Note 3. Securities

The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at March 31, 2014 and December 31, 2013 are as follows (in thousands):


	At March 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Investment securities:
U.S. agency obligations	$	30,090	$	91	$	—		$	30,181
Equity investments		7,408		1,672		—			9,080

Total investment securities available-for-sale	$	37,498	$	1,763	$	—		$	39,261

Held-to-maturity:
Investment securities:
U.S. agency obligations	$	87,155	$	141	$	(158	)	$	87,138
State and municipal obligations		20,810		34		(23	)		20,821
Corporate debt securities		55,000		—		(10,037	)		44,963

Total investment securities		162,965		175		(10,218	)		152,922

Mortgage-backed securities:
FHLMC		148,882		488		(2,990	)		146,380
FNMA		196,450		4,417		(2,597	)		198,270
GNMA		693		118		—			811

Total mortgage-backed securities		346,025		5,023		(5,587	)		345,461

Total held-to-maturity	$	508,990	$	5,198	$	(15,805	)	$	498,383

Total securities	$	546,488	$	6,961	$	(15,805	)	$	537,644


	At December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Investment securities:
U.S. agency obligations	$	35,128	$	161	$	—		$	35,289
Equity investments		6,757		1,790		—			8,547

Total investment securities available-for-sale	$	41,885	$	1,951	$	—		$	43,836

Held-to-maturity:
Investment securities:
U.S. agency obligations	$	82,406	$	153	$	(144	)	$	82,415
State and municipal obligations		21,784		36		(35	)		21,785
Corporate debt securities		55,000		—		(10,750	)		44,250

Total investment securities		159,190		189		(10,929	)		148,450

Mortgage-backed securities:
FHLMC		148,759		447		(4,552	)		144,654
FNMA		200,070		4,659		(3,607	)		201,122
GNMA		721		135		—			856

Total mortgage-backed securities		349,550		5,241		(8,159	)		346,632

Total held-to-maturity	$	508,740	$	5,430	$	(19,088	)	$	495,082

Total securities	$	550,625	$	7,381	$	(19,088	)	$	538,918

During the third quarter 2013 the Bank transferred $536.0 million of previously-designated available-for-sale securities to a held-to-maturity designation at fair value. The securities transferred had an unrealized net loss of $13.3 million at the time of transfer which continues to be reflected in accumulated other comprehensive loss on the consolidated balance sheet, net of subsequent amortization, which is being recognized over the life of the securities. The carrying value of the held-to-maturity investment securities at March 31, 2014 is as follows (in thousands):


Amortized cost	$	508,990
Net loss on date of transfer from available-for-sale		(13,347	)
Amortization of net loss		468

Carrying value	$	496,111

There were no realized gains or losses on the sale of securities for the three months ended March 31, 2014 and 2013.

The amortized cost and estimated fair value of investment securities, excluding equity investments, at March 31, 2014 by contractual maturity, are shown below (in thousands). Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2014, corporate debt securities with an amortized cost and estimated market value of $55.0 million and $45.0 million, respectively, were callable prior to the maturity date.


March 31, 2014	Amortized Cost		Estimated Fair Value
Less than one year	$	48,552	$	48,682
Due after one year through five years		83,272		83,289
Due after five years through ten years		6,231		6,169
Due after ten years		55,000		44,963

	$	193,055	$	183,103

Mortgage-backed securities are excluded from the above table since their effective lives are expected to be shorter than the contractual maturity date due to principal prepayments.

The estimated fair value and unrealized loss for securities held-to-maturity at March 31, 2014 and December 31, 2013, segregated by the duration of the unrealized loss, are as follows (in thousands):


	At March 31, 2014
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Held-to-maturity:
Investment securities:
U.S. agency obligations	$	40,654	$	(158	)	$	—	$	—		$	40,654	$	(158	)
State and municipal obligations		5,970		(22	)		460		(1	)		6,430		(23	)
Corporate debt securities		—		—			44,963		(10,037	)		44,963		(10,037	)

Total investment securities		46,624		(180	)		45,423		(10,038	)		92,047		(10,218	)

