,422
Non-agency residential mortgage-backed securities		5,885		202		0			5,683
State and municipal securities		95,030		5,139		(531	)		90,422
Total	$	482,704	$	13,083	$	(1,931	)	$	471,552
December 31, 2012
U.S. Treasury securities	$	1,037	$	35	$	0		$	1,002
U.S. government sponsored agencies		5,304		278		0			5,026
Agency residential mortgage-backed securities		365,644		7,813		(1,495	)		359,326
Non-agency residential mortgage-backed securities		6,453		242		0			6,211
State and municipal securities		88,583		5,509		(189	)		83,263
Total	$	467,021	$	13,877	$	(1,684	)	$	454,828

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of March 31, 2013 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	3,294	$	3,298
Due after one year through five years		24,585		26,255
Due after five years through ten years		39,703		42,175
Due after ten years		28,865		29,623
		96,447		101,351
Mortgage-backed securities		375,105		381,353
Total debt securities	$	471,552	$	482,704

There were no securities sales during the first three months of 2013 and 2012. All of the gains in 2013 and 2012 were from calls.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over estimated lives for mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $192.4 million and $230.4 million were pledged as of March 31, 2013 and 2012, as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of March 31, 2013 and December 31, 2012 is presented below. The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
March 31, 2013
Agency residential mortgage-backed securities	$	108,460	$	(923	)	$	28,997	$	(477	)	$	137,457	$	(1,400	)
State and municipal securities		18,052		(522	)		469		(9	)		18,521		(531	)
Total temporarily impaired	$	126,512	$	(1,445	)	$	29,466	$	(486	)	$	155,978	$	(1,931	)
December 31, 2012
Agency residential mortgage-backed securities	$	92,974	$	(1,066	)	$	20,422	$	(429	)	$	113,396	$	(1,495	)
State and municipal securities		10,791		(188	)		50		(1	)		10,841		(189	)
Total temporarily impaired	$	103,765	$	(1,254	)	$	20,472	$	(430	)	$	124,237	$	(1,684	)

The number of securities with unrealized losses as of March 31, 2013 and December 31, 2012 is presented below.

	Less than		12 months
	12 months		or more		Total
March 31, 2013
Agency residential mortgage-backed securities		25		11		36
State and municipal securities		42		6		48
Total temporarily impaired		67		17		84

	Less than		12 months
	12 months		or more		Total
December 31, 2012
Agency residential mortgage-backed securities		29		9		38
State and municipal securities		29		1		30
Total temporarily impaired		58		10		68

The following factors are considered to determine whether or not the impairment of these securities is other-than-temporary. Ninety-eight percent of the securities are backed by the U.S. government, government agencies, government sponsored agencies or are A- rated or better by Moody’s, S&P or Fitch, except for certain non-local or local municipal securities, which are not rated. Mortgage-backed securities which are not issued by the U.S. government or government sponsored agencies (non-agency residential mortgage-backed securities) met specific criteria set by the Asset Liability Management Committee at their time of purchase, including having the highest rating available by either Moody’s, S&P or Fitch. None of the securities have call provisions (with the exception of the municipal securities) and all payments as originally agreed are being received on their original terms. For the government, government-sponsored agency and municipal securities, management did not have concerns of credit losses, and there was nothing to indicate that full principal will not be received. Management considered the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold. However, at this time management does not have the intent to sell, and it is more likely than not that it will not be required to sell these securities before the recovery of their amortized cost basis.

As of March 31, 2013, the Company had $5.9 million of non-agency residential mortgage-backed securities which were not issued by the U.S. government or government sponsored agencies, but which were rated AAA by S&P or Fitch and/or Aaa by Moody’s at the time of purchase. As of December 31, 2012, the Company had $6.5 million of non-agency residential mortgage-backed securities which were not issued by the federal government or government sponsored agencies, but which were rated AAA by S&P and/or Aaa by Moody’s at the time of purchase. None of the five non-agency residential mortgage-backed securities were still rated AAA/Aaa as of March 31, 2013 by at least one of the rating agencies and one had been downgraded to below investment grade by at least one of those rating agencies.

For these non-agency residential mortgage-backed securities, additional analysis is performed to determine if any impairment is temporary or other-than-temporary, in which case impairment would need to be recorded for these securities. The Company performs an independent analysis of the cash flows of the individual securities based upon assumptions as to collateral defaults, prepayment speeds, expected losses and the severity of potential losses. Based upon the initial review, securities may be identified for further analysis computing the net present value using an appropriate discount rate (the current accounting yield) and comparing it to the book value of the security to determine if there is any other-than-temporary impairment that must be recorded. Based on this analysis of the non-agency residential mortgage-backed securities, none of the five non-agency mortgage-backed securities had any unrealized losses or other-than-temporary impairment at March 31, 2013.

The following table provides information about debt securities for which only a credit loss was recognized in income and for which other losses are recorded in other comprehensive income. The table represents the three months ended March 31, 2013 and 2012.

	2013		2012
Balance January 1,	$	0	$	359
Additions related to other-than-temporary impairment losses not previously recognized		0		449
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized		0		61
Reductions for previous credit losses realized on securities sold during the year		0		0
Balance March 31,	$	0	$	869

Information on securities with at least one rating below investment grade at March 31, 2013 is presented below.

3/31/2013

1-Month

3-Month

6-Month

Other Than

March 31, 2013

Lowest

Constant

Constant

Constant

Temporary

Par

Amortized

Fair

Unrealized

Credit

Default

Default

Default

Credit

Description

CUSIP

Impairment

Value

Cost

Value

Gain/(Loss)

Rating

Rate

Rate

Rate

Support

RALI 2004-QS7 A3

76110HTX7

$

0

$

2,739

$

2,722

$

2,790

$

68

BB+

3.96

3.22

4.31

10.03

This security is a super senior/senior tranche non-agency residential mortgage-backed security. The credit support is the credit support percentage for a tranche from other subordinated tranches, which is the amount of principal in the subordinated tranches expressed as a percentage of the remaining principal in the super senior/senior tranche. The super senior/senior tranches receive the prepayments and the subordinate tranches absorb the losses. The super senior/senior tranches do not absorb losses until the subordinate tranches are extinguished.

The Company does not have a history of actively trading securities but continues to hold securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, it is management’s current intent to hold them until a recovery in fair value or maturity.