NOTE 3: INVESTMENT SECURITIES

Investments in securities are classified as available for sale or held to maturity as of September 30, 2014 and December 31, 2013. The amortized cost and fair values of the securities classified as available for sale and held to maturity as of September 30, 2014 are as follows:


				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(In thousands)		Cost		Gains		Losses		Value
Available for Sale:
U.S. Treasury Obligations	$	20,057	$	-	$	40	$	20,017
Residential Real Estate Mortgage-backed Securities ("Agency MBSs")		87,162		2,584		479		89,267
Agency Commercial Mortgage Backed Securities ("Agency CMBSs")		17,988		-		528		17,460
Agency Collateralized Mortgage Obligations ("Agency CMOs")		59,118		190		391		58,917
Asset Backed Securities ("ABSs")		353		35		-		388
Total Available for Sale	$	184,678	$	2,809	$	1,438	$	186,049
				Gross		Gross
		Amortized		Unrecognized		Unrecognized		Fair
(In thousands)		Cost		Gains		Losses		Value
Held to Maturity:
U.S. Agency Obligations	$	22,259	$	147	$	27	$	22,379
U.S. Government Sponsored Enterprises ("U.S. GSEs")		9,483		-		148		9,335
Federal Home Loan Bank ("FHLB") Obligations		4,711		1		-		4,712
Agency MBSs		8,347		117		-		8,464
Agency CMOs		97,310		11		1,800		95,521
Total Held to Maturity	$	142,110	$	276	$	1,975	$	140,411

The amortized cost and fair values of the securities classified as available for sale and held to maturity as of December 31, 2013 are as follows:


				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(In thousands)		Cost		Gains		Losses		Value
Available for Sale:
U.S. Treasury Obligations	$	100	$	-	$	-	$	100
Agency MBSs		97,882		2,876		1,487		99,271
Agency CMBSs		18,398		-		760		17,638
Agency CMOs		98,162		254		1,207		97,209
CLOs		37,834		73		-		37,907
ABSs		357		31		-		388
Total Available for Sale	$	252,733	$	3,234	$	3,454	$	252,513
				Gross		Gross
		Amortized		Unrecognized		Unrecognized		Fair
(In thousands)		Cost		Gains		Losses		Value
Held to Maturity:
U.S. Agency Obligations	$	23,580		-	$	458	$	23,122
U.S. GSEs		9,442		-		512		8,930
FHLB Obligations		4,684		-		191		4,493
Agency CMOs		94,105		-		2,426		91,679
Agency MBSs		9,015		25		177		8,863
Total Held to Maturity	$	140,826	$	25	$	3,764	$	137,087

The contractual final maturity distribution of the debt securities classified as available for sale as of September 30, 2014, are as follows:


				After One		After Five
		Within		But Within		But Within		After Ten
(In thousands)		One Year		Five Years		Ten Years		Years		Total
Available for Sale (at fair value):
U.S. Treasury Obligations	$	-	$	20,017	$	-	$	-	$	20,017
Agency MBSs		61		3,077		17,472		68,657		89,267
Agency CMBSs		-		4,883		8,359		4,218		17,460
Agency CMOs		-		-		2,481		56,436		58,917
ABSs		-		-		-		388		388
Total Available for Sale	$	61	$	27,977	$	28,312	$	129,699	$	186,049
Available for Sale (at amortized cost):
U.S. Treasury Obligations	$	-	$	20,057	$	-	$	-	$	20,057
Agency MBSs		58		2,911		16,693		67,500		87,162
Agency CMBSs		-		4,964		8,618		4,406		17,988
Agency CMOs		-		-		2,469		56,649		59,118
ABSs		-		-		-		353		353
Total Available for Sale	$	58	$	27,932	$	27,780	$	128,908	$	184,678

The contractual final maturity distribution of the debt securities classified as held to maturity as of September 30, 2014, are as follows:


				After One		After Five
		Within		But Within		But Within		After Ten
(In thousands)		One Year		Five Years		Ten Years		Years		Total
Held to Maturity (at fair value):
U.S. Agency Obligations	$	-	$	-	$	-	$	22,379	$	22,379
U.S. GSEs		-		-		9,335		-		9,335
FHLB Obligations		-		-		4,712		-		4,712
Agency MBSs		-		16		115		8,333		8,464
Agency CMOs		-		-		-		95,521		95,521
Total Held to Maturity	$	-	$	16	$	14,162	$	126,233	$	140,411
Held to Maturity (at amortized cost):
U.S. Agency Obligations	$	-	$	-	$	-	$	22,259	$	22,259
U.S. GSEs		-		-		9,483		-		9,483
FHLB Obligations		-		-		4,711		-		4,711
Agency MBSs		-		16		101		8,230		8,347
Agency CMOs		-		-		-		97,310		97,310
Total Held to Maturity	$	-	$	16	$	14,295	$	127,799	$	142,110

Actual maturities will differ from contractual maturities because borrowers may have rights to call or prepay obligations. Maturities of Agency MBSs and Agency CMOs in the tables above are based on final contractual maturities.

