NOTE 3 – SECURITIES

The following tables summarize the amortized costs and estimated fair values of securities available-for-sale (“AFS”), as of September 30, 2012 and December 31, 2011:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2012
Obligations of states and political subdivisions	$	34,272	$	2,045	$	—		$	36,317
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises		369,595		17,353		(1	)		386,947
Collateralized mortgage obligations issued or guaranteed by U.S. government sponsored enterprises		290,322		6,661		(1	)		296,982
Private issue collateralized mortgage obligations		11,347		—		(963	)		10,384
Total securities available for sale	$	705,536	$	26,059	$	(965	)	$	730,630
December 31, 2011
Obligations of U.S. government sponsored enterprises	$	29,996	$	116	$	(5	)	$	30,107
Obligations of states and political subdivisions		37,138		2,620		—			39,758
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises		361,073		15,861		—			376,934
Collateralized mortgage obligations issued or guaranteed by U.S. government sponsored enterprises		127,153		1,628		(331	)		128,450
Private issue collateralized mortgage obligations		12,557		—		(1,916	)		10,641
Total debt securities		567,917		20,225		(2,252	)		585,890
Equity securities		5,000		—		(854	)		4,146
Total securities available for sale	$	572,917	$	20,225	$	(3,106	)	$	590,036

Net unrealized gains on AFS at September 30, 2012 and December 31, 2011 and included in accumulated other comprehensive income amounted to $16.3 million and $11.1 million, net of deferred taxes of $8.8 million and $6.0 million, respectively.

Impaired Securities

Management periodically reviews the Company’s investment portfolio to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, recoverability of invested amount over a reasonable period of time and the length of time the security is in a loss position, for example, are applied in determining other-than-temporary impairment (“OTTI”). Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at September 30, 2012 and December 31, 2011, by length of time that individual securities in each category have been in a continuous loss position:

	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2012
Mortgage-backed securities	$	311	$	(1	)	$	18	$	—		$	329	$	(1	)
Collateralized mortgage obligations		350		(1	)		—		—			350		(1	)
Private issue collateralized mortgage obligations		—		—			10,384		(963	)		10,384		(963	)
Total	$	661	$	(2	)	$	10,402	$	(963	)	$	11,063	$	(965	)
December 31, 2011
U.S. government sponsored enterprises	$	9,995	$	(5	)	$	—	$	—		$	9,995	$	(5	)
Collateralized mortgage obligations		37,994		(331	)		—		—			37,994		(331	)
Private issue collateralized mortgage obligations		—		—			10,641		(1,916	)		10,641		(1,916	)
Equity securities		—		—			4,146		(854	)		4,146		(854	)
Total	$	47,989	$	(336	)	$	14,787	$	(2,770	)	$	62,776	$	(3,106	)

At September 30, 2012, the Company held $11.1 million in investment securities with unrealized losses that are considered temporary. Included in the unrealized losses were $9.6 million in private issue collateralized mortgage obligations (“CMOs”) which have been downgraded to non-investment grade. The Company’s share of these downgraded CMOs is in the senior tranches. Management believes the unrealized losses for the CMOs are the result of current market illiquidity and the underestimation of value in the market. Including the CMOs, there were 17 securities with a fair value of $10.4 million in the investment portfolio which had unrealized losses for twelve months or longer. Stress tests are performed regularly on the higher risk bonds in the investment portfolio using current statistical data to determine expected cash flows and forecast potential losses. During the third quarter of 2012, one security experienced a permanent loss of $14,000 and had an additional $10,000 write-down recorded in OTTI as a result of the quarterly analysis, which indicated potential future credit losses in the most likely scenario. Management currently has the intent and ability to retain these investment securities with unrealized losses until the decline in value has been recovered.

Security Gains and Losses

The following information details the Company’s sales of securities:

	Nine Months Ended September 30,
Available for sale	2012			2011
Proceeds from sales of securities	$	38,701		$	15,128
Gross realized gains		1,302			270
Gross realized (losses)		(204	)		(73	)

During the first nine months of 2012, the Company sold one agency security, eight mortgage-backed securities, and 587,481 shares of Federal Home Loan Mortgage Corporation preferred stock and voluntarily tendered one auction rate security (Duff & Phelps Select Income Fund Auction Preferred Stock).

Securities Pledged

At September 30, 2012 and 2011, securities with an amortized cost of $488.1 million and $486.8 million and a fair value of $509.6 million and $508.6 million, respectively, were pledged to secure Federal Home Loan Bank (“FHLB”) advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.

Contractual Maturities

The amortized cost and estimated fair values of debt securities by contractual maturity at September 30, 2012, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available for sale	Amortized Cost		Fair Value
Due in one year or less	$	5,600	$	5,639
Due after one year through five years		17,018		17,611
Due after five years through ten years		152,756		158,907
Due after ten years		530,162		548,473
	$	705,536	$	730,630