(2)Securities

The fair value of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) (“AOCI”) were as follows at the dates presented:



	March 31, 2014
		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
		(In thousands)
Securities available for sale:
State and municipal	$	42,146	$	48	$	(1,302)	$	43,400
Mortgage-backed - agency / residential		249,437		1,383		(7,527)		255,581
Mortgage-backed - private / residential		534		4		-		530
Asset-backed		22,446		-		(1,625)		24,071
Marketable equity		1,535		-		-		1,535
Trust preferred		18,520		-		(1,480)		20,000
Corporate		65,061		740		(379)		64,700
Total securities available for sale	$	399,679	$	2,175	$	(12,313)	$	409,817



	December 31, 2013
		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
		(In thousands)
Securities available for sale:
State and municipal	$	41,085	$	59	$	(2,395)	$	43,421
Mortgage-backed - agency / residential		254,103		1,289		(10,114)		262,928
Mortgage-backed - private / residential		561		-		-		561
Asset-backed		22,503		-		(1,902)		24,405
Marketable equity		1,535		-		-		1,535
Trust preferred		26,096		88		(2,330)		28,338
Corporate		39,074		510		(211)		38,775
Total securities available for sale	$	384,957	$	1,946	$	(16,952)	$	399,963

The carrying amount, unrecognized gains/losses and fair value of securities held to maturity were as follows at the dates presented:



		Fair Value		Gross Unrecognized Gains		Gross Unrecognized Losses		Amortized Cost
		(In thousands)
March 31, 2014:
State and municipal	$	34,608	$	284	$	(1,042)	$	35,366
Mortgage-backed - agency / residential		18,850		381		(186)		18,655
	$	53,458	$	665	$	(1,228)	$	54,021

December 31, 2013:
State and municipal	$	26,351	$	-	$	(1,664)	$	28,015
Mortgage-backed - agency / residential		13,866		343		(200)		13,723
	$	40,217	$	343	$	(1,864)	$	41,738

The proceeds from sales and calls of securities and the associated gains are listed below:



		Three Months Ended March 31,
		2014		2013

		(In thousands)
Proceeds	$	8,367	$	-
Gross gains		42		-
Gross losses		(17)		-
Net tax expense related to gains
(losses) on sale		10		-

The amortized cost and estimated fair value of available for sale debt securities by contractual maturity at March 31, 2014 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Securities not due at a single maturity date are presented separately.



		Available for Sale (AFS)
		Fair Value		Amortized Cost
		(In thousands)
Securities available for sale:
Due in one year or less	$	149	$	145
Due after one year through five years		25,493		25,201
Due after five years through ten years		43,546		43,527
Due after ten years		56,539		59,227
Total AFS, excluding mortgage-backed (MBS),
asset-backed and marketable equity securities		125,727		128,100
Mortgage-backed, asset-backed and marketable
equity securities		273,952		281,717
Total securities available for sale	$	399,679	$	409,817



		Held to Maturity (HTM)
		Fair Value		Amortized Cost
		(In thousands)
Securities held to maturity:
Due after one year through five years	$	3,024	$	3,058
Due after five years through ten years		7,811		7,906
Due after ten years		23,773		24,402
Total HTM, excluding MBS		34,608		35,366
Mortgage-backed - agency / residential		18,850		18,655
Total securities held to maturity	$	53,458	$	54,021

The following tables present the fair value and the unrealized loss on securities that were temporarily impaired as of March 31, 2014 and December 31, 2013, aggregated by major security type and length of time in a continuous unrealized loss position:



March 31, 2014		Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

		(In thousands)
Description of securities:
Available for sale:
State and municipal	$	4,702	$	(257)	$	10,785	$	(1,045)	$	15,487	$	(1,302)
Mortgage-backed - agency /
residential		142,742		(5,376)		47,807		(2,151)		190,549		(7,527)
Asset-backed		-		-		22,446		(1,625)		22,446		(1,625)
Trust preferred		-		-		8,520		(1,480)		8,520		(1,480)
Corporate		29,964		(379)		-		-		29,964		(379)

