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) is provided in the tables below.

				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)		Cost		Gain		Losses		Value
September 30, 2014
U.S. Treasury securities	$	985	$	0	$	0	$	985
Agency residential mortgage-backed securities		368,935		6,610		(3,799)		371,746
State and municipal securities		96,985		3,889		(530)		100,344
Total	$	466,905	$	10,499	$	(4,329)	$	473,075

December 31, 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

There was no other-than-temporary impairment (“OTTI”) recognized in accumulated other comprehensive income (loss) for securities available for sale at September 30, 2014 and December 31, 2013.

Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of September 30, 2014 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
(dollars in thousands)		Cost		Value
Due in one year or less	$	4,564	$	4,603
Due after one year through five years		18,257		19,273
Due after five years through ten years		45,045		46,872
Due after ten years		30,104		30,581
		97,970		101,329
Mortgage-backed securities		368,935		371,746
Total debt securities	$	466,905	$	473,075

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

	Nine months ended September 30,				Three months ended September 30,
(dollars in thousands)	2014		2013		2014		2013
Sales of securities available for sale
Proceeds	$	13,766	$	29,995	$	13,766	$	29,995
Gross gains		3		1,077		3		1,077
Gross losses		231		972		231		972

The Company sold twelve securities with a total book value of $14.0 million and a total fair value of $13.8 million during the first nine months of 2014. The remaining gains during the first nine months of 2014 were from calls. 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 in 2013 included four non-agency residential mortgage backed securities.

Purchase premiums or discounts are recognized in interest income using the interest method over the terms of the securities or over the estimated lives of 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 $196.3 million and $244.3 million were pledged as of September 30, 2014 and December 31, 2013, 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, 2014 and December 31, 2013 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
(dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
September 30, 2014
Agency residential mortgage-backed
securities	$	65,582	$	(507)	$	113,996	$	(3,292)	$	179,578	$	(3,799)
State and municipal securities		466		(15)		17,064		(515)		17,530		(530)
Total temporarily impaired	$	66,048	$	(522)	$	131,060	$	(3,807)	$	197,108	$	(4,329)

December 31, 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)

The total number of securities with unrealized losses as of September 30, 2014 and December 31, 2013 is presented below.

	Less than	12 months
	12 months	or more	Total
September 30, 2014
Agency residential mortgage-backed securities	21	29	50
State and municipal securities	1	33	34
Total temporarily impaired	22	62	84

	Less than	12 months
	12 months	or more	Total
December 31, 2013
Agency residential mortgage-backed securities	49	10	59
State and municipal securities	59	12	71
Total temporarily impaired	108	22	130

The following factors are considered in determining whether or not the impairment of these securities is other-than-temporary. In making this determination, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. Credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. Ninety-nine percent of the securities are backed by the U.S. government, government agencies, government sponsored agencies or are A-rated or better, except for certain non-local or local municipal securities, which are not rated. For the government, government-sponsored agency and municipal securities, management did not believe that there would be credit losses or that full principal would 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.