Note 5 - Securities

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 5. SECURITIES

Securities are classified as available-for-sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities designated as available-for-sale are carried at fair value. Unrealized holding gains or losses are included in other comprehensive income (“OCI”) as a separate component of shareholders’ equity, net of tax. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.

Debt securities are classified as held-to-maturity if the Company has both the intent and ability to hold those securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost, adjusted for amortization of premium and accretion of discount, computed by the effective interest method over their contractual lives.

Transfers of securities from available-for-sale to held-to-maturity are accounted for at fair value as of the date of the transfer. The difference between the fair value and the amortized cost at the date of transfer is considered a premium or discount and is accounted for accordingly. Any unrealized gain or loss at the date of the transfer is reported in OCI, and is amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount, and will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held to maturity security. The Company did not have any transfers in or out of the various securities classifications for the nine months ended September 30, 2014.

The following table presents the amortized costs, gross unrealized gains, gross unrealized losses and approximate fair values of investment securities at September 30, 2014, and December 31, 2013:

	As of September 30, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Dollars in thousands)	Costs		Gains		Losses			Fair Value
Available-for-sale securities
U.S. government & agencies	$	7,841	$	32	$	(48	)	$	7,825
Obligations of state and political subdivisions		55,567		1,683		(89	)		57,161
Residential mortgage backed securities and collateralized mortgage obligations		46,390		371		(263	)		46,498
Corporate securities		39,523		398		(204	)		39,717
Commercial mortgage backed securities		11,235		29		(164	)		11,100
Other asset backed securities		27,039		325		(286	)		27,078
Total	$	187,595	$	2,838	$	(1,054	)	$	189,379
Held-to-maturity securities
Obligations of state and political subdivisions	$	36,888	$	551	$	(623	)	$	36,816

	As of December 31, 2013
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Dollars in thousands)	Costs		Gains		Losses			Fair Value
Available-for-sale securities
U.S. government & agencies	$	6,580	$	-	$	(316	)	$	6,264
Obligations of state and political subdivisions		60,370		672		(1,833	)		59,209
Residential mortgage backed securities and collateralized mortgage obligations		64,026		318		(1,353	)		62,991
Corporate securities		48,836		282		(888	)		48,230
Commercial mortgage backed securities		10,828		24		(380	)		10,472
Other asset backed securities		29,717		388		(631	)		29,474
Total	$	220,357	$	1,684	$	(5,401	)	$	216,640
Held-to-maturity securities
Obligations of state and political subdivisions	$	36,696	$	36	$	(2,707	)	$	34,025

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities as of September 30, 2014, are shown below.

	Available-for-sale				Held-to-maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
One year or less	$	1,216	$	1,236	$	367	$	367
One year through five years		53,813		54,329		1,482		1,502
Five years through ten years		58,470		58,791		15,368		15,407
After ten years		74,096		75,023		19,671		19,540
Total	$	187,595	$	189,379	$	36,888	$	36,816

The amortized cost and fair value of collateralized mortgage obligations and mortgage backed securities are presented by their expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual maturities.

The Company held $54.2 million in securities with safekeeping institutions for pledging purposes. Of this amount, $20.7 million were pledged as of September 30, 2014. The following table presents the fair market value of the securities held, segregated by purpose, as of September 30, 2014:

(Dollars in thousands)	Amount
Public funds collateral	$	24,532
Federal Home Loan Bank borrowings		25,206
Interest rate swap contracts		4,488
Total securities held for pledging purposes	$	54,226

The following table presents the cash proceeds from sales of securities and their associated gross realized gains and gross realized losses that have been included in earnings for the three and nine months ended September 30, 2014 and 2013

