NOTE 7. Securities

This table provides the major components of securities available for sale (“AFS”) and held to maturity (“HTM”) at amortized cost and estimated fair value at September 30, 2014 and December 31, 2013:


	September 30, 2014								December 31, 2013
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Available for sale:
U.S. Government sponsored entities	$	4,758	$	-	$	(174)	$	4,584	$	6,723	$	27	$	(332)	$	6,418
State and political subdivisions		13,273		200		(128)		13,345		16,960		192		(554)		16,598
Residential mortgage-backed securities		35,769		592		(249)		36,112		44,168		696		(475)		44,389
Commercial mortgage-backed securities		-		-		-		-		887		2		(1)		888
Corporate and other securities		12,258		44		(289)		12,013		13,173		67		(400)		12,840
Total securities available for sale	$	66,058	$	836	$	(840)	$	66,054	$	81,911	$	984	$	(1,762)	$	81,133
Held to maturity:
U.S. Government sponsored entities	$	4,625	$	-	$	(243)	$	4,382	$	5,814	$	-	$	(460)	$	5,354
State and political subdivisions		2,418		254		-		2,672		2,441		121		(17)		2,545
Residential mortgage-backed securities		8,769		194		(64)		8,899		10,395		145		(198)		10,342
Commercial mortgage-backed securities		4,031		-		(200)		3,831		6,750		87		(437)		6,400
Corporate and other securities		982		-		(28)		954		981		-		(73)		908
Total securities held to maturity	$	20,825	$	448	$	(535)	$	20,738	$	26,381	$	353	$	(1,185)	$	25,549

This table provides the remaining contractual maturities and yields of securities within the investment portfolios. The carrying value of securities at September 30, 2014 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.


	Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
(In thousands, except percentages)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Available for sale at fair value:
U.S. Government sponsored entities	$	-	-	%	$	1,011	1.00	%	$	948	2.07	%	$	2,625	2.04	%	$	4,584	1.82	%
State and political subdivisions		-	-			1,129	2.70			8,454	2.70			3,762	2.63			13,345	2.68
Residential mortgage-backed securities		-	-			1,912	1.73			2,454	1.86			31,746	2.80			36,112	2.68
Corporate and other securities		-	-			2,407	1.00			3,533	2.08			6,073	1.44			12,013	1.54
Total securities available for sale	$	-	-	%	$	6,459	1.51	%	$	15,389	2.39	%	$	44,206	2.55	%	$	66,054	2.41	%
Held to maturity at cost:
U.S. Government sponsored entities	$	-	-	%	$	-	-	%	$	-	-	%	$	4,625	1.96	%	$	4,625	1.96	%
State and political subdivisions		309	0.75			-	-			-	-			2,109	4.71			2,418	4.21
Residential mortgage-backed securities		-	-			532	4.89			285	5.20			7,952	2.32			8,769	2.57
Commercial mortgage-backed securities		-	-			-	-			-	-			4,031	2.76			4,031	2.76
Corporate and other securities		-	-			-	-			982	2.95			-	-			982	2.95
Total securities held to maturity	$	309	0.75	%	$	532	4.89	%	$	1,267	3.46	%	$	18,717	2.60	%	$	20,825	2.68	%

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013 are as follows:


	September 30, 2014
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		4	$	-	$	-	$	4,553	$	(174)	$	4,553	$	(174)
State and political subdivisions		10		751		(2)		5,301		(126)		6,052		(128)
Residential mortgage-backed securities		13		11,289		(77)		7,250		(172)		18,539		(249)
Corporate and other securities		8		3,047		(74)		3,768		(215)		6,815		(289)
Total temporarily impaired securities		35	$	15,087	$	(153)	$	20,872	$	(687)	$	35,959	$	(840)
Held to maturity:
U.S. Government sponsored entities		2	$	-	$	-	$	4,381	$	(243)	$	4,381	$	(243)
Residential mortgage-backed securities		3		-		-		2,717		(64)		2,717		(64)
Commercial mortgage-backed securities		2		-		-		3,831		(200)		3,831		(200)
Corporate and other securities		1		-		-		953		(28)		953		(28)
Total temporarily impaired securities		8	$	-	$	-	$	11,882	$	(535)	$	11,882	$	(535)


