NOTE 4. SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY

The following is a summary of securities available for sale and held to maturity:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2013
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	80,897	$	4,784	$	(222	)	$	85,459
Government guaranteed residential mortgage-backed securities	42,968		707		(35		)	43,640
Government-sponsored residential mortgage-backed securities	336,894		2,666		(255		)	339,305
Corporate bonds	36,042		248		(74		)	36,216
Trust preferred securities	18,713		1,537		(1,873		)	18,377
Other bonds and obligations	3,374		9		(1		)	3,382
Total debt securities	518,888		9,951		(2,460		)	526,379
Equity securities:
Marketable equity securities	28,536		4,120		(160		)	32,496
Total securities available for sale	547,424		14,071		(2,620		)	558,875

Securities held to maturity
Municipal bonds and obligations	8,289		—		—			8,289
Government-sponsored residential mortgage-backed securities	75		7		—			82
Tax advantaged economic development bonds	41,331		1,615		(460		)	42,486
Other bonds and obligations	777		—		—			777
Total securities held to maturity	50,472		1,622		(460		)	51,634

Total	$	597,896	$	15,693	$	(3,080	)	$	610,509

December 31, 2012
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	79,498	$	5,359	$	(100	)	$	84,757
Government guaranteed residential mortgage-backed securities	42,305		805		(18		)	43,092
Government-sponsored residential mortgage-backed securities	275,940		2,732		(79		)	278,593
Corporate bonds	9,998		117		(108		)	10,007
Trust preferred securities	21,784		1,089		(1,916		)	20,957
Other bonds and obligations	3,459		17		(4		)	3,472
Total debt securities	432,984		10,119		(2,225		)	440,878

Marketable equity securities	22,467		3,187		(363		)	25,291
Total securities available for sale	455,451		13,306		(2,588		)	466,169

Securities held to maturity
Municipal bonds and obligations	8,295		—		—			8,295
Government-sponsored residential mortgage-backed securities	76		7		—			83
Tax advantaged economic development bonds	41,678		1,837		(378		)	43,137
Other bonds and obligations	975		—		—			975
Total securities held to maturity	51,024		1,844		(378		)	52,490

Total	$	506,475	$	15,150	$	(2,966	)	$	518,659

The amortized cost and estimated fair value of available for sale (“AFS”) and held to maturity (“HTM”) securities, segregated by contractual maturity at March 31, 2013 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable. Equity securities have no maturity and are also shown in total.

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value

Within 1 year	$	100	$	100	$	4,500	$	4,500
Over 1 year to 5 years	9,922		10,048		4,208		4,259
Over 5 years to 10 years	46,876		47,729		25,382		26,252
Over 10 years	82,128		85,557		16,307		16,541
Total bonds and obligations	139,026		143,434		50,397		51,552

Marketable equity securities	28,536		32,496		—		—
Residential mortgage-backed securities	379,862		382,945		75		82

Total	$	547,424	$	558,875	$	50,472	$	51,634

Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:

	Less Than Twelve Months				Over Twelve Months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value		Losses		Value		Losses		Value
March 31, 2013

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	222	$	9,308	$	—	$	—	$	222	$	9,308
Government-guaranteed residential mortgage-backed securities	35		5,355		—		—		35		5,355
Government-sponsored residential mortgage-backed securities	255		91,375		—		—		255		91,375
Corporate bonds	73		15,859		1		5,000		74		20,859
Trust preferred securities	1		1,545		1,872		1,728		1,873		3,273
Other bonds and obligations	1		1,986		—		—		1		1,986
Total debt securities	587		125,428		1,873		6,728		2,460		132,156

Marketable equity securities	18		1,713		142		1,858		160		3,571
Total securities available for sale	605		127,141		2,015		8,586		2,620		135,727

Securities held to maturity
Tax advantaged economic development bonds	460		7,987		—		—		460		7,987
Total securities held to maturity	460		7,987		—		—		460		7,987

