Note 2: Investments in Debt and Equity Securities

12 Months Ended

Dec. 31, 2012

Notes

Note 2: Investments in Debt and Equity Securities

Note 2:      Investments in Debt and Equity Securities

The amortized cost and fair values of securities classified as available-for-sale were as follows:

	December 31, 2012
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
(In Thousands)
U.S. government agencies	$30,000	$40	$--	$30,040
Collateralized mortgage obligations	3,939	576	8	4,507
Mortgage-backed securities	582,039	14,861	814	596,086
Small Business Administration
loan pools	50,198	1,295	--	51,493
States and political subdivisions	114,372	8,506	--	122,878
Equity securities	847	1,159	--	2,006
Total	$781,395	$26,437	$822	$807,010

	December 31, 2011
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
(In Thousands)
U.S. government agencies	$20,000	$60	$--	$20,060
Collateralized mortgage obligations	5,220	--	380	4,840
Mortgage-backed securities	628,729	13,728	802	641,655
Small Business Administration
loan pools	55,422	1,070	--	56,492
States and political subdivisions	145,663	5,478	903	150,238
Corporate bonds	50	245	--	295
Equity securities	1,230	601	--	1,831
Total	$856,314	$21,182	$2,085	$875,411

Additional details of the Company’s collateralized mortgage obligations and mortgage-backed securities at December 31, 2012, are described as follows:

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
(In Thousands)
Collateralized mortgage obligations
Nonagency variable	$3,939	$576	$8	$4,507
Mortgage-backed securities
FHLMC fixed	$6,482	$696	$--	$7,178
FHLMC hybrid ARM	35,431	2,494	--	37,925
Total FHLMC	41,913	3,190	--	45,103
FNMA fixed	9,728	845	--	10,573
FNMA hybrid ARM	50,202	1,799	302	51,699
Total FNMA	59,930	2,644	302	62,272
GNMA fixed	7	--	--	7
GNMA hybrid ARM	480,189	9,027	512	488,704
Total GNMA	480,196	9,027	512	488,711
Total	$582,039	$14,861	$814	$596,086
Total fixed	$16,217	$1,541	$--	$17,758
Total hybrid ARM	565,822	13,320	814	578,328
Total	$582,039	$14,861	$814	$596,086

The amortized cost and fair value of available-for-sale securities at December 31, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized	Fair
	Cost	Value
(In Thousands)
One year or less	$--	$--
After one through five years	505	520
After five through ten years	10,140	10,635
After ten years	183,925	193,256
Securities not due on a single maturity date	585,978	600,593
Equity securities	847	2,006
Total	$781,395	$807,010

The amortized cost and fair values of securities classified as held to maturity were as follows:

	December 31, 2012
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
(In Thousands)
States and political subdivisions	$920	$164	$--	$1,084

	December 31, 2011
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
(In Thousands)
States and political subdivisions	$1,865	$236	$--	$2,101

The held-to-maturity securities at December 31, 2012, by contractual maturity, are shown below.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized	Fair
	Cost	Value
(In Thousands)
After five through ten years	$920	$1,084

The amortized cost and fair values of securities pledged as collateral was as follows at December 31, 2012 and 2011:

	2012		2011
	Amortized	Fair	Amortized	Fair
	Cost	Value	Cost	Value
(In Thousands)
Public deposits	$459,751	$473,679	$463,832	$475,622
Collateralized borrowing accounts	187,700	189,862	235,323	237,576
Structured repurchase agreements	64,298	66,575	65,658	67,498
Other	3,760	3,897	1,600	1,678
Total	$715,509	$734,013	$766,413	$782,374

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at December 31, 2012 and 2011, respectively, was approximately $106.6 million and $172.6 million which is approximately 13.2% and 19.7% of the Company’s available-for-sale and held-to-maturity investment portfolio, respectively.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these debt securities are temporary.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and 2011:

	2012
	Less than 12 Months		12 Months or More		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Description of Securities	Value	Losses	Value	Losses	Value	Losses
(In Thousands)
Collateralized mortgage obligations	$--	$--	$414	$(8)	$414	$(8)
Mortgage-backed securities	106,136	(814)	--	--	106,136	(814)
Total	$106,136	$(814)	$414	$(8)	$106,550	$(822)

	2011
	Less than 12 Months		12 Months or More		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Description of Securities	Value	Losses	Value	Losses	Value	Losses
(In Thousands)
Collateralized mortgage obligations	$3,760	$(110)	$1,460	$(270)	$5,220	$(380)
Mortgage-backed securities	61,720	(365)	91,824	(437)	153,544	(802)
States and political subdivisions	6,436	(44)	7,381	(859)	13,817	(903)
Total	$71,916	$(519)	$100,665	$(1,566)	$172,581	$(2,085)

Other-than-Temporary Impairment

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model.  For securities where the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model.  The Company does not currently have securities within the scope of this guidance for beneficial interests in securitized financial assets.

The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  The Company considers the length of time a security has been in an unrealized loss position, the relative amount of the unrealized loss compared to the carrying value of the security, the type of security and other factors.  If certain criteria are met, the Company performs additional review and evaluation using observable market values or various inputs in economic models to determine if an unrealized loss is other than temporary.  The Company uses quoted market prices for marketable equity securities and uses broker pricing quotes based on observable inputs for equity investments that are not traded on a stock exchange.  For nonagency collateralized mortgage obligations, to determine if the unrealized loss is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss.  The Company also evaluates any current credit enhancement underlying these securities to determine the impact on cash flows.  If the Company determines that a given security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.

During 2012, the Company determined that the impairment of a nonagency collateralized mortgage obligation with a book value of $680,000 had become other than temporary.  Consequently, the Company recorded a total of $680,000 of pre-tax charges to income.  During 2011, the Company determined that the impairment of a nonagency collateralized mortgage obligation with a book value of $1.8 million had become other than temporary.  Consequently, the Company recorded a total of $615,000 of pre-tax charges to income.  This was the same nonagency collateralized mortgage obligation that was also determined to be impaired during 2012.  During 2010, no securities were determined to have impairment that had become other than temporary. 

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired. 

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

	Accumulated Credit Losses
	2012	2011
(In Thousands)
Credit losses on debt securities held
Beginning of year	$3,598	$2,983
Additions related to other-than-temporary losses
not previously recognized	--	--
Additions related to increases in credit losses on debt
securities for which other-than-temporary
impairment losses were previously recognized	680	615
Reductions due to sales	(102)	--
End of year	$4,176	$3,598