(3) 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)	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

U.S. government sponsored enterprises	$	78,420		2		622		77,800
State and political subdivisions		2,232		39		-		2,271
Mortgage backed securities and collateralized mortgage obligations - residential		486,107		1,108		3,655		483,560
Corporate bonds		1,500		-		-		1,500
Small Business Administration- guaranteed participation securities		103,273		-		2,777		100,496
Mortgage backed securities and collateralized mortgage obligations - commercial		10,696		-		249		10,447
Other		650		-		-		650
Total debt securities		682,878		1,149		7,303		676,724
Equity securities		35		-		-		35
Total securities available for sale	$	682,913		1,149		7,303		676,759

(dollars in thousands)	December 31, 2013
			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 December 31, 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	$	4,159		4,163
Due in one year through five years		415,064		413,058
Due after five years through ten years		263,343		259,189
Due after ten years		312		314
	$	682,878		676,724

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)	December 31, 2014
	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	$	12,840		81		54,959		541		67,799		622
Mortgage backed securities and collateralized mortgage obligations - residential		65,549		492		325,476		3,163		391,025		3,655
Small Business Administration-guaranteed participation securities		-		-		100,496		2,777		100,496		2,777
Mortgage backed securities and collateralized mortgage obligations - commercial		-		-		10,447		249		10,447		249

Total	$	78,389		573		491,378		6,730		569,767		7,303

(dollars in thousands)	December 31, 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	$	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 2014, 2013 and 2012 are as follows:

(dollars in thousands)	Year ended December 31,
	2014		2013		2012

Proceeds from sales	$	69,147		160,820		154,944
Proceeds from calls		251,927		256,384		1,049,442
Gross realized gains		720		1,702		2,584
Gross realized losses		3		80		423

Tax expense recognized on net gains on sales of securities available for sale were approximately $287 thousand, $649 thousand, and $864 thousand for the years ended December 31, 2014, 2013, 2012 respectively.

The amount of securities that have been pledged to secure short-term borrowings and for other purposes amounted to $298.5 million and $316.7 million at December 31, 2014 and 2013, respectively.

(b) Held to maturity securities

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

(dollars in thousands)	December 31, 2014
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Mortgage backed securities and collateralized mortgage obligations - residential	$	60,986		3,334		-		64,320
Corporate bonds		9,960		1,062		-		11,022
Total held to maturity	$	70,946		4,396		-		75,342

(dollars in thousands)	December 31, 2013
			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 December 31, 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	$	-		-
Due in one year through five years		69,598		73,895
Due in five years through ten years		1,348		1,447
	$	70,946		75,342

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.

There were no held to maturity securities with gross unrecognized losses as December 31, 2014. 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 at December 31, 2013, were as follows:

(dollars in thousands)

December 31, 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

27,091

138

27,091

138

Total

27,091

138

27,091

138

There were no sales or transfers of held to maturity securities during 2014 and 2013.

The Company has the following balances of securities held in the available for sale and held to maturity portfolios as of December 31, 2014 that represent greater than 10% of shareholders’ equity:

(dollars in thousands)	Amortized		Fair
	Cost		Value
Federal Home Loan Mortgage Corporation	$	141,819		141,307
Federal National Mortgage Association		376,197		374,518
Government National Mortgage Association		81,272		83,617
Small Business Administration		103,273		100,496

(d) Other-Than-Temporary-Impairment

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 December 31, 2014, the Company’s security portfolio included certain securities 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 December 31, 2014.

Mortgage backed securities and collateralized mortgage obligations - residential

At December 31, 2014, 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 December 31, 2014.

Small Business Administration (SBA) - guaranteed participation securities

At December 31, 2014, 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 December 31, 2014.

Mortgage backed securities and collateralized mortgage obligations - commercial

As of December 31, 2014, 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 December 31, 2014.

As a result of the above analysis, for the year ended December 31, 2014, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.