Note 3. Investment Securities

At June 30, 2014, the Company had $1.16 billion and $454.6 million in available for sale and held to maturity investment securities, respectively. Many factors, including lack of liquidity in the secondary market for certain securities, variations in pricing information, regulatory actions, changes in the business environment or any changes in the competitive marketplace could have an adverse effect on the Company’s investment portfolio which could result in other-than-temporary impairment on certain investment securities in future periods. The total number of all held to maturity and available for sale securities in an unrealized loss position as of June 30, 2014 totaled 408, compared with 346 at December 31, 2013. All securities with unrealized losses at June 30, 2014 were analyzed for other-than-temporary impairment. Based upon this analysis, no other-than-temporary impairment existed at June 30, 2014.

Securities Available for Sale

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the fair value for securities available for sale at June 30, 2014 and December 31, 2013 (in thousands):



	June 30, 2014
	Amortized cost		Gross unrealized gains	Gross unrealized losses		Fair value
Agency obligations	$	90,906	347	(45	)	91,208
Mortgage-backed securities	1,037,367		16,353	(5,696	)	1,048,024
State and municipal obligations	7,558		153	(12	)	7,699
Corporate obligations	9,550		5	(16	)	9,539
Equity securities	397		119	—		516
	$	1,145,778	16,977	(5,769	)	1,156,986



	December 31, 2013
	Amortized cost		Gross unrealized gains	Gross unrealized losses		Fair value
Agency obligations	$	93,223	372	(179	)	93,416
Mortgage-backed securities	1,060,013		14,493	(19,532	)	1,054,974
State and municipal obligations	8,739		171	(152	)	8,758
Equity securities	357		89	—		446
	$	1,162,332	15,125	(19,863	)	1,157,594

The amortized cost and fair value of securities available for sale at June 30, 2014, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.



	June 30, 2014
	Amortized cost		Fair value
Due in one year or less	$	23,108	23,130
Due after one year through five years	78,886		79,306
Due after five years through ten years	3,019		3,004
Due after ten years	3,001		3,006
Mortgage-backed securities	1,037,367		1,048,024
Equity securities	397		516
	$	1,145,778	1,156,986

During the three months ending June 30, 2014, proceeds from the sale of securities available for sale were $8,398,000 resulting in gross gains of $150,000 and gross losses of $39,000. For the same period last year, proceeds from the sale of securities available for sale were $6,915,000 resulting in gross gains of $407,000 and no gross losses.

For the six months ended June 30, 2014, proceeds from the sale of securities available for sale were $14,483,000, resulting in gross gains of $150,000 and gross losses of $404,000. For the same period last year, proceeds from the sale of securities available for sale were $14,310,000, resulting in gross gains of $888,000 and no gross losses. Also, for the six months ended June 30, 2014, proceeds from calls of securities available for sale totaled $740,000, resulting in gross gains of $2,000 gains and no gross losses. For the three and six months ended June 30, 2013, proceeds from calls on securities available for sale totaled $896,000, with no gains or losses recognized.

The following table presents a roll-forward of the credit loss component of other-than-temporary impairment (“OTTI”) on debt securities for which a non-credit component of OTTI was recognized in other comprehensive income. OTTI recognized in earnings for credit-impaired debt securities is presented in two components based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment), or whether the current period is not the first time a debt security was credit-impaired (subsequent credit impairment). Changes in the credit loss component of credit-impaired debt securities were as follows (in thousands):



	Three months ended June 30,			Six months ended June 30,
	2014		2013	2014	2013
Beginning credit loss amount	$	134	1,240	1,674	1,240
Add: Initial OTTI credit losses	—		—	—	—
Subsequent OTTI credit losses	—		—	—	—
Less: Realized losses for securities sold	134		—	1,674	—
Securities intended or required to be sold	—		—	—	—
Increases in expected cash flows on debt securities	—		—	—	—
Ending credit loss amount	$	—	1,240	—	1,240

The Company did not incur an OTTI charge on securities for the three and six months ended June 30, 2014 or 2013. For the three and six months ended June 30, 2014, the Company realized a $59,000 gain and a $365,000 loss on the sales of previously impaired non-agency mortgage-backed securities, respectively. The Company previously incurred cumulative credit losses of $1.7 million on these securities.

The following tables represent the Company’s disclosure regarding securities available for sale with temporary impairment at June 30, 2014 and December 31, 2013 (in thousands):



	June 30, 2014 Unrealized Losses
	Less than 12 months				12 months or longer			Total
	Fair value		Gross unrealized losses		Fair value	Gross unrealized losses		Fair value	Gross unrealized losses
Agency obligations	$	15,289	(17	)	5,011	(28	)	20,300	(45	)
Mortgage-backed securities	99,820		(264	)	326,848	(5,432	)	426,668	(5,696	)
State and municipal obligations	—		—		658	(12	)	658	(12	)
Corporate obligations	4,034		(16	)	—	—		4,034	(16	)
	$	119,143	(297	)	332,517	(5,472	)	451,660	(5,769	)



	December 31, 2013 Unrealized Losses
	Less than 12 months				12 months or longer			Total
	Fair value		Gross unrealized losses		Fair value	Gross unrealized losses		Fair value	Gross unrealized losses
Agency obligations	$	34,355	(179	)	—	—		34,355	(179	)
Mortgage-backed securities	604,778		(18,850	)	13,521	(682	)	618,299	(19,532	)
State and municipal obligations	$	2,867	(152	)				2,867	(152	)
	$	642,000	(19,181	)	13,521	(682	)	655,521	(19,863	)

The temporary loss position associated with securities available for sale was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. In addition, there remains a lack of liquidity in certain sectors of the mortgage-backed securities market. The Company does not have the intent to sell securities in a temporary loss position at June 30, 2014, nor is it more likely than not that the Company will be required to sell the securities before their prices recover.