Held to maturity:
State and municipal		11,868		(534)		6,280		(508)		18,148		(1,042)
Mortgage-backed - agency /
residential		10,617		(186)		-		-		10,617		(186)
Total temporarily impaired	$	199,893	$	(6,732)	$	95,838	$	(6,809)	$	295,731	$	(13,541)



December 31, 2013		Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

		(In thousands)
Description of securities:
Available for sale:
State and municipal	$	35,012	$	(1,946)	$	3,517	$	(449)	$	38,529	$	(2,395)
Mortgage-backed - agency /
residential		186,193		(9,943)		9,668		(171)		195,861		(10,114)
Asset-backed		17,953		(1,526)		4,549		(376)		22,502		(1,902)
Trust preferred		13,215		(227)		7,897		(2,103)		21,112		(2,330)
Corporate		15,484		(211)		-		-		15,484		(211)

Held to maturity:
State and municipal		20,012		(1,296)		2,510		(368)		22,522		(1,664)
Mortgage-backed - agency /
residential		6,621		(200)		-		-		6,621		(200)
Total temporarily impaired	$	294,490	$	(15,349)	$	28,141	$	(3,467)	$	322,631	$	(18,816)

In determining whether or not there is an other-than-temporary-impairment (“OTTI”) for a security, management considers many factors, including: (1) the length of time for which and the extent to which the security’s fair value has been less than cost, (2) the financial condition and near-term prospects of the security’s issuer, (3) whether the decline in the security’s value was affected by macroeconomic conditions, and (4) whether the Company intends to sell the security and whether it is more likely than not that the Company will be required to sell the security before recovering its fair value. The assessment of whether an OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a particular point in time.

The Company did not recognize any OTTI during the quarter ended March 31, 2014 or March 31, 2013. There are no accumulated credit losses on any of the Company’s securities as of March 31, 2014.

At March 31, 2014, there were 130 individual securities in an unrealized loss position, including 43 individual securities that had been in a continuous unrealized loss position for 12 months or longer. Management has evaluated these securities in addition to the remaining 87 securities in an unrealized loss position and has determined that the decline in value since their purchase dates was primarily attributable to changes in market interest rates. Likewise, management determined that the increase in securities in an unrealized loss position in excess of 12 months between December 31, 2013 and March 31, 2014 was primarily attributable to the timing of interest rate fluctuations. At March 31, 2014, the Company did not intend to sell, and did not consider it likely that it would be required to sell, any of these securities prior to recovery in their fair value.

The Company’s unrated and rated municipal bond securities, along with the Company’s other rated investment securities, are subject to an annual internal review process that management has historically performed in the fourth quarter. The review process includes a review of the securities’ issuers’ most recent financial statements, including an evaluation of the expected sufficiency of the issuers’ cash flows relative to their debt service requirements. In addition, management considers any interim information reasonably made available to it that would prompt the need for more frequent review. At March 31, 2014, the Company’s unrated municipal bonds comprised approximately 5.6% of the carrying value of the Company’s entire municipal bond portfolio.

At March 31, 2014, a hospital revenue bond with a book value of $24,115,000 accounted for 12.4% of total stockholders’ equity. This amortizing tax-exempt bond was issued by a hospital in the Company’s footprint and is secured by a pledge of revenues and a deed of trust from the hospital, carries an interest rate of 4.75% and matures December 1, 2031. Utilizing the discounted cash flow method and an estimate of current market rates for similar bonds, management determined the estimated fair value of this bond as of March 31, 2014 approximated its par value. Management determined that the estimated fair value of this bond as of December 31, 2013 reflected an unrealized loss of $478,000. In addition to conducting its annual review of unrated municipal bonds, the most recent of which was completed in the fourth quarter 2013, management conducts a quarterly review of the hospital’s financial statements. To date, the bond has paid principal and interest in accordance with its contractual terms. During the fourth quarter 2013 the issuer redeemed $10,810,000 in advance of the contractual repayment schedule.