NOTE 3 – SECURITIES

Securities available for sale consist of the following at December 31:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
2014
U.S. agency	$	34,936	$	133	$	63	$	35,006
U.S. agency residential mortgage-backed		256,387		1,838		667		257,558
U.S. agency commercial mortgage-backed		33,779		68		119		33,728
Private label residential mortgage-backed		6,216		187		390		6,013
Other asset backed		32,314		77		38		32,353
Obligations of states and political subdivisions		143,698		961		1,244		143,415
Corporate		22,690		53		79		22,664
Trust preferred		2,910		-		469		2,441
Total	$	532,930	$	3,317	$	3,069	$	533,178
2013
U.S. agency	$	32,106	$	44	$	342	$	31,808
U.S. agency residential mortgage-backed		202,649		1,343		532		203,460
Private label residential mortgage-backed		7,294		112		618		6,788
Other asset backed		45,369		10		194		45,185
Obligations of states and political subdivisions		157,966		496		4,784		153,678
Corporate		19,120		43		26		19,137
Trust preferred		2,902		-		477		2,425
Total	$	467,406	$	2,048	$	6,973	$	462,481

Total OTTI recognized in accumulated other comprehensive loss for securities available for sale was zero and $0.2 million at December 31, 2014 and 2013, respectively.

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position, at December 31 follows:

	Less Than Twelve Months				Twelve Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In thousands)
2014
U.S. agency	$	12,851	$	58	$	606	$	5	$	13,457	$	63
U.S. agency residential mortgage-backed		89,547		531		15,793		136		105,340		667
U.S. agency commercial mortgage-backed		21,325		119		-		-		21,325		119
Private label residential mortgage-backed		208		1		4,013		389		4,221		390
Other asset backed		2,960		15		8,729		23		11,689		38
Obligations of states and political subdivisions		28,114		106		37,540		1,138		65,654		1,244
Corporate		8,660		79		-		-		8,660		79
Trust preferred		-		-		2,441		469		2,441		469
Total	$	163,665	$	909	$	69,122	$	2,160	$	232,787	$	3,069
2013
U.S. agency	$	16,715	$	342	$	-	$	-	$	16,715	$	342
U.S. agency residential mortgage-backed		78,256		532		-		-		78,256		532
Private label residential mortgage-backed		407		6		4,602		612		5,009		618
Other asset backed		33,862		194		-		-		33,862		194
Obligations of states and		103,942		4,645		4,805		139		108,747		4,784
Corporate		7,105		26		-		-		7,105		26
Trust preferred		-		-		2,425		477		2,425		477
Total	$	240,287	$	5,745	$	11,832	$	1,228	$	252,119	$	6,973

Our portfolio of available-for-sale securities is reviewed quarterly for impairment in value. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss.

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at December 31, 2014, we had 17 U.S. agency, 72 U.S. agency residential mortgage-backed and 19 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to rises in term interest rates and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label residential mortgage backed securities — at December 31, 2014, we had five of this type of security whose fair value is less than amortized cost. Two of the five issues are rated by a major rating agency as investment grade, two are rated below investment grade and one is split rated. Two of these bonds have an impairment in excess of 10% and four of these holdings have been impaired for more than 12 months. The unrealized losses are largely attributable to credit spread widening on these securities since their acquisition.

All of these securities are receiving principal and interest payments. Most of these transactions are pass-through structures, receiving pro rata principal and interest payments from a dedicated collateral pool. The nonreceipt of interest cash flows is not expected and thus not presently considered in our discounted cash flow methodology discussed below.

All private label residential mortgage-backed securities are reviewed for OTTI utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization. Our cash flow analysis forecasts complete recovery of our cost basis for four of the five securities whose fair value is less than amortized cost while the fifth security had credit related OTTI and is discussed in further detail below.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

Other asset backed — at December 31, 2014, we had nine other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to widening discount margins. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at December 31, 2014, we had 96 municipal securities whose fair value is less than amortized cost. The unrealized losses are primarily due to increases in interest rates since acquisition. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at December 31, 2014, we had 11 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Trust preferred securities — at December 31, 2014, we had three trust preferred securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities over the past several years has suffered from credit spread widening fueled by uncertainty regarding potential losses of financial companies and repricing of risk related to these hybrid capital securities.

