SECURITIES

During 2012 the Company transferred equity securities classified previously as trading to available for sale. The majority of these securities are held solely for the purpose of funding certain executive nonqualified retirement obligations (see Note 14 “Employee Benefit Plans”). The remainder of the portfolio is comprised of equity securities, which consists of a fund whose investment objective is to invest in geographically specific private placement debt securities designed to support underlining economic activities such as community development and affordable housing. The Company realized a gain on trading activities of $285,000 in 2012, $122,000 in 2011, and $150,000 in 2010, which have been included in other income.

As of December 31, 2011 securities classified as trading at fair value, consisted of the following:



	(Dollars in thousands)
Cash equivalents	$	93
Fixed income securities	2,242
Marketable securities	5,905
Total	$	8,240

The following table presents a summary of the amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment recorded in other comprehensive income and fair value of securities available for sale and securities held to maturity for the periods indicated:



	December 31, 2012												December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Other			Other-Than- Temporary Impairment			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Other			Other-Than- Temporary Impairment			Fair Value
	(Dollars in thousands)
Available for sale securities
U.S. government agency securities	$	20,053	$	769	$	—		$	—		$	20,822	$	—	$	—	$	—		$	—		$	—
Agency mortgage-backed securities	209,381		12,158		(114		)	—			221,425		222,349		16,042		—			—			238,391
Agency collateralized mortgage obligations	67,412		1,001		(37		)	—			68,376		52,927		874		—			—			53,801
Private mortgage-backed securities	3,227		—		—			305			3,532		6,215		—		—			(105		)	6,110
Single issuer trust preferred securities issued by banks	2,255		—		(15		)	—			2,240		5,000		—		(790		)	—			4,210
Pooled trust preferred securities issued by banks and insurers	8,353		—		(2,415		)	(2,957		)	2,981		8,505		—		(2,518		)	(3,167		)	2,820
Marketable securities	9,875		92		(57		)	—			9,910		—		—		—			—			—
Total available for sale securities	$	320,556	$	14,020	$	(2,638	)	$	(2,652	)	$	329,286	$	294,996	$	16,916	$	(3,308	)	$	(3,272	)	$	305,332
Held to maturity securities
U.S. treasury securities	$	1,013	$	121	$	—		$	—		$	1,134	$	1,014	$	103	$	—		$	—		$	1,117
Agency mortgage-backed securities	72,360		4,233		—			—			76,593		109,553		4,406		—			—			113,959
Agency collateralized mortgage obligations	97,507		2,875		(2		)	—			100,380		77,804		2,494		—			—			80,298
State, county, and municipal securities	915		11		—			—			926		3,576		34		—			—			3,610
Single issuer trust preferred securities issued by banks	1,516		10		—			—			1,526		8,000		15		(669		)	—			7,346
Corporate debt securities	5,007		258		—			—			5,265		5,009		155		—			—			5,164
Total held to maturity securities	$	178,318	$	7,508	$	(2	)	$	—		$	185,824	$	204,956	$	7,207	$	(669	)	$	—		$	211,494
Total	$	498,874	$	21,528	$	(2,640	)	$	(2,652	)	$	515,110	$	499,952	$	24,123	$	(3,977	)	$	(3,272	)	$	516,826

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The following table shows the gross realized gains and losses on available for sale securities for the periods indicated:



	Years Ended December 31
	2012				2011		2010
	(Dollars in thousands)
Gross gains on available for sale securities	$	116	(1	)	$	723	$	458
Gross losses on available for sale securities	—				—		—
Net gains on available for sale securities	$	116			$	723	$	458


(1)	Amount includes $111,000 of realized gains associated with the marketable securities classified as available for sale.

The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of December 31, 2012 is presented below:



	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	224	$	235	$	239	$	241
Due from one year to five years	2,766		2,901		6,469		6,795
Due from five to ten years	75,574		79,511		1,013		1,134
Due after ten years	232,117		236,729		170,597		177,654
Total debt securities	$	310,681	$	319,376	$	178,318	$	185,824
Marketable securities	$	9,875	$	9,910	$	—	$	—
Total	$	320,556	$	329,286	$	178,318	$	185,824

Inclusive in the table above is $7.7 million and $13.0 million, of callable securities at December 31, 2012 and 2011, respectively.

