(4) Investment Securities

(a) Securities available for sale

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

	June 30, 2014
(dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	103,805		56		521		103,340
State and political subdivisions		3,823		98		-		3,921
Mortgage backed securities and collateralized mortgage obligations - residential		594,869		1,885		7,237		589,517
Corporate bonds		1,403		-		1		1,402
Small Business Administration-guaranteed participation securities		107,542		-		5,175		102,367
Mortgage backed securities and collateralized mortgage obligations - commercial		10,832		-		288		10,544
Other		650		-		6		644
Total debt securities		822,924		2,039		13,228		811,735
Equity securities		35		-		-		35
Total securities available for sale	$	822,959		2,039		13,228		811,770

	December 31, 2013
(dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	200,531		22		1,724		198,829
State and political subdivisions		7,623		135		-		7,758
Mortgage backed securities and collateralized mortgage obligations - residential		552,230		267		20,048		532,449
Corporate bonds		10,429		43		1		10,471
Small Business Administration-guaranteed participation securities		111,383		-		8,354		103,029
Mortgage backed securities and collateralized mortgage obligations - commercial		10,965		-		407		10,558
Other		650		-		-		650
Total debt securities		893,811		467		30,534		863,744
Equity securities		10		-		-		10
Total securities available for sale	$	893,821		467		30,534		863,754

The following table distributes the debt securities included in the available for sale portfolio as of June 30, 2014, 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	$	2,195		2,213
Due in one year through five years		360,427		360,596
Due after five years through ten years		458,992		447,603
Due after ten years		1,310		1,323
	$	822,924		811,735

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:

	June 30, 2014
(dollars in thousands)	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	$	22,503		17		54,995		504		77,498		521
Mortgage backed securities and collateralized mortgage obligations - residential		49,195		242		353,561		6,995		402,756		7,237
Corporate bonds		501		1		-		-		501		1
Small Business Administration-guaranteed participation securities		-		-		102,367		5,175		102,367		5,175
Mortgage backed securities and collateralized mortgage obligations - commercial		-		-		10,543		288		10,543		288
Other		594		6		-		-		594		6

Total	$	72,793		266		521,466		12,962		594,259		13,228

	December 31, 2013
(dollars in thousands)	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	$	198,023		1,724		-		-		198,023		1,724
Mortgage backed securities and collateralized mortgage obligations - residential		466,056		17,698		54,835		2,350		520,891		20,048
Corporate bonds		902		1		-		-		902		1
Small Business Administration-guaranteed participation securities		103,029		8,354		-		-		103,029		8,354
Mortgage backed securities and collateralized mortgage obligations - commercial		10,558		407		-		-		10,558		407

Total	$	778,568		28,184		54,835		2,350		833,403		30,534

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 six months ended June 30, 2014 and 2013 are as follows:

(dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013

Proceeds from sales	$	-		118,560	$	-		118,560
Proceeds from calls		39,301		96,417		180,623		205,414
Gross realized gains		-		1,512		6		1,514
Gross realized losses		-		80		-		80

Tax expense recognized on net gains on sales of securities available for sale were approximately $573 thousand for the three months ended June 30, 2013. There were no net gains on sales of securities available for sale during the three months ended June 30, 2014. Tax expense recognized on net gains on sales of securities available for sale were approximately $2 thousand and $574 thousand for the six months ended June 30, 2014 and 2013 respectively.

(b) Held to maturity securities

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

	June 30, 2014
(dollars in thousands)			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	67,974		3,614		-		71,588
Corporate bonds		9,952		1,355		-		11,307
Total held to maturity	$	77,926		4,969		-		82,895

	December 31, 2013
(dollars in thousands)			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value

Mortgage backed securities and collateralized mortgage obligations - residential	$	76,270		2,744		138		78,876
Corporate bonds		9,945		1,484		-		11,429
Total held to maturity	$	86,215		4,228		138		90,305

The following table distributes the debt securities included in the held to maturity portfolio as of June 30, 2014, 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 through five years		76,333		81,192
Due in five years through ten years		1,593		1,703
	$	77,926		82,895

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 held to maturity securities and the related fair values aggregated by the length of time that individual securities have been in an unrecognized loss position as of December 31, 2013 were as follows:

June 30, 2014

(dollars in thousands)

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

Total

December 31, 2013

(dollars in thousands)

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

27,091

138

27,091

138

Total

27,091

138

27,091

138

There were no held to maturity securities in an unrecognized loss position as of June 30, 2014. There were no sales or transfers of held to maturity securities during the three months and six months ended June 30, 2014 and 2013.

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 shall 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 shall 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 June 30, 2014, the Company’s security portfolio consisted of 202 securities, 79 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 June 30, 2014.

Mortgage backed securities and collateralized mortgage obligations - residential

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, which are institutions 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 June 30, 2014.

Corporate bonds

The Company’s 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. 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 June 30, 2014.

Small Business Administration (SBA) - guaranteed participation securities

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 June 30, 2014.

Mortgage backed securities and collateralized mortgage obligations - commercial

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 June 30, 2014.

Other securities

In the case of unrealized losses on other securities, 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 June 30, 2014.

As a result of the above analysis, for the year ended June 30, 2014, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.