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
September 30, 2013
U.S. Treasury securities	$	1,022	$	20	$	0	$	1,002
Agency residential mortgage-backed securities		369,311		5,613		(6,183)		369,881
State and municipal securities		92,737		2,810		(1,816)		91,743
Total	$	463,070	$	8,443	$	(7,999)	$	462,626

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 September 30, 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	$	4,168	$	4,238
Due after one year through five years		15,691		16,618
Due after five years through ten years		40,061		40,987
Due after ten years		32,825		31,916
		92,745		93,759
Mortgage-backed securities		369,881		369,311
Total debt securities	$	462,626	$	463,070

Security proceeds, gross gains and gross losses are presented below.

	Nine months ended September 30,
	2013		2012
Sales of securities available for sale
Proceeds	$	29,996	$	27,493
Gross gains		1,078		823
Gross losses		(972)		(1,203)

	Three months ended September 30,
	2013		2012
Sales of securities available for sale
Proceeds	$	29,996	$	27,493
Gross gains		1,078		823
Gross losses		(972)		(1,203)

The Company sold twelve securities with a total book value of $29.9 million and a total fair value of $30.0 million during the first nine months of 2013. The sales included the four remaining non-agency residential mortgage backed securities. The remaining gains during the first nine months of 2013 were from calls. The Company sold eleven securities with a total book value of $27.9 million and a total fair value of $27.5 million during the first nine months of 2012. The sales in 2012 included nine non-agency residential mortgage backed securities. The securities sales in both 2013 and 2012 were related to a strategic realignment of the securities portfolio.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over the 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 $154.1 million and $199.3 million were pledged as of September 30, 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 September 30, 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
September 30, 2013

Agency residential mortgage- backed securities	$	163,795	$	(5,825)	$	17,358	$	(358)	$	181,153	$	(6,183)
State and municipal securities		25,130		(1,816)		0		0		25,130		(1,816)
Total temporarily impaired	$	188,925	$	(7,641)	$	17,358	$	(358)	$	206,283	$	(7,999)

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 September 30, 2013 and December 31, 2012 is presented below.

	Less than	12 months
	12 months	or more	Total
September 30, 2013

Agency residential mortgage-backed securities	45	7	52
State and municipal securities	56	0	56
Total temporarily impaired	101	7	108

	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-nine 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. All mortgage-backed securities are backed by government agencies. The Company does not currently have any non-agency mortgage backed securities in its securities portfolio. 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 the Company will not be required to sell these securities before the recovery of their amortized cost basis.

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. There were no securities with other than temporary impairment during the three and nine months ended September 30, 2013. All securities with other than temporary impairment were sold during 2012. The table represents the three months and nine months ended September 30, 2013 and 2012.

	Three Months Ended September 30,
	2013		2012
Balance July 1,	$	0	$	1,318
Additions related to other-than-temporary impairment losses not previously recognized		0		0
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized		0		67
Reductions for previous credit losses realized on securities sold during the year		0		(1,385)
Balance September 30,	$	0	$	0

	Nine Months Ended September 30,
	2013		2012
Balance January 1,	$	0	$	359
Additions related to other-than-temporary impairment losses not previously recognized		0		747
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized		0		279
Reductions for previous credit losses realized on securities sold during the year		0		(1,385)
Balance September 30,	$	0	$	0

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.