	December 31, 2013
			Less than 12 months				12 months and greater				Total
(In thousands, except number in a loss position)	Total number in a loss position		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss		Estimated fair value		Unrealized loss
Available for sale:
U.S. Government sponsored entities		5	$	5,591	$	(332)	$	-	$	-	$	5,591	$	(332)
State and political subdivisions		19		8,575		(453)		934		(101)		9,509		(554)
Residential mortgage-backed securities		13		13,226		(398)		1,474		(77)		14,700		(475)
Commercial mortgage-backed securities		3		368		(1)		-		-		368		(1)
Corporate and other securities		9		3,994		(105)		3,088		(295)		7,082		(400)
Total temporarily impaired securities		49	$	31,754	$	(1,289)	$	5,496	$	(473)	$	37,250	$	(1,762)
Held to maturity:
U.S. Government sponsored entities		3	$	5,355	$	(460)	$	-	$	-	$	5,355	$	(460)
State and political subdivisions		2		986		(17)		-		-		986		(17)
Residential mortgage-backed securities		7		6,333		(193)		114		(5)		6,447		(198)
Commercial mortgage-backed securities		2		3,668		(437)		-		-		3,668		(437)
Corporate and other securities		1		907		(73)		-		-		907		(73)
Total temporarily impaired securities		15	$	17,249	$	(1,180)	$	114	$	(5)	$	17,363	$	(1,185)

Unrealized Losses

The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow:

U.S. government sponsored entities and state and political subdivision securities: The unrealized losses on investments in these types of securities were caused by the increase in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of September 30, 2014. There was no impairment on these securities at December 31, 2013.

Residential and commercial mortgage-backed securities: The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The majority of contractual cash flows of these securities are guaranteed by Fannie Mae, Ginnie Mae and the Federal Home Loan Mortgage Corporation. It is expected that the securities would not be settled at a price significantly less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2014 or December 31, 2013.

Corporate and other securities: Included in this category are corporate debt securities, Community Reinvestment Act (“CRA”) investments, asset-backed securities, and one trust preferred security. The unrealized losses on corporate debt securities were due to widening credit spreads or the increase in interest rates at the long end of the Treasury curve and the unrealized losses on CRA investments were caused by decreases in the market prices of the shares. The Company evaluated the prospects of the issuers and forecasted a recovery period; and as a result determined it did not consider these investments to be other-than-temporarily impaired as of September 30, 2014 or December 31, 2013. The unrealized loss on the trust preferred security was caused by an inactive trading market and changes in market credit spreads. At September 30, 2014 and December 31, 2013, this category consisted of one single-issuer trust preferred security. The contractual terms do not allow the security to be settled at a price less than the par value. Because the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity, the Company did not consider this security to be other-than-temporarily impaired as of September 30, 2014 or December 31, 2013.

Realized Gains and Losses

Gross realized gains (losses) on securities for the three and nine months ended September 30, 2014 and 2013 are detailed in the table below:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2014		2013		2014		2013
Available for sale:
Realized gains	$	-	$	34	$	385	$	371
Realized losses		-		-		(7)		(4)
Total securities available for sale		-		34		378		367
Held to maturity:
Realized gains		-		-		-		-
Realized losses		-		-		-		-
Total securities held to maturity		-		-		-		-
Net gains on sales of securities	$	-	$	34	$	378	$	367

The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains. There were no realized gains or losses for the three months ended September 30, 2014 and there were gross realized gains of $385 thousand for the nine months ended September 30, 2014. There were no gross realized losses for the three months ended September 30, 2014 and there were gross realized losses of $7 thousand for the nine months ended September 30, 2014. The net realized gains during 2014 were a result of the following:

For the nine months ended September 30, 2014, the Company sold approximately $17.5 million in book value of available for sale municipal securities, mortgage-backed securities, asset-backed securities, and corporate bonds, resulting in pre-tax gains of approximately $385 thousand.

For the three and nine months ended September 30, 2013, there were gross realized gains of $34 thousand and $371 thousand, respectively. There were no realized losses during the third quarter of 2013 and gross realized losses of $4 thousand for the year-to-date period. The net realized gains during 2013 were a result of the following:

For the nine months ended September 30, 2013, the Company sold approximately $11.8 million in book value of available for sale asset-backed securities, mortgage-backed securities, and corporate bonds, resulting in pre-tax gains of approximately $371 thousand.

Pledged Securities

Securities with a carrying value of $53.1 million and $74.5 million at September 30, 2014 and December 31, 2013, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law. Included in these figures was $33.6 million and $19.9 million pledged against municipal deposits at September 30, 2014 and December 31, 2013, respectively.