Note 3.

Investment Securities

The amortized cost and estimated fair value of available-for-sale securities, including gross unrealized gains and losses, at December 31, 2012, and 2011, were as follows:


	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
(Amounts in thousands)
Municipal securities	$	151,119	$	8,195	$	(97	)	$	159,217	$	—
Single issue trust preferred securities		55,707		—		(11,061	)		44,646		—
Mortgage-backed securities:
Agency		310,323		6,023		(449	)		315,897		—
Non-Agency Alt-A residential		14,215		—		(3,148	)		11,067		(3,148	)

Total mortgage-backed securities		324,538		6,023		(3,597	)		326,964		(3,148	)
Equity securities		3,446		190		(105	)		3,531		—

Total	$	534,810	$	14,408	$	(14,860	)	$	534,358	$	(3,148	)


	December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
(Amounts in thousands)
Municipal securities	$	131,498	$	6,317	$	—		$	137,815	$	—
Single issue trust preferred securities		55,649		—		(15,405	)		40,244		—
Corporate FDIC insured securities		13,685		33		—			13,718		—
Mortgage-backed securities:
Agency		274,384		6,003		(285	)		280,102		—
Non-Agency Alt-A residential		15,980		—		(5,950	)		10,030		(5,950	)

Total mortgage-backed securities		290,364		6,003		(6,235	)		290,132		(5,950	)
Equity securities		419		206		(104	)		521		—

Total	$	491,615	$	12,559	$	(21,744	)	$	482,430	$	(5,950	)

(1)	Other-than-temporary impairment in accumulated other comprehensive income

The amortized cost, fair value, and weighted-average yield of available-for-sale securities by contractual maturity at December 31, 2012, 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.


(Amounts in thousands)	States and Political Subdivisions			Corporate Notes			Total			Tax Equivalent Purchase Yield ⁽¹⁾
Available-for-Sale
Amortized cost maturity:
Within one year	$	111		$	—		$	111			5.53	%
After one year through five years		19,813			—			19,813			5.53	%
After five years through ten years		18,888			—			18,888			5.62	%
After ten years		112,307			55,707			168,014			4.46	%

Amortized cost	$	151,119		$	55,707			206,826

Mortgage-backed securities								324,538			2.50	%
Equity securities								3,446			0.47	%

Total amortized cost							$	534,810

Tax equivalent purchase yield		5.24	%		3.12	%		4.67	%
Average contractual maturity (in years)		10.81			14.86			11.90

Fair value maturity:
Within one year	$	113		$	—		$	113
After one year through five years		20,523			—			20,523
After five years through ten years		19,864			—			19,864
After ten years		118,717			44,646			163,363

Fair value	$	159,217		$	44,646			203,863

Mortgage-backed securities								326,964
Equity securities								3,531

Total fair value							$	534,358

(1)	Fully taxable equivalent at the rate of 35%.

The amortized cost and estimated fair value of held-to-maturity securities, including gross unrealized gains and losses, at December 31, 2012 and 2011, were as follows:


	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Amounts in thousands)
Municipal securities	$	816	$	16	$	—	$	832

Total	$	816	$	16	$	—	$	832

	December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(Amounts in thousands)
Municipal securities	$	3,490	$	42	$	—	$	3,532

Total	$	3,490	$	42	$	—	$	3,532

The amortized cost, fair value, and weighted-average yield of securities by contractual maturity at December 31, 2012, 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.


(Amounts in thousands)	States and Political Subdivisions			Tax Equivalent Purchase Yield ⁽¹⁾
Held-to-Maturity
Amortized cost maturity:
Within one year	$	250			7.99	%
After one year through five years		566			8.13	%
After five years through ten years		—			0.00	%
After ten years		—			0.00	%

Total amortized cost	$	816

Tax equivalent purchase yield		8.09	%
Average contractual maturity (in years)		1.73

Fair value maturity:
Within one year	$	253
After one year through five years		579
After five years through ten years		—
After ten years		—

Total fair value	$	832

(1)	Fully taxable equivalent at the rate of 35%.

The carrying value of securities pledged to secure public deposits and for other purposes was $292.88 million at December 31, 2012, and $288.80 million at December 31, 2011.

The following table details the Company’s gross gains and gross losses realized from the sale of securities for the periods indicated:


	2012			2011			2010
(Amounts in thousands)
Gross realized gains	$	723		$	6,963		$	8,969
Gross realized losses		(240	)		(1,699	)		(696	)

Net gain on sale of securities	$	483		$	5,264		$	8,273

The following tables reflect available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer at December 31, 2012 and 2011. There were no held-to-maturity securities in a continuous unrealized loss position at December 31, 2012 or 2011. There were 12 securities in a continuous unrealized loss position for 12 or more months for which the Company does not intend to sell and has determined that it is more likely than not going to be required to sell at December 31, 2012, until the security matures or recovers in value.