The following table presents the proceeds, gross gains and gross losses on available for sale securities for the three and nine months ended September 30, 2014 and 2013.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2014		2013		2014		2013
Proceeds	$	11,674	$	2,001	$	56,889	$	53,215
Gross gains		-		1		302		548
Gross losses		(37)		-		(196)		(560)
Net gains	$	(37)	$	1	$	106	$	(12)

Securities with a carrying amount of $254.67 million and $315.53 million at September 30, 2014 and December 31, 2013, respectively, were pledged to secure U.S. Treasury borrowings, public deposits, securities sold under agreements to repurchase, and for other purposes required by law.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at September 30, 2014, were as follows:


		Less Than 12 Months				12 Months or More				Total
		Fair				Fair				Fair
(In thousands)		Value		Loss		Value		Loss		Value		Loss
Available for Sale:
U.S. Treasury Obligations	$	20,017	$	40	$	-	$	-	$	20,017	$	40
Agency MBSs		9,532		48		27,847		431		37,379		479
Agency CMBSs		-		-		17,460		528		17,460		528
Agency CMOs		20,912		98		11,374		293		32,286		391
Total Available for Sale	$	50,461	$	186	$	56,681	$	1,252	$	107,142	$	1,438
Held to Maturity:
U.S. Agency Obligations	$	8,817	$	27	$	-	$	-	$	8,817	$	27
U.S. GSEs		-		-		9,335		148		9,335		148
Agency CMOs		50,726		834		36,534		966		87,260		1,800
Total Held to Maturity	$	59,543	$	861	$	45,869	$	1,114	$	105,412	$	1,975


		Less Than 12 Months				12 Months or More				Total
		Fair				Fair				Fair
(In thousands)		Value		Loss		Value		Loss		Value		Loss
Available for Sale:
Agency MBSs	$	46,547	$	1,487	$	-	$	-	$	46,547	$	1,487
Agency CMBSs		12,778		578		4,860		182		17,638		760
Agency CMOs		57,904		977		3,557		230		61,461		1,207
Total Available for Sale	$	117,229	$	3,042	$	8,417	$	412	$	125,646	$	3,454
Held to Maturity:
U.S. Agency Obligations	$	13,722	$	307	$	9,400	$	151	$	23,122	$	458
U.S. GSEs		8,930		512		-		-		8,930		512
FHLB Obligations		4,493		191		-		-		4,493		191
Agency CMOs		66,203		1,410		25,476		1,016		91,679		2,426
Agency MBSs		8,569		177		-		-		8,569		177
Total Held to Maturity	$	101,917	$	2,597	$	34,876	$	1,167	$	136,793	$	3,764

There were no securities classified as trading at September 30, 2014 and December 31, 2013.

Unrealized losses on investment securities result from the cost basis of the security being higher than its current fair value. These discrepancies generally occur because of changes in interest rates since the time of purchase, or because the credit quality of the issuer has deteriorated. We perform a quarterly analysis of each security in our portfolio to determine if impairment exists, and if it does, whether that impairment is other-than-temporary.

At September 30, 2014, all of our Agency MBSs and Agency CMOs held were issued by U.S. government-sponsored entities and agencies, primarily the Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corp (“FHLMC”), 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 we do not have the intent to sell these securities and it is not likely that we will be required to sell the securities before their anticipated recovery, we do not consider these securities to be other-than-temporarily impaired at September 30, 2014.

During the second and third quarters of 2014, we sold all of our CLOs. We sold a total of $35.75 million for a small loss during the nine months ended September 30, 2014. Under the Volker Rule, we may have been required to divest our CLOs by July 2017.

We use external pricing services to obtain fair market values for our investment portfolio. We have obtained and reviewed the service providers’ pricing and reference data documentation. Evaluations are based on market data and vary by asset class and incorporate available trade, bid and other market information. Because many fixed income securities do not trade on a daily basis, the service provider’s evaluated pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. In addition, model processes, such as the Option Adjusted Spread model are used to assess interest rate impact and develop prepayment scenarios, with inputs determined based on knowledge of the market. We periodically test the values provided to us by the pricing service by obtaining prices on all bonds from an alternative pricing source.

We do not intend to sell the investment securities that are in an unrealized loss position, and it is unlikely that we will be required to sell the investment securities before recovery of their amortized cost bases, which may be maturity. During 2013 and the first quarter of 2014, we transferred securities from available for sale to held to maturity. The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the unamortized holding loss reported in accumulated other comprehensive income will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the losses for the securities transferred from available for sale to held to maturity during 2013 and 2014 was $4.52 million, or $2.94 million, net of tax, at September 30, 2014.