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2014			2013			2014			2013
Proceeds from sales of securities	$	13,036		$	32,502		$	81,820		$	77,845
Gross realized gains on sales of securities:
Obligations of state and political subdivisions	$	44		$	35		$	215		$	212
Residential mortgage backed securities and collateralized mortgage obligations		7			135			75			240
Corporate securities		82			419			309			780
Commercial mortgage backed securities		-			-			5			-
Other asset backed securities		10			-			73			52
Total gross realized gains on sales of securities	$	143		$	589		$	677		$	1,284
Gross realized losses on sales of securities
U.S. government & agencies	$	-		$	(73	)	$	(114	)	$	(100	)
Obligations of state and political subdivisions		(50	)		(108	)		(209	)		(118	)
Residential mortgage backed securities and collateralized mortgage obligations		(61	)		(13	)		(543	)		(63	)
Corporate securities		-			(12	)		(8	)		(25	)
Commercial mortgage backed securities		-			-			(33	)		-
Other asset backed securities		-			(47	)		(22	)		(47	)
Total gross realized losses on sales of securities	$	(111	)	$	(253	)	$	(929	)	$	(353	)
(Loss) gain on investment securities, net	$	32		$	336		$	(252	)	$	931

The following tables present the current fair value and associated unrealized losses on investments with unrealized losses at September 30, 2014, and December 31, 2013. The tables also illustrate whether these securities have had unrealized losses for less than 12 months or for 12 months or longer.

	As of September 30, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
Available-for-sale securities
U.S. government & agencies	$	-	$	-		$	2,853	$	(48	)	$	2,853	$	(48	)
Obligations of states and political subdivisions		6,528		(21	)		5,942		(68	)		12,470		(89	)
Residential mortgage backed securities and collateralized mortgage obligations		15,434		(107	)		5,623		(156	)		21,057		(263	)
Corporate securities		5,078		(36	)		9,916		(168	)		14,994		(204	)
Commercial mortgage backed securities		2,869		(37	)		2,600		(127	)		5,469		(164	)
Other asset backed securities		5,972		(67	)		7,012		(219	)		12,984		(286	)
Total temporarily impaired securities	$	35,881	$	(268	)	$	33,946	$	(786	)	$	69,827	$	(1,054	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	3,662	$	(18	)	$	15,565	$	(605	)	$	19,227	$	(623	)

	As of December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
Available-for-sale securities
U.S. government & agencies	$	5,446	$	(147	)	$	819	$	(169	)	$	6,265	$	(316	)
Obligations of states and political subdivisions		29,943		(1,578	)		2,727		(255	)		32,670		(1,833	)
Residential mortgage backed securities and collateralized mortgage obligations		44,197		(1,214	)		3,271		(139	)		47,468		(1,353	)
Corporate securities		32,649		(792	)		2,960		(96	)		35,609		(888	)
Commercial mortgage backed securities		5,543		(205	)		1,437		(175	)		6,980		(380	)
Other asset backed securities		15,303		(518	)		1,723		(113	)		17,026		(631	)
Total temporarily impaired securities	$	133,081	$	(4,454	)	$	12,937	$	(947	)	$	146,018	$	(5,401	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	23,800	$	(1,524	)	$	7,533	$	(1,183	)	$	31,333	$	(2,707	)

At September 30, 2014, 93 securities were in unrealized loss positions and at December 31, 2013, 196 securities were in unrealized loss positions.

The unrealized losses on obligations of political subdivisions and corporate securities were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and there have been no adverse ratings changes below investment grade since the date of purchase. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in these classes, and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The residential mortgage backed securities, commercial backed securities, collateralized mortgage obligations, and other asset backed securities portfolios in an unrealized loss position at September 30, 2014, were issued by both public and private agencies. The unrealized losses on residential mortgage backed securities, commercial backed securities and collateralized mortgage obligations were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities, and not by the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates and or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in this class, and it is more likely than not the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

Management reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) or permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is more likely than not that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors. For debt securities, if we intend to sell the security or it is more likely than not we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is more likely than not we will not be required to sell the security, but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to OCI. Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. For the three and nine months ended September 30, 2014 and the year ended December 31, 2013, the Company did not recognize impairment losses.