(4) Investment Securities

(a) Securities available for sale

The amortized cost and fair value of the securities available for sale are as follows:

(dollars in thousands)	September 30, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value


U.S. government sponsored enterprises	$	196,033		62		2,481		193,614
State and political subdivisions		10,978		221		-		11,199
Mortgage backed securities and collateralized mortgage obligations - residential		546,879		1,056		13,634		534,301
Corporate bonds		53,127		111		144		53,094
Small Business Administration-guaranteed participation securities		112,719		-		7,856		104,863
Mortgage backed securities and collateralized mortgage obligations - commercial		11,031		-		316		10,715
Other		650		-		-		650
Total debt securities		931,417		1,450		24,431		908,436
Equity securities		10		-		-		10
Total securities available for sale	$	931,427		1,450		24,431		908,446

	December 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value


U.S. government sponsored enterprises	$	262,063		1,055		10		263,108
State and political subdivisions		25,815		642		-		26,457
Mortgage backed securities and collateralized mortgage obligations - residential		515,322		3,982		528		518,776
Corporate bonds		26,312		336		119		26,529
Small Business Administration-guaranteed participation securities		75,674		888		-		76,562
Other		650		-		-		650
Total debt securities		905,836		6,903		657		912,082
Equity securities		10		-		-		10
Total securities available for sale	$	905,846		6,903		657		912,092

The following table distributes the debt securities included in the available for sale portfolio as of September 30, 2013, based on the securities’ final maturity (mortgage-backed securities and collateralized mortgage obligations are stated using an estimated average life):

(dollars in thousands)	Amortized		Fair
	Cost		Value
Due in one year or less	$	11,066		11,160
Due in one year through five years		613,821		605,382
Due after five years through ten years		302,411		287,710
Due after ten years		4,119		4,184
	$	931,417		908,436

Actual maturities may differ from the above because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

Gross unrealized losses on securities available for sale and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

(dollars in thousands)	September 30, 2013
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unreal		Fair		Unreal.		Fair		Unreal
	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	177,267		2,481		-		-		177,267		2,481
Mortgage backed securities and collateralized mortgage obligations - residential		463,190		13,634		-		-		463,190		13,634
Corporate bonds		31,705		142		400		2		32,105		144
Small Business Administration-guaranteed participation securities		104,863		7,856		-		-		104,863		7,856
Mortgage backed securities and collateralized mortgage obligations - commercial		10,715		316		-		-		10,715		316

Total	$	787,740		24,429		400		2		788,140		24,431

	December 31, 2012
	Less than				12 months
	12 months				or more				Total
			Gross				Gross				Gross
	Fair		Unreal.		Fair		Unreal.		Fair		Unreal.
	Value		Loss		Value		Loss		Value		Loss

U.S. government sponsored enterprises	$	15,491		10		-		-		15,491		10
Mortgage backed securities and collateralized mortgage obligations - residential		178,689		528		-		-		178,689		528
Corporate bonds		10,283		119		-		-		10,283		119
Total	$	204,463		657		-		-		204,463		657

The proceeds from sales and calls of securities available for sale, gross realized gains and gross realized losses from sales and calls during the three months and nine months ended September 30, 2013 and 2012 are as follows:

(dollars in thousands)	Three months ended September 30,					Nine months ended September 30,
	2013			2012		2013			2012

Proceeds from sales		$	-		26,299		$	118,560		80,297
Proceeds from calls			31,704		278,165			237,118		825,914
Gross realized gains			-		666			1,514		1,598
Gross realized losses			-		-			80		200

Tax expense recognized on net gains on sales of securities available for sale was approximately $266 thousand for the three months ended September 30, 2012. There were no sales during the three months ended September 30, 2013. Tax expense recognized on net gains on sales and calls of securities available for sale were approximately $574 thousand and $559 thousand for the nine months ended September 30, 2013 and 2012 respectively.

(b) Held to maturity securities

The amortized cost and fair value of the held to maturity securities are as follows:

(dollars in thousands)	September 30, 2013
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	81,337		3,336		51		84,622
Corporate bonds		9,941		1,405		-		11,346
Total held to maturity	$	91,278		4,741		51		95,968

	December 31, 2012
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	108,471		5,724		-		114,195
Corporate bonds		34,955		1,976		-		36,931
Total held to maturity	$	143,426		7,700		-		151,126

The following table distributes the debt securities included in the held to maturity portfolio as of September 30, 2013, based on the securities’ final maturity (mortgage-backed securities and collateralized mortgage obligations are stated using an estimated average life):

(dollars in thousands)	Amortized		Fair
	Cost		Value
Due in one year or less	$	-		-
Due in one year through five years		91,278		95,968
Due in five years through ten years		-		-
	$	91,278		95,968

Actual maturities may differ from the above because of securities prepayments and the right of certain issuers to call or prepay their obligations without penalty.

Gross unrecognized losses on securities held to maturity and the related fair values aggregated by the length of time that individual securities have been in an unrealized loss position, were as follows:

(dollars in thousands)

September 30, 2013

Less than

12 months

or more

Total

Gross

Fair

Unrec.

Fair

Unrec.

Fair

Unrec.

Value

Loss

Value

Loss

Value

Loss

Mortgage backed securities and collateralized mortgage obligations - residential

5,146

Total

5,146

There were no held to maturity securities in an unrealized loss position at December 31, 2012. There were no sales or transfers of held to maturity securities during 2013 and 2012.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under ASC 320 “Investments – Debt and Equity Securities.”

In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether management intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If management intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI would be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If management does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI on debt securities would be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

As of September 30, 2013, the Company’s security portfolio consisted of 225 securities, 96 of which were in an unrealized loss position, and are discussed below.

U.S. government-sponsored enterprises

In the case of unrealized losses on U.S. government-sponsored enterprises, because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

Mortgage-backed securities and collateralized mortgage obligations - residential

At September 30, 2013, all of the mortgage-backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

Corporate bonds

In the case of corporate bonds, the Company exposure is primarily in bonds of firms in the financial sector. All of the corporate bonds owned continue to be rated investment grade, all are current as to the payment of interest and the Company expects to collect the full amount of the principal balance at maturity. The Company actively monitors the firms and the bonds. The Company has concluded that the decline in fair value is not attributable to credit quality and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

Small Business Administration (SBA) - guaranteed participation securities

At September 30, 2013, all of the SBA securities held by the Company were issued and guaranteed by U.S. Small Business Administration. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

Mortgage-backed securities and collateralized mortgage obligations - commercial

As of September 30, 2013, all of the mortgage-backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies, are current as to the payment of interest and principal and the Company expects to collect the full amount of the principal and interest payments. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

As a result of the above analysis, for the nine months ended September 30, 2013, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.