At December 31, 2012 and 2011, investment securities carried at $365.8 million and $389.7 million, respectively, were pledged to secure public deposits, assets sold under repurchase agreements, letters of credit, and for other purposes.

At December 31, 2012 and 2011, the Company had no investments in obligations of individual states, counties, or municipalities, which exceeded 10% of stockholders’ equity.

Other-Than-Temporary Impairment

The Company continually reviews investment securities for the existence of OTTI, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security, or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:



		December 31, 2012
		Less than 12 months					12 months or longer					Total
Description of securities	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
		(Dollars In thousands)
Agency mortgage-backed securities	17	$	23,814	$	(114	)	$	—	$	—		$	23,814	$	(114	)
Agency collateralized mortgage obligations	2	17,677		(39		)	—		—			17,677		(39		)
Single issuer trust preferred securities issued by banks and insurers	2	2,240		(15		)	—		—			2,240		(15		)
Pooled trust preferred securities issued by banks and insurers	2	—		—			2,069		(2,415		)	2,069		(2,415		)
Marketable securities	15	6,613		(57		)	—		—			6,613		(57		)
Total temporarily impaired securities	38	$	50,344	$	(225	)	$	2,069	$	(2,415	)	$	52,413	$	(2,640	)

		December 31, 2011
		Less than 12 months					12 months or longer					Total
Description of securities	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
		(Dollars In thousands)
Single issuer trust preferred securities issued by banks and insurers	2	$	—	$	—		$	8,617	$	(1,459	)	$	8,617	$	(1,459	)
Pooled trust preferred securities issued by banks and insurers	2	—		—			2,117		(2,518		)	2,117		(2,518		)
Total temporarily impaired securities	4	$	—	$	—		$	10,734	$	(3,977	)	$	10,734	$	(3,977	)

The Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at December 31, 2012:

•

Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations: This portfolio has contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.


•	Single Issuer Trust Preferred Securities: This portfolio consist of two securities, both of which are below investment grade. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for each of the issuers, including regulatory capital ratios of issuers.

•

Pooled Trust Preferred Securities: This portfolio consists of two below investment grade securities of which one is performing while the other is deferring payments as contractually allowed. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market and the significant risk premiums required in the current economic environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

•

Marketable Securities: This portfolio consists of mutual funds and other equity investments. During some periods, the mutual funds in the Company’s investment portfolio may have unrealized losses resulting from market fluctuations as well as the risk premium associated with that particular asset class. For example, emerging market equities tend to trade at a higher risk premium than U.S. government bonds and thus, will fluctuate to a greater degree on both the upside and the downside. In the context of a well-diversified portfolio, however, the correlation amongst the various asset classes represented by the funds serves to minimize downside risk. The Company evaluates each mutual fund in the portfolio regularly and measures performance on both an absolute and relative basis. A reasonable recovery period for positions with an unrealized loss is based on management’s assessment of general economic data, trends within a particular asset class, valuations, earnings forecasts and bond durations.

Management monitors the following issuances closely for impairment due to the history of OTTI losses recorded within these classes of securities. Management has determined that the securities possess characteristics which in the current economic environment could lead to further credit related OTTI charges. The following tables summarize pertinent information as of December 31, 2012, that was considered by management in determining if OTTI existed:



	Class	Amortized Cost (1)		Gross Unrealized Gain/(Loss)			Non-Credit Related Other- Than-Temporary Impairment			Fair Value		Total Cumulative Credit Related Other- Than- Temporary Impairment			Total Cumulative Other- Than- Temporary impairment to date
	(Dollars in thousands)
Pooled trust preferred securities
Pooled trust preferred security A	C1	$	1,283	$	—		$	(1,055	)	$	228	$	(3,676	)	$	(4,731	)
Pooled trust preferred security B	D	—		—			—			—		(3,481		)	(3,481		)
Pooled trust preferred security C	C1	505		—			(402		)	103		(482		)	(884		)
Pooled trust preferred security D	D	—		—			—			—		(990		)	(990		)
Pooled trust preferred security E	C1	2,081		—			(1,500		)	581		(1,368		)	(2,868		)
Pooled trust preferred security F	B	1,893		(1,294		)	—			599		—			—
Pooled trust preferred security G	A1	2,591		(1,121		)	—			1,470		—			—
Total pooled trust preferred securities		$	8,353	$	(2,415	)	$	(2,957	)	$	2,981	$	(9,997	)	$	(12,954	)
Private mortgage-backed securities
Private mortgage-backed securities — one	2A1	$	2,229	$	—		$	207		$	2,436	$	(765	)	$	(558	)
Private mortgage-backed securities —two	A19	998		—			98			1,096		(85		)	13
Total private mortgage-backed securities		$	3,227	$	—		$	305		$	3,532	$	(850	)	$	(545	)
Total		$	11,580	$	(2,415	)	$	(2,652	)	$	6,513	$	(10,847	)	$	(13,499	)


(1)	The amortized cost reflects previously recorded credit related OTTI charges recognized in earnings for the applicable securities.



	Class	Number of Performing Banks and Insurance Cos. in Issuances (Unique)	Current Deferrals/ Defaults/ Losses (As a % of Original Collateral)		Total Projected Defaults/ Losses (as a % of Performing Collateral)		Excess Subordination (After Taking into Account Best Estimate of Future Deferrals/ Defaults/ Losses)(1)		Lowest credit Ratings to date(2)
Pooled trust preferred securities
Pooled trust preferred security A	C1	54	34.03	%	21.59	%	—	%	C (Fitch & Moody’s)
Pooled trust preferred security B	D	54	34.03	%	21.59	%	—	%	C (Fitch)
Pooled trust preferred security C	C1	48	31.00	%	18.69	%	—	%	C (Fitch & Moody’s)
Pooled trust preferred security D	D	48	31.00	%	18.69	%	—	%	C (Fitch)
Pooled trust preferred security E	C1	47	27.17	%	16.04	%	2.35	%	C (Fitch & Moody’s)
Pooled trust preferred security F	B	32	26.61	%	22.29	%	29.33	%	CC (Fitch)
Pooled trust preferred security G	A1	32	26.61	%	22.29	%	53.90	%	CCC+ (S&P)
Private mortgage-backed securities
Private mortgage-backed securities — one	2A1	N/A	6.62	%	12.19	%	—	%	D (Fitch)
Private mortgage-backed securities — two	A19	N/A	3.74	%	6.44	%	—	%	C (Fitch)


(1)	Excess subordination represents the additional default/losses in excess of both current and projected defaults/losses that the security can absorb before the security experiences any credit impairment.


(2)	The Company reviewed credit ratings provided by S&P, Moody’s and Fitch in its evaluation of issuers.

Per review of the factors outlined above, seven of the securities shown in the table above were deemed to be OTTI. The remaining securities were not deemed to be OTTI as the Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis.

The following table shows the total OTTI that the Company recorded for the periods indicated:



	Years Ended December 31
	2012			2011			2010
	(Dollars in thousands)
Gross change in OTTI recorded on certain investments (gain/(losses))	$	678		$	53		$	497
Portion of OTTI gains (losses) recognized in OCI	(754		)	(296		)	(831		)
Total credit related OTTI losses recognized in earnings	$	(76	)	$	(243	)	$	(334	)

The following table shows the cumulative credit related component of OTTI for the periods indicated:



	2012			2011			2010
	(Dollars in thousands)
Balance at January 1	$	(10,771	)	$	(10,528	)	$	(10,194	)
Add
Incurred on securities not previously impaired	—			—			(85		)
Incurred on securities previously impaired	(76		)	(243		)	(249		)
Less
Realized gain/loss on sale of securities	—			—			—
Reclassification due to changes in Company’s intent	—			—			—
Increases in cash flow expected to be collected	—			—			—
Balance at December 31	$	(10,847	)	$	(10,771	)	$	(10,528	)