Mortgage-backed securities:
FHLMC		101,331		(2,100	)		21,295		(890	)		122,626		(2,990	)
FNMA		60,044		(1,875	)		16,277		(722	)		76,321		(2,597	)

Total mortgage-backed securities		161,375		(3,975	)		37,572		(1,612	)		198,947		(5,587	)

Total held-to-maturity	$	207,999	$	(4,155	)	$	82,995	$	(11,650	)	$	290,994	$	(15,805	)


	At December 31, 2013
	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Held-to-maturity:
Investment securities:
State and municipal obligations	$	35,747	$	(144	)	$	—	$	—		$	35,747	$	(144	)
Corporate debt securities		3,526		(31	)		1,153		(4	)		4,679		(35	)
Equity investments		—		—			44,250		(10,750	)		44,250		(10,750	)

Total investment securities		39,273		(175	)		45,403		(10,754	)		84,676		(10,929	)

Mortgage-backed securities:
FHLMC		122,365		(4,552	)		—		—			122,365		(4,552	)
FNMA		84,467		(3,607	)		—		—			84,467		(3,607	)

Total mortgage-backed securities		206,832		(8,159	)		—		—			206,832		(8,159	)

Total held-to-maturity	$	246,105	$	(8,334	)	$	45,403	$	(10,754	)	$	291,508	$	(19,088	)

At March 31, 2014, the amortized cost, estimated fair value and credit rating of the individual corporate debt securities in an unrealized loss position for greater than one year are as follows (in thousands):


Security Description	Amortized Cost		Estimated Fair Value		Credit Rating Moody’s/S&P
BankAmerica Capital	$	15,000	$	12,000	Ba1/BB+
Chase Capital		10,000		8,350	Baa2/BBB
Wells Fargo Capital		5,000		4,150	A3/A-
Huntington Capital		5,000		4,100	Baa3/BB+
Keycorp Capital		5,000		4,050	Baa3/BBB-
PNC Capital		5,000		4,100	Baa2/BBB
State Street Capital		5,000		4,107	A3/BBB+
SunTrust Capital		5,000		4,106	Baa3/BB+

	$	55,000	$	44,963

At March 31, 2014, the fair value of each corporate debt security was below cost. However, the estimated fair value of the corporate debt securities increased as compared to December 31, 2013. The corporate debt securities are issued by other financial institutions with credit ratings ranging from a high of A3 to a low of Ba1 as rated by one of the internationally-recognized credit rating services. These floating-rate securities were purchased in 1998 and have paid coupon interest continuously since issuance. Floating-rate debt securities such as these pay a fixed interest rate spread over 90-day LIBOR. Following the purchase of these securities, the required spread increased for these types of securities causing a decline in the market price. The Company concluded that unrealized losses on corporate debt securities were only temporarily impaired at March 31, 2014. In concluding that the impairments were only temporary, the Company considered several factors in its analysis. The Company noted that each issuer made all the contractually due payments when required. There were no defaults on principal or interest payments and no interest payments were deferred. All of the financial institutions are also considered well-capitalized. Credit spreads have decreased for these types of securities and market prices have improved. Based on management’s analysis of each individual security, the issuers appear to have the ability to meet debt service requirements over the life of the security. Furthermore, the Company does not have the intent to sell these securities and it is more likely than not that the Company will not be required to sell the securities. The Company has held the securities continuously since 1998 and expects to receive its full principal at maturity in 2028 or prior if called by the issuer. The Company has historically not actively sold investment securities and has not utilized the securities portfolio as a source of liquidity. The Company’s long range liquidity plans indicate adequate sources of liquidity outside the securities portfolio.

The mortgage-backed securities are issued and guaranteed by either the Federal Home Loan Mortgage Corporation (“FHLMC”) or Federal National Mortgage Association (“FNMA”), corporations which are chartered by the United States Government and whose debt obligations are typically rated AA+ by one of the internationally-recognized credit rating services. The Company considers the unrealized losses to be the result of changes in interest rates which over time can have both a positive and negative impact on the estimated market value of the mortgage-backed securities. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost. As a result, the Company concluded that these securities were only temporarily impaired at March 31, 2014.