SECURITIES

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 below:



	September 30, 2014									December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available for sale securities
U.S. Government agency securities	$	41,357	$	23	$	(93	)	$	41,287	$	41,331	$	3	$	(885	)	$	40,449
Agency mortgage-backed securities	224,336		6,397		(1,529		)	229,204		232,742		6,405		(4,556		)	234,591
Agency collateralized mortgage obligations	66,244		285		(943		)	65,586		58,765		490		(1,102		)	58,153
State, county, and municipal securities	5,125		128		—			5,253		5,439		1		(28		)	5,412
Single issuer trust preferred securities issued by banks	2,925		14		(16		)	2,923		2,960		14		(22		)	2,952
Pooled trust preferred securities issued by banks and insurers (1)	7,961		32		(2,607		)	5,386		8,083		—		(4,242		)	3,841
Equity securities	11,173		851		(208		)	11,816		10,997		762		(295		)	11,464
Total available for sale securities	$	359,121	$	7,730	$	(5,396	)	$	361,455	$	360,317	$	7,675	$	(11,130	)	$	356,862
Held to maturity securities
U.S. Treasury securities	$	1,010	$	50	$	—		$	1,060	$	1,011	$	31	$	—		$	1,042
Agency mortgage-backed securities	164,531		3,511		(42		)	168,000		155,067		1,917		(1,033		)	155,951
Agency collateralized mortgage obligations	199,950		1,821		(4,494		)	197,277		187,388		824		(6,176		)	182,036
State, county, and municipal securities	424		9		—			433		678		7		—			685
Single issuer trust preferred securities issued by banks	1,500		30		—			1,530		1,503		23		—			1,526
Corporate debt securities	5,003		162		—			5,165		5,005		210		—			5,215
Total held to maturity securities	$	372,418	$	5,583	$	(4,536	)	$	373,465	$	350,652	$	3,012	$	(7,209	)	$	346,455
Total	$	731,539	$	13,313	$	(9,932	)	$	734,920	$	710,969	$	10,687	$	(18,339	)	$	703,317

(1) Gross unrealized gains and gross unrealized losses include $1.1 million and $2.3 million of net non-credit related OTTI at September 30, 2014 and December 31, 2013, respectively.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company realized net gains of $67,000 and $138,000 on equity securities classified as available for sale during the three and nine month periods ending September 30, 2014, respectively. The Company had no realized gains or losses during the three month period ending September 30, 2013 and realized a net loss of $4,000 during the nine month period ending September 30, 2013 on equity securities classified as available for sale. There were no gains or losses realized on sale of nonequity securities for the periods ending September 30, 2014 and 2013.

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 September 30, 2014 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	$	118	$	124	$	199	$	204
Due after one year to five years	37,513		38,373		5,492		5,674
Due after five years to ten years	92,385		91,581		32,731		33,115
Due after ten years	217,932		219,561		333,996		334,472
Total debt securities	$	347,948	$	349,639	$	372,418	$	373,465
Equity securities	$	11,173	$	11,816	$	—	$	—
Total	$	359,121	$	361,455	$	372,418	$	373,465

Inclusive in the table above is $34.1 million of callable securities in the Company’s investment portfolio at September 30, 2014.

The carrying value of securities pledged to secure public funds, repurchase agreements and for other purposes, as required or permitted by law, was $352.3 million and $360.1 million at September 30, 2014 and December 31, 2013, respectively.

At September 30, 2014 and December 31, 2013, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.

Other-Than-Temporary Impairment ("OTTI")

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:



	September 30, 2014
		Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Government agency securities	25	$	33,836	$	(93	)	$	—	$	—		$	33,836	$	(93	)
Agency mortgage-backed securities	54	44,458		(60		)	45,437		(1,511		)	89,895		(1,571		)
Agency collateralized mortgage obligations	15	34,062		(345		)	104,095		(5,092		)	138,157		(5,437		)
Single issuer trust preferred securities issued by banks and insurers	1	1,083		(16		)	—		—			1,083		(16		)
Pooled trust preferred securities issued by banks and insurers	2	—		—			2,580		(1,512		)	2,580		(1,512		)
Equity securities	17	935		(26		)	4,052		(182		)	4,987		(208		)
Total temporarily impaired securities	114	$	114,374	$	(540	)	$	156,164	$	(8,297	)	$	270,538	$	(8,837	)



	December 31, 2013
		Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. government agency securities	39	$	39,950	$	(885	)	$	—	$	—		$	39,950	$	(885	)
Agency mortgage-backed securities	124	202,004		(5,217		)	5,108		(372		)	207,112		(5,589		)
Agency collateralized mortgage obligations	19	183,721		(7,278		)	—		—			183,721		(7,278		)
State, county, and municipal securities	13	3,838		(28		)	—		—			3,838		(28		)
Single issuer trust preferred securities issued by banks and insurers	2	1,341		(22		)	—		—			1,341		(22		)
Pooled trust preferred securities issued by banks and insurers	2	—		—			2,300		(1,913		)	2,300		(1,913		)
Equity securities	22	2,376		(90		)	3,520		(205		)	5,896		(295		)
Total temporarily impaired securities	221	$	433,230	$	(13,520	)	$	10,928	$	(2,490	)	$	444,158	$	(16,010	)

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 September 30, 2014:

•

U.S. Government Agency Securities, 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 consists of one security which is below investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuer, including regulatory capital ratios of the issuer.

•

Pooled Trust Preferred Securities: This portfolio consists of two below investment grade securities both of which are performing. 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.

•

Equity 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.

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



	Three Months Ended						Nine Months Ended
	September 30						September 30
	2014			2013			2014			2013
	(Dollars in thousands)
Gross change in OTTI recorded on certain investments	$	235		$	303		$	1,264		$	674
Portion of OTTI recognized in OCI	(235		)	(303		)	(1,264		)	(674		)
Total credit related OTTI losses recognized in earnings	$	—		$	—		$	—		$	—

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



	Three Months Ended						Nine Months Ended
	September 30						September 30
	2014			2013			2014			2013
	(Dollars in thousands)
Balance at beginning of period	$	(9,997	)	$	(10,847	)	$	(9,997	)	$	(10,847	)
Add
Incurred on securities not previously impaired	—			—			—			—
Incurred on securities previously impaired	—			—			—			—
Less
Securities sold during the period	—			—			—			—
Reclassification due to changes in Company’s intent	—			—			—			—
Increases in cash flow expected to be collected	—			—			—			—
Balance at end of period	$	(9,997	)	$	(10,847	)	$	(9,997	)	$	(10,847	)