One of the three securities is rated by two major rating agencies as investment grade, while one (a Bank of America issuance) is rated below investment grade by two major rating agencies and the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.8 million as of December 31, 2014, continues to have satisfactory credit metrics and make interest payments.

The following table breaks out our trust preferred securities in further detail as of December 31:

	2014					2013
			Net					Net
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,643	$	(267	)	$	1,600	$	(302	)
Unrated issues		798		(202	)		825		(175	)

During 2014, 2013 and 2012, we recorded in earnings credit related OTTI charges on securities available for sale of $0.01 million, $0.03 million and $0.3 million, respectively.

At December 31, 2014, three private label residential mortgage-backed securities had credit related OTTI and are summarized as follows:

			Super		Senior
	Senior		Senior		Support
	Security		Security		Security		Total
	(In thousands)
As of December 31, 2014
Fair value	$	2,164	$	1,566	$	97	$	3,827
Amortized cost		2,207		1,476		-		3,683
Non-credit unrealized loss		43		-		-		43
Unrealized gain		-		90		97		187
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Consolidated Statements of Operations
For the years ended December 31,
2014	$	9	$	-	$	-	$	9
2013		26		-		-		26
2012		247		32		60		339

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral. Two of these securities have unrealized gains and one has an unrealized loss at December 31, 2014. Prior to the second quarter of 2013, all three of these securities had an unrealized loss. The original amortized cost for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI. The unrealized loss (based on original amortized cost) for two of these securities is now less than previously recorded credit related OTTI amounts. The remaining non-credit related unrealized loss in the senior security is attributed to other factors and is reflected in other comprehensive income during those same periods.

A roll forward of credit losses recognized in earnings on securities available for sale for the years ending December 31 follow:

	2014		2013		2012
	(In thousands)
Balance at beginning of year	$	1,835	$	1,809	$	1,470
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		9		26		339
Total	$	1,844	$	1,835	$	1,809

The amortized cost and fair value of securities available for sale at December 31, 2014, by contractual maturity, follow:

	Amortized		Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	25,427	$	25,479
Maturing after one year but within five years		66,532		66,666
Maturing after five years but within ten years		41,651		41,780
Maturing after ten years		70,624		69,601
		204,234		203,526
U.S. agency residential mortgage-backed		256,387		257,558
U.S. agency commercial mortgage-backed		33,779		33,728
Private label residential mortgage-backed		6,216		6,013
Other asset backed		32,314		32,353
Total	$	532,930	$	533,178

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

A summary of proceeds from the sale of securities available for sale and gains and losses for the years ended December 31 follow:

			Realized
	Proceeds		Gains(1)		Losses(2)
	(In thousands)
2014	$	14,633	$	329	$	-
2013		2,940		15		8
2012		37,176		1,193		-

(1)	Gains in 2014 exclude $0.3 million of realized gain related to a U.S. Treasury short position.

(2)	Losses in 2014, 2013 and 2012 exclude $0.01 million, $0.03 million and $0.3 million, respectively of credit related OTTI recognized in earnings.

During 2014, 2013 and 2012, our trading securities consisted of various preferred stocks. During each of those years, we recognized gains (losses) on trading securities of $(0.30) million, $0.39 million and $0.03 million, respectively, that are included in net gains on securities in the Consolidated Statements of Operations. All of these amounts relate to gains (losses) recognized on trading securities still held at December 31, 2014 and 2013.

Securities with a book value of $1.1 million and $10.7 million at December 31, 2014 and 2013, respectively, were pledged to secure borrowings, derivatives, public deposits and for other purposes as required by law. There were no investment obligations of state and political subdivisions that were payable from or secured by the same source of revenue or taxing authority that exceeded 10% of consolidated shareholders’ equity at December 31, 2014 or 2013.