NOTE 3 — SECURITIES

The amortized cost and fair value of securities available for sale and related unrealized gains/losses recognized in accumulated other comprehensive income was as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
As of September 30, 2013
Available for Sale
U. S. government agency	$	918	$	7	$	—		$	925
State and municipal	322,283		14,245		(1,736		)	334,792
Mortgage-backed securities-residential (GSEs)	194,050		3,976		(2,624		)	195,402
Collateralized mortgage obligations (GSEs)	357,949		1,880		(6,224		)	353,605
Equity securities	4,939		—		—			4,939
Other securities	3,535		—		(11		)	3,524
Total available for sale	$	883,674	$	20,108	$	(10,595	)	$	893,187

As of December 31, 2012
Available for Sale
U. S. government agency	$	1,600	$	38	$	—		$	1,638
State and municipal	310,552		27,484		(97		)	337,939
Mortgage-backed securities-residential (GSEs)	219,352		7,711		(8		)	227,055
Collateralized mortgage obligations (GSEs)	322,758		4,604		(139		)	$	327,223
Equity securities	4,939		—		—			4,939
Other securities	3,558		—		(11		)	3,547
Total available for sale	$	862,759	$	39,837	$	(255	)	$	902,341

The amortized cost and fair value of the investment securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity or with no maturity are shown separately.

	Available for Sale
September 30, 2013	Amortized Cost		Fair Value

Within one year	$	13,579	$	13,796
One through five years	54,747		56,901
Six through ten years	114,651		118,663
After ten years	143,759		149,881
Mortgage-backed securities-residential (Government Sponsored Entity)	194,050		195,402
Collateralized mortgage obligations (Government Sponsored Entity)	357,949		353,605
Equity securities	4,939		4,939
Total available for sale securities	$	883,674	$	893,187

Proceeds from sales of securities available for sale were $79,136 and $64,176 for the nine months ended September 30, 2013 and 2012, respectively. Gross gains of $912 and $1,944 and gross losses of $77 and $77 were realized on these sales during 2013 and 2012, respectively. In addition to the gross gains and losses from sales, there was a $500 impairment loss recognized on one investment during the first quarter of 2012, reducing its cost basis to $250 before and after the charge. The charge established a new cost basis. This amount is shown as an impairment loss on the income statement.

Proceeds from sales of securities available for sale were $782 and $43,290 for the three months ended September 30, 2013 and 2012, respectively. Gross gains of $2 and $874 and gross losses of $0 and $42 were realized on these sales during 2013 and 2012, respectively.

Below is a summary of securities with unrealized losses as of September 30, 2013 and December 31, 2012 presented by length of time the securities have been in a continuous unrealized loss position.

	Less than 12 months					12 months or longer					Total
September 30, 2013 Description of securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal	$	31,762	$	(1,736	)	$	—	$	—		$	31,762	$	(1,736	)
Mortgage-backed securities-residential (GSE’s)	87,602		(2,624		)	—		—			87,602		(2,624		)
Collateralized mortgage obligations (GSE’s)	235,320		(6,118		)	2,392		(106		)	237,712		(6,224		)
Other securities	—		—			990		(11		)	990		(11		)
Total temporarily impaired	$	354,684	$	(10,478	)	$	3,382	$	(117	)	$	358,066	$	(10,595	)

	Less than 12 months					12 months or longer				Total
December 31, 2012 Description of securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and municipal	$	6,646	$	(97	)	$	—	$	—	$	6,646	$	(97	)
Mortgage-backed securities-residential (GSE’s)	12,766		(8		)	—		—		12,766		(8		)
Collateralized mortgage obligations (GSE’s)	32,330		(139		)	—		—		32,330		(139		)
Other securities	990		(11		)	—		—		990		(11		)
Total temporarily impaired	$	52,732	$	(255	)	$	—	$	—	$	52,732	$	(255	)

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 into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under ASC 320. However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in ASC 325-10.

In determining OTTI under ASC 320, 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 entity 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 under either model, the amount of the OTTI recognized in earnings depends on whether an entity 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, less any current-period credit loss. If an entity 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, less any current-period credit loss, 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 an entity 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 less any current-period loss, the OTTI 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 September 30, 2013, the Company’s securities portfolio consisted of 1,045 securities, 151 of which were in an unrealized loss position. Unrealized losses on state and municipal securities of $1,736 have not been recognized into income because management has the ability to hold for a period of time sufficient to allow for any anticipated recovery in fair value and it is unlikely that management will be required to sell the securities before their anticipated recovery. The Company monitors the financial condition of these issuers. The fair value of these debt securities is expected to recover as the securities approach their maturity date.

At September 30, 2013, almost all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value of approximately $2,624 is attributable to changes in interest rates and not credit quality, and because the Company does not have the intent to sell these mortgage-backed 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.

The Company’s collateralized mortgage obligation securities portfolio includes agency collateralized mortgage obligations with a market value of $353,605 which had unrealized losses of approximately $6,224 at September 30, 2013. Some of these losses were the result of a small increase in loan rates during the third quarter. These collaterized mortgage obligations were also issued by government sponsored entities where the government has affirmed its commitment to support. The Company monitors to insure it has adequate credit support and as of September 30, 2013, the Company believes there is no OTTI and 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. All securities are investment grade.

The unrealized losses on other securities are related to one single issue trust preferred security and have not been recognized into income because management has the ability to hold for a period of time sufficient to allow for any anticipated recovery in fair value and it is unlikely that management will be required to sell the security before its anticipated recovery. The Company performs a quarterly review of this security and based on this review, no evidence of adverse changes in expected cash flows is anticipated. The decline in value is primarily attributable to temporary illiquidity and the financial crisis affecting these markets and not the expected cash flows of the individual security. Currently, the issuer has made all contractual payments and given no indication that it will not be able to make them into the future. The fair value of this debt security is expected to recover as the security approaches its maturity date. As of September 30, 2013, the fair value of the security was $990 with an unrealized loss of $11.