Total	$	1,065	$	135,128	$	2,015	$	8,586	$	3,080	$	143,714

December 31, 2012

Securities available for sale
Debt securities:
Municipal bonds and obligations	$	100	$	4,140	$	—	$	—	$	100	$	4,140
Government guaranteed residential mortgage-backed securities	18		5,108		—		—		18		5,108
Government-sponsored residential mortgage-backed securities	69		31,433		10		5,366		79		36,799
Corporate bonds	—		—		108		6,892		108		6,892
Trust preferred securities	1		2,754		1,915		1,686		1,916		4,440
Other bonds and obligations	4		2,055		—		—		4		2,055
Total debt securities	192		45,490		2,033		13,944		2,225		59,434

Marketable equity securities	90		1,410		273		1,727		363		3,137
Total securities available for sale	$	282	$	46,900	$	2,306	$	15,671	$	2,588	$	62,571

Securities held to maturity
Tax advantaged economic development bonds	378		8,129		—		—		378		8,129
Total securities held to maturity	378		8,129		—		—		378		8,129

Total	$	660	$	55,029	$	2,306	$	15,671	$	2,966	$	70,700

Debt Securities

The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of March 31, 2013, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover. The following summarizes, by investment security type, the basis for the conclusion that the debt securities in an unrealized loss position within the Company’s AFS and HTM portfolios were not other-than-temporarily impaired at March 31, 2013:

AFS municipal bonds and obligations

At March 31, 2013, 12 of the total 140 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.3% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and we are appropriately compensated for that risk. There were no material underlying credit downgrades during the first quarter of 2013. All securities are performing.

AFS residential mortgage-backed securities

At March 31, 2013, 18 out of the total 186 securities in the Company’s portfolios of AFS residential mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions within the AFS portfolio. The Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Government National Mortgage Association (“GNMA”) guarantee the contractual cash flows of all of the Company’s residential mortgage-backed securities. The securities are investment grade rated and there were no material underlying credit downgrades during the past quarter. All securities are considered performing.

AFS corporate bonds

At March 31, 2013, 5 out of the total 8 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represented less than 1% of the amortized cost of the securities. All 5 securities remain investment grade rated and the market value of the securities supports the Company’s amortized value. The securities are considered performing.

AFS trust preferred securities

At March 31, 2013, 3 out of the total 7 securities in the Company’s portfolio of AFS trust preferred securities were in unrealized loss positions. Aggregate unrealized losses represented 36.4% of the amortized cost of securities in unrealized loss positions. The Company’s evaluation of the present value of expected cash flows on these securities supports its conclusions about the recoverability of the securities’ amortized cost basis. 5 of the 7 securities contain at least one below investment grade ratings. The Company reviews the financial strength of all of the single issue trust issuers and has concluded that the amortized cost remains supported by the market value of these securities and they are considered performing.

At March 31, 2013, $1.7 million of the total unrealized losses was attributable to a $2.6 million investment in a Mezzanine Class B tranche of a $360 million pooled trust preferred security issued by banking and insurance entities. The Company evaluated the security, with a Level 3 fair value of $0.9 million, for potential other-than-temporary-impairment (“OTTI”) at March 31, 2013 and determined that OTTI was not evident based on both the Company’s ability and intent to hold the security until the recovery of its remaining amortized cost and the protection from credit loss afforded by $51 million in excess subordination above current and projected losses. The security is considered performing.

HTM tax advantaged economic development bonds

At March 31, 2013, 1 of the total 8 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 5.5% of the amortized cost of securities in unrealized loss positions. The Company has the intent of maintaining these bonds to recovery. All securities are considered performing.

AFS other bonds and obligations

At March 31, 2013, 1 of the total 10 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented less than 1% of the amortized cost of securities in unrealized loss positions. The securities are investment grade rated and there were no material underlying credit downgrades during the first quarter of 2013. All securities are performing.

Marketable Equity Securities

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability to more likely than not hold an equity security to recovery. The Company additionally considers other various factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI is recognized immediately through earnings.

At March 31, 2013, 3 out of the total 26 securities in the Company’s portfolio of marketable equity securities were in an unrealized loss position. The unrealized loss represented 4.3% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until a recovery of their cost basis and does not consider the securities other-than-temporarily impaired at March 31, 2013. As new information becomes available in future periods, changes to the Company’s assumptions may be warranted and could lead to a different conclusion regarding the OTTI of these securities.