The number of available for sale securities in an unrealized loss position at June 30, 2014 totaled 75, compared with 76 at December 31, 2013. At June 30, 2014, there was one private label mortgage-backed security in an unrealized loss position, with an amortized cost of $92,000 and an unrealized loss of $4,000. This private label mortgage-backed security was above investment grade at June 30, 2014.

The Company estimates the loss projections for each security by stressing the individual loans collateralizing the security and applying a range of expected default rates, loss severities, and prepayment speeds in conjunction with the underlying credit enhancement for each security. Based on specific assumptions about collateral and vintage, a range of possible cash flows was identified to determine whether other-than-temporary impairment existed during the three and six months ended June 30, 2014. The Company concluded that no other-than-temporary impairment of the securities available for sale portfolio existed at June 30, 2014.

Investment Securities Held to Maturity

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and the estimated fair value for investment securities held to maturity at June 30, 2014 and December 31, 2013 (in thousands):



	June 30, 2014
	Amortized cost		Gross unrealized gains	Gross unrealized losses		Fair value
Agency obligations	$	7,426	26	(21	)	7,431
Mortgage-backed securities	3,693		173	—		3,866
State and municipal obligations	433,464		10,737	(2,333	)	441,868
Corporate obligations	10,065		60	(13	)	10,112
	$	454,648	10,996	(2,367	)	463,277

	December 31, 2013
	Amortized cost		Gross unrealized gains	Gross unrealized losses		Fair value
Agency obligations	$	7,523	13	(66	)	7,470
Mortgage-backed securities	5,273		247	—		5,520
State and municipal obligations	334,750		5,435	(7,198	)	332,987
Corporate obligations	9,954		58	(76	)	9,936
	$	357,500	5,753	(7,340	)	355,913

The Company generally purchases securities for long-term investment purposes, and differences between amortized cost and fair values may fluctuate during the investment period. For the three and six months ended June 30, 2014, the Company recognized gross gains of $2,000 and $15,000, and no gross losses, respectively, related to calls of certain securities in the held to maturity portfolio, with proceeds from the calls totaling $2,415,000 and $8,810,000 for the three and six months ended June 30, 2014, respectively. In addition, for the three and six months ended June 30, 2014, the Company recognized a gross loss of $3,000 and no gross gain related to the sale of a security with proceeds of $524,000. The sales of this security was in response to the credit deterioration of the issuer.

For the three and six months ended June 30, 2013, the Company recognized gains of $16,000 and $30,000, and gross losses of $0 and $2,000, respectively, related to calls of certain securities in the held to maturity portfolio, with proceeds from the calls totaling $13,269,000 and $22,478,000, respectively. In addition, for the six months ended June 30, 2013, the Company recognized gross gains of $18,000, and no gross losses, related to the sales of certain securities, with the proceeds totaling $524,000. The sales of these securities were in response to the credit deterioration of the issuers. There were no sales of securities from the held to maturity portfolio for the three months ended June 30, 2013.

The amortized cost and fair value of investment securities in the held to maturity portfolio at June 30, 2014 by contractual maturity are shown below (in thousands). Expected maturities may differ from contractual maturities due to prepayment or early call privileges of the issuer.



	June 30, 2014
	Amortized cost		Fair value
Due in one year or less	$	12,442	12,505
Due after one year through five years	50,288		51,668
Due after five years through ten years	147,895		152,984
Due after ten years	240,330		242,254
Mortgage-backed securities	3,693		3,866
	$	454,648	463,277

The following tables represent the Company’s disclosure on investment securities held to maturity with temporary impairment at June 30, 2014 and December 31, 2013 (in thousands):



	June 30, 2014 Unrealized Losses
	Less than 12 months				12 months or longer			Total
	Fair value		Gross unrealized losses		Fair value	Gross unrealized losses		Fair value	Gross unrealized losses
Agency obligations	$	644	(1	)	2,960	(20	)	3,604	(21	)
State and municipal obligations	105,965		(638	)	65,634	(1,695	)	171,599	(2,333	)
Corporate obligations	747		(3	)	2,572	(10	)	3,319	(13	)
	$	107,356	(642	)	71,166	(1,725	)	178,522	(2,367	)



	December 31, 2013 Unrealized Losses
	Less than 12 months				12 months or longer			Total
	Fair value		Gross unrealized losses		Fair value	Gross unrealized losses		Fair value	Gross unrealized losses
Agency obligations	$	5,766	(66	)	—	—		5,766	(66	)
State and municipal obligations	123,988		(5,376	)	19,051	(1,822	)	143,039	(7,198	)
Corporate obligations	5,387		(76	)	—	—		5,387	(76	)
	$	135,141	(5,518	)	19,051	(1,822	)	154,192	(7,340	)

Based upon the review of the held to maturity securities portfolio, the Company believes that as of June 30, 2014, securities with unrealized loss positions shown above do not represent impairments that are other-than-temporary. The review of the portfolio for other-than-temporary impairment considers the percentage and length of time the fair value of an investment is below book value, as well as general market conditions, changes in interest rates, credit risks, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company would be required to sell the securities before their prices recover.

The number of securities in an unrealized loss position at June 30, 2014 totaled 333, compared with 270 at December 31, 2013. The increase in the number of securities in an unrealized loss position at June 30, 2014, was largely due to securities acquired in the Team Capital transaction. All temporarily impaired investment securities were investment grade at June 30, 2014.