INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

6. INVESTMENT SECURITIES

The following is a summary of the Bank’s investment securities portfolio as of March 31, 2013 and December 31, 2012 (000’s omitted):

	Held to Maturity
	March 31, 2013
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Obligations of States and Political Subdivisions	$	38,013	$	1,160	$	(44	)	$	39,129
Corporate Debt Securities		500		-		-			500
	$	38,513	$	1,160	$	(44	)	$	39,629

	Available for Sale
	March 31, 2013
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Obligations of U.S. Government Agencies	$	255,500	$	3,192	$	(261	)	$	258,431
Mortgage Backed Securities issued by U.S. Government Agencies		118,650		2,401		(166	)		120,885
Obligations of States and Political Subdivisions		16,385		586		(20	)		16,951
Trust Preferred CDO Securities		9,521		-		(4,119	)		5,402
Corporate Debt Securities		11,963		218		-			12,181
Equity Securities		2,580		157		(108	)		2,629
	$	414,599	$	6,554	$	(4,674	)	$	416,479

	Held to Maturity
	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Obligations of States and Political Subdivisions	$	38,286	$	1,380	$	(36	)	$	39,630
Corporate Debt Securities		500		-		-			500
	$	38,786	$	1,380	$	(36	)	$	40,130

	Available for Sale
	December 31, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
Obligations of U.S. Government Agencies	$	222,099	$	3,442	$	(90	)	$	225,451
Mortgage Backed Securities issued by U.S. Government Agencies		127,082		2,826		(90	)		129,818
Obligations of States and Political Subdivisions		17,804		630		(64	)		18,370
Trust Preferred CDO Securities		9,525		-		(4,119	)		5,406
Corporate Debt Securities		11,961		156		(40	)		12,077
Equity Securities		2,580		173		(108	)		2,645
	$	391,051	$	7,227	$	(4,511	)	$	393,767

The amortized cost and estimated market values of securities by contractual maturity as of March 31, 2013 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.

	Held to Maturity				Available for Sale
			Estimated				Estimated
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
Contractual maturity in
1 year or less	$	15,170	$	15,188	$	1,696	$	1,698
After 1 year through five years		9,994		10,261		49,676		50,060
After 5 years through 10 years		8,834		9,269		226,258		229,525
After 10 years		4,515		4,911		15,739		11,682
Total		38,513		39,629		293,369		292,965
Mortgage Backed Securities		-		-		118,650		120,885
Securities with no stated maturity		-		-		2,580		2,629
Total	$	38,513	$	39,629	$	414,599	$	416,479

The investment securities portfolio is evaluated for impairment throughout the year. Impairment is recorded against individual securities, unless the decrease in fair value is attributable to interest rates or the lack of an active market, and Management determines that 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 a recovery of their amortized costs bases, which may be maturity. The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012.

	March 31, 2013
	Less than 12 months				12 months or longer				Total
	Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses
Obligations of United States Government Agencies	$	64,069	$	261	$	-	$	-	$	64,069	$	261
Mortgage Backed Securities issued by U.S. Government Agencies		23,481		137		4,388		29		27,869		166
Obligations of States and Political Subdivisions		8,619		56		1,542		8		10,161		64
Trust Preferred CDO Securities		-		-		5,402		4,119		5,402		4,119
Corporate Debt Securities		-		-		-		-		-		-
Equity Securities		-		-		432		108		432		108
	$	96,169	$	454	$	11,764	$	4,264	$	107,933	$	4,718

	December 31, 2012
	Less than 12 months				12 months or longer				Total
	Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses		Aggregate Fair Value		Gross Unrealized Losses
Obligations of United States Government Agencies	$	29,499	$	89	$	1,111	$	1	$	30,610	$	90
Mortgage Backed Securities issued by U.S. Government Agencies		22,217		90		-		-		22,217		90
Obligations of States and Political Subdivisions		7,801		90		1,540		10		9,341		100
Trust Preferred CDO Securities		-		-		5,406		4,119		5,406		4,119
Corporate Debt Securities		1,960		40		-		-		1,960		40
Equity Securities		-		-		432		108		432		108
	$	61,477	$	309	$	8,489	$	4,238	$	69,966	$	4,547

The amount of investment securities issued by government agencies, states, and political subdivisions with unrealized losses and the amount of unrealized losses on those investment securities are primarily the result of market interest rates and not the result of the credit quality of the issuers of the securities. 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 bases, which may be maturity, the Company does not consider those investments to be other than temporarily impaired at March 31, 2013.

The Trust Preferred CDO Securities consist of three pooled trust Preferred Collateralized Debt Obligations (CDOs). These CDOs are debt securities issued by special purpose entities that own trust preferred stock issued by banks and insurance companies. The trust preferred stock owned by the special purpose entities is the collateral that backs the debt securities we own. The three pooled CDOs that we own have each been in an unrealized loss position for more than 12 months. These securities have final maturity dates of 2033, 2035, and 2037. The main reasons for the impairment are the overall decline in market values for financial industry securities and the lack of an active market for these types of securities in particular.

To determine whether or not the impairment is other-than-temporary, the Company utilizes a third party valuation service to conduct a fair value analysis of each individual security. The other-than-temporary-impairment analysis of each of the CDO securities owned by the Company is conducted by projecting the expected cash flows from the security, discounting the cash flows to determine the present value of the cash flows, and comparing the present value to the amortized cost to determine if there is impairment. The cash flow projection for each security is developed using estimated prepayment speeds, estimated rates at which payments will be deferred, estimated rates at which issuers will default, and the severity of the losses on the securities which default. Prepayment estimates are negatively impacted by the lack of an active market for issuers to refinance their trust preferred securities; however, prepayment of trust preferred securities is expected to increase due to recent restrictions on the treatment of trust preferred debt as regulatory capital.

The size and creditworthiness of each institution in the CDO pool are the most significant pieces of evidence in estimating prepayment speeds. Deferral and default rates are the key drivers of the cash flow projections for each of the securities. Deferral of interest payments is allowed for up to five years, and estimates of deferral rates are determined by examining the current deferral status of the issuers, the current financial condition of the issuers, and the historical deferral levels of the issuers in each CDO pool. Key evidence examined includes whether or not an issuer has received TARP funding, the most recent credit ratings from outside services, stock price information, capitalization, asset quality, profitability, and liquidity. The most significant evidence in estimating deferrals is the comparison of key financial ratios to industry benchmarks. Near term (next 12 months) deferral rates are estimated for each security by analyzing the credit characteristics of each individual issuer in the pool. When an issuer is expected to defer interest payments, the analysis assumes that the deferral will continue for the entire five year period allowed and then, depending on the individual credit characteristics of that issuer, begin performing or move to default. Longer term annual default rates for each CDO are estimated using the credit analysis of each individual issuer compared industry benchmarks to modify the historical default rates of financial companies. Finally, loss severity is estimated using analytical research provided by Standard and Poor’s and Moody’s, which supports the assumption that a small percentage of defaulted trust preferred securities recover without loss. The projected cash flows are discounted using the contractual rate of each security.

In the Other-Than-Temporary-Impairment (OTTI) analysis of our CDO securities as of December 31, 2009, it was expected that there would be cash flow disruptions on two of the CDOs we own. These credit losses were recorded through a charge to earnings in 2009. In subsequent analyses in 2010, 2011, and 2012, the expectation of a disruption of cash flows diminished on both of these CDO securities, with one of the securities no longer expected to experience a disruption of cash flow. The present value of the expected cash flows is at least as great as the amortized costs bases following the charges to earnings recorded in 2009, so no additional charges to earnings have been recorded.