NOTE 2 - 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) at December 31 is provided in the tables below.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gain		Losses			Value
2013
U.S. Treasury securities	$	1,001	$	16	$	0		$	1,017
Agency residential mortgage-backed securities		374,611		5,301		(7,935	)		371,977
State and municipal securities		95,388		2,597		(2,012	)		95,973
Total	$	471,000	$	7,914	$	(9,947	)	$	468,967

2012
U.S. Treasury securities	$	1,002	$	35	$	0		$	1,037
U.S. government sponsored agencies		5,026		278		0			5,304
Agency residential mortgage-backed securities		359,326		7,813		(1,495	)		365,644
Non-agency residential mortgage-backed securities		6,211		242		0			6,453
State and municipal securities		83,263		5,509		(189	)		88,583
Total	$	454,828	$	13,877	$	(1,684	)	$	467,021

There was no other-than-temporary impairment recognized in accumulated other comprehensive income for securities available for sale at December 31, 2013 and 2012.

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of December 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 prepayment penalty.

	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	4,247	$	4,291
Due after one year through five years		15,467		16,382
Due after five years through ten years		41,242		42,035
Due after ten years		35,433		34,282
		96,389		96,990
Mortgage-backed securities		374,611		371,977
Total debt securities	$	471,000	$	468,967

Security proceeds, gross gains and gross losses for 2013, 2012 and 2011 were as follows:

(dollars in thousands)	2013		2012		2011
Sales of securities available for sale
Proceeds	$	29,995	$	27,855	$	73,318
Gross gains		1,077		824		3,997
Gross losses		972		1,203		4,171

Security proceeds for 2012 and 2011 are net of other-than-temporary impairment previously recognized on several non-agency mortgage-backed securities sold.

The Company sold twelve securities with a total book value of $29.9 million and a total fair value of $30.0 million during 2013. The sales included the four remaining non-agency residential mortgage-backed securities. The remaining gains during 2013 were from calls. The Company sold twelve securities with a total book value of $28.2 million and a total fair value of $27.9 million during 2012. The sales included nine non-agency residential mortgage-backed securities, including all five on which the Company had previously recognized other-than-temporary impairment. The remaining gains during 2012 were from calls. The Company sold 36 securities with a total book value of $73.5 million and a total fair value of $73.3 million during 2011. The sales were related to a strategic realignment of the securities portfolio, and included six of the seven non-agency residential mortgage-backed securities on which the Company had previously recognized other-than-temporary impairment. The remaining gains in 2011 were from calls or maturities.

Securities with carrying values of $244.3 million and $193.7 million were pledged as of December 31, 2013 and 2012, as collateral for deposits of public funds, securities sold under agreements to repurchase, borrowings from the FHLB and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of December 31, 2013 and 2012 is presented below. The tables distribute 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
(dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
2013
Agency residential mortgage-backed securities	$	177,779	$	(6,444	)	$	34,093	$	(1,491	)	$	211,872	$	(7,935	)
State and municipal securities		24,610		(1,102	)		8,037		(910	)		32,647		(2,012	)
Total temporarily impaired	$	202,389	$	(7,546	)	$	42,130	$	(2,401	)	$	244,519	$	(9,947	)

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 December 31, 2013 and 2012 is presented below.

	Less than		12 months
	12 months		or more		Total
2013
Agency residential mortgage-backed securities		49		10		59
State and municipal securities		59		12		71
Total temporarily impaired		108		22		130

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

During the third quarter of 2013, the Company sold the four remaining non-agency mortgage-backed securities. The securities sold had a book value of $3.8 million and a fair value of $3.9 million. One of the non-agency residential mortgage-backed securities owned at December 31, 2012 paid off in May 2013. 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. During the third quarter of 2012, the Company sold nine of the non-agency mortgage-backed securities as part of a strategic realignment of the investment portfolio. The securities sold had a book value of $20.7 million and a fair value of $19.5 million. The sales included all five of the securities on which the Company had previously recognized other-than-temporary impairment. One of the non-agency residential mortgage-backed securities owned at December 31, 2011 paid off in May 2012. None of the remaining five non-agency residential mortgage-backed securities were still rated AAA/Aaa as of December 31, 2012 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.

An additional analysis was performed for these non-agency residential mortgage-backed securities, to determine if there was any impairment and if it was temporary or other-than-temporary, in which case impairment would need to be recorded for these securities. The Company performed 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 could 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 was any other-than-temporary impairment that must be recorded. Based on this analysis of the non-agency residential mortgage-backed securities, the Company did not record other-than-temporary impairment for any of these five securities during 2013.

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

(dollars in thousands)	2012
Balance January 1,	$	359
Additions related to other-than-temporary impairment losses not previously recognized		779
Additional increases to the amount of credit loss for which other-than-temporary impairment was previously recognized		247
Reductions for previous credit losses realized on securities sold during the year		(1,385	)
Balance December 31,	$	0

There were no debt securities with credit losses recognized in income during 2013.

Information on securities with at least one rating below investment grade as of December 31, 2012 is presented below. There were no non-agency mortgage-backed securities as of December 31, 2013.

12/31/2012

1-Month

3-Month

6-Month

Other Than

December 31, 2012

Lowest

Constant

Temporary

Par

Amortized

Fair

Unrealized

Credit

Default

Credit

Description

CUSIP

Impairment

Value

Cost

Value

Gain/(Loss)

Rating

Rate

Support

(dollars in
thousands)

RALI 2004-QS7 A3

76110HTX7

2,908

2,891

2,979

BB+

5.67

5.46

3.38

10.34

This security is a super senior or 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 gone.

The Company does not have a history of actively trading securities but keeps the 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 and ability to hold them until a recovery in fair value or maturity.