	December 31, 2012
	Less than 12 Months					12 Months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(Amounts in thousands)
Municipal securities	$	6,436	$	(97	)	$	—	$	—		$	6,436	$	(97	)
Single issue trust preferred securities		—		—			44,646		(11,061	)		44,646		(11,061	)
Mortgage-backed securities:
Agency		74,197		(449	)		15		—			74,212		(449	)
Non-Agency Alt-A residential		—		—			11,066		(3,148	)		11,066		(3,148	)

Total mortgage-backed securities		74,197		(449	)		11,081		(3,148	)		85,278		(3,597	)
Equity securities		3,106		(25	)		108		(80	)		3,214		(105	)

Total	$	83,739	$	(571	)	$	55,835	$	(14,289	)	$	139,574	$	(14,860	)


	December 31, 2011
	Less than 12 Months					12 Months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(Amounts in thousands)
Single issue trust preferred securities	$	—	$	—		$	40,244	$	(15,405	)	$	40,244	$	(15,405	)
Mortgage-backed securities:
Agency		52,300		(285	)		—		—			52,300		(285	)
Non-Agency Alt-A residential		—		—			10,030		(5,950	)		10,030		(5,950	)

Total mortgage-backed securities		52,300		(285	)		10,030		(5,950	)		62,330		(6,235	)
Equity securities		—		—			188		(104	)		188		(104	)

Total	$	52,300	$	(285)		$	50,462	$	(21,459	)	$	102,762	$	(21,744	)

At December 31, 2012, the combined depreciation in value of the 57 individual securities in an unrealized loss position was 2.78% of the combined reported value of the aggregate securities portfolio. At December 31, 2011, the combined depreciation in value of the 28 individual securities in an unrealized loss position was 4.51% of the combined reported value of the aggregate securities portfolio.

The Company reviews its investment portfolio on a quarterly basis for indications of other-than-temporary impairment (“OTTI”). The analysis differs depending upon the type of investment security being analyzed. For debt securities, the Company has determined that it does not intend to sell securities that are impaired and has asserted that it is not more likely than not that the Company will have to sell impaired securities before recovery of the impairment occurs. This determination is based upon the Company’s investment strategy for the particular type of debt security and its cash flow needs, liquidity position, capital adequacy, and interest rate risk position.

For nonbeneficial interest debt securities, the Company analyzes several qualitative factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies, and other qualitative factors to determine if the impairment will be recovered. Nonbeneficial interest debt securities consist of U.S. treasury securities, municipal securities, and single issue trust preferred securities. If it is determined that there is evidence that the impairment will not be recovered, the Company performs a present value calculation to determine the amount of impairment and records any credit-related OTTI through earnings and noncredit-related OTTI through OCI. During the years ended December 31, 2012 and 2011, the Company incurred no OTTI charges related to nonbeneficial interest debt securities. Temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, destabilization in the Eurozone, and other current economic factors. At December 31, 2012, the Company’s investment in single issue trust preferred securities is comprised of investments in five of the nation’s largest bank holding companies.

For beneficial interest debt securities, the Company reviews cash flow analyses on each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. Beneficial interest debt securities consist of corporate FDIC insured securities and mortgage-backed securities (“MBS”). An adverse change in cash flows expected to be collected has occurred if the present value of cash flows previously projected is greater than the present value of cash flows projected at the current reporting date and less than the current book value. If an adverse change in cash flows is deemed to have occurred, then an OTTI has occurred. The Company then compares the present value of cash flows using the current yield for the current reporting period to the reference amount, or current net book value, to determine the credit-related OTTI. The credit-related OTTI is then recorded through earnings and the noncredit-related OTTI is accounted for in OCI. During the years ended December 31, 2012 and 2011, the Company incurred credit-related OTTI charges related to beneficial interest debt securities of $942 thousand and $2.29 million, respectively. These charges were related to a non-Agency MBS.

For the non-Agency Alt-A residential MBS, the Company uses a discounted cash flow model with the following assumptions: voluntary constant prepayment rate of 5%, a customized constant default rate scenario that assumes approximately 21% of the remaining underlying mortgages will default within three years, and a customized loss severity rate scenario that ramps the loss rate down from 72% to 15% over the course of approximately seven years.

The following table provides a cumulative roll forward of credit losses recognized in earnings for debt securities for which a portion of an OTTI is recognized in OCI:


	December 31, 2012		December 31, 2011
(Amounts in thousands)

Beginning balance ⁽¹⁾	$	6,536	$	4,251
Additions for credit losses on securities not previously recognized		—		—
Additions for credit losses on securities previously recognized		942		2,285
Reduction for increases in cash flows		—		—
Reduction for securities management no longer intends to hold to recovery		—		—
Reduction for securities sold/realized losses		—		—

Ending balance	$	7,478	$	6,536

(1)	The beginning balance includes credit related losses included in OTTI charges recognized on debt securities in prior periods.

For equity securities, the Company reviews for OTTI based upon the prospects of the underlying companies, analysts’ expectations, and certain other qualitative factors to determine if impairment is recoverable over a foreseeable period of time. During 2012 and 2011, the Company recognized no OTTI charges on equity securities.