Note 3.Investment Securities

The carrying value and fair value of investment securities available-for-sale (“AFS”) at June 30, 2014 and December 31, 2013 are as follows:


As of June 30, 2014			Included in AOCL*
			Gross		Gross
	Amortized		unrealized		unrealized
(In thousands)	cost		gains		losses		Fair value
U.S. government agencies	$	44,088	$	—	$	(2,045)	$	42,043
Mortgage-backed securities-residential		31,068		368		(405)		31,031
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		171,962		3,103		(1,222)		173,843
Non-agency		4,155		38		—		4,193
Corporate bonds		15,642		109		(33)		15,718
Municipal bonds		9,595		59		(44)		9,610
Other securities		3,069		1,646		(96)		4,619
Common stocks		33		18		—		51
Total available for sale	$	279,612	$	5,341	$	(3,845)	$	281,108


As of December 31, 2013			Included in AOCL*
			Gross		Gross
	Amortized		unrealized		unrealized
(In thousands)	cost		gains		losses		Fair value
U.S. government agencies	$	68,207	$	—	$	(6,171)	$	62,036
Mortgage-backed securities-residential		32,769		210		(882)		32,097
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		188,194		2,887		(1,978)		189,103
Non-agency		4,454		25		—		4,479
Corporate bonds		9,669		25		(256)		9,438
Municipal bonds		7,163		—		(263)		6,900
Other securities		3,363		1,405		(143)		4,625
Common stocks		33		16		—		49
Total available for sale	$	313,852	$	4,568	$	(9,693)	$	308,727

*Accumulated other comprehensive loss

The amortized cost and fair value of investment securities at June 30, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	As of June 30, 2014
	Amortized
(In thousands)	cost		Fair value
Within 1 year	$	2,003	$	2,002
After 1 but within 5 years		10,915		10,954
After 5 but within 10 years		33,328		32,578
After 10 years		23,079		21,837
Mortgage-backed securities-residential		31,068		31,031
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		171,962		173,843
Non-agency		4,155		4,193
Total available for sale debt securities		276,510		276,438
No contractual maturity		3,102		4,670
Total available for sale securities	$	279,612	$	281,108

Proceeds from the sales of AFS investments during the three months ended June 30, 2014 and 2013 were $36.0 and $8.3 million, respectively. Proceeds from the sales of AFS investments during the six months ended June 30, 2014 and 2013 were $36.0 and $20.4 million, respectively. The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:


	For the three months				For the six months
	ended June 30,				ended June 30,
(In thousands)	2014		2013		2014		2013
Gross realized gains	$	697	$	43	$	697	$	181
Gross realized losses		(605)		(18)		(605)		(111)
Net realized gains	$	92	$	25	$	92	$	70

The Company evaluates securities for OTTI at least on a quarterly basis. The Company assesses whether OTTI is present when the fair value of a security is less than its amortized cost. All investment securities are evaluated for OTTI under FASB ASC Topic 320, “Investments-Debt & Equity Securities” (“ASC Topic 320”). Non-agency collateralized mortgage obligations maybe evaluated under FASB ASC Topic 325 Subtopic 40, “Beneficial Interests in Securitized Financial Assets”. In determining whether OTTI exists, management considers numerous factors, including but not limited to: (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company’s intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts’ earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.

Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. In addition, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell or will more likely than not be required to sell the security. If an entity intends to sell the security or will be required to sell the security, the OTTI is recognized in earnings equal to the entire difference between the fair value and the amortized cost basis 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 the recovery of its amortized cost basis, the OTTI is separated into two amounts, the credit-related loss and the noncredit-related loss. The credit-related loss is based on the present value of the expected cash flows and is recognized in earnings. The noncredit-related loss is based on other factors such as illiquidity and is recognized in other comprehensive income (loss). The Company did not record OTTI charges to earnings during the first two quarters of 2014 and 2013.

There was no credit-related impairment losses on debt securities held at June 30, 2014 for which a portion of OTTI was recognized in other comprehensive income. The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at June 30, 2013 for which a portion of OTTI was recognized in other comprehensive income.


(In thousands)	2013
Balance at January 1,	$	173
Reductions for securities sold during the period (realized)		(173)
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		—
Balance at June 30,	$	—

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at June 30, 2014 and December 31, 2013:


June 30, 2014	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
			unrealized				unrealized				unrealized
(In thousands)	Fair value		losses		Fair value		losses		Fair value		losses
U.S. government agencies	$	—	$	—	$	42,043	$	(2,045)	$	42,043	$	(2,045)
Mortgage-backed securities-residential		—		—		13,251		(405)		13,251		(405)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		54,394		(497)		24,246		(725)		78,640		(1,222)
Corporate bonds		4,058		(13)		980		(20)		5,038		(33)
Municipal bonds		135		(1)		3,537		(43)		3,672		(44)
Other securities		—		—		342		(96)		342		(96)
Total available-for-sale	$	58,587	$	(511)	$	84,399	$	(3,334)	$	142,986	$	(3,845)


December 31, 2013	Less than 12 months				12 months or longer				Total
			Gross				Gross				Gross
			unrealized				unrealized				unrealized
(In thousands)	Fair value		losses		Fair value		losses		Fair value		losses
U.S. government agencies	$	48,919	$	(5,035)	$	12,267	$	(1,136)	$	61,186	$	(6,171)
Mortgage-backed securities-residential		18,045		(518)		6,276		(364)		24,321		(882)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		67,240		(1,446)		9,974		(532)		77,214		(1,978)
Corporate bonds		4,848		(221)		965		(35)		5,813		(256)
Municipal bonds		3,019		(102)		3,881		(161)		6,900		(263)
Other securities		—		—		301		(143)		301		(143)
Total available-for-sale	$	142,071	$	(7,322)	$	33,664	$	(2,371)	$	175,735	$	(9,693)

The AFS portfolio had gross unrealized losses of $3.8 million and $9.7 million at June 30, 2014 and December 31, 2013, respectively. The $5.9 million improvement in the gross unrealized loss was directly related to decreases of $4.1 million, $756,000 and $477,000 in gross unrealized losses on U.S. government agency debt securities, Agency CMOs, and MBS, respectively. These securities carry lower coupons and their market value was positively impacted by the 50 basis point decrease in the 10-year Treasury yield from 3.03% at December 31, 2013 to 2.53% at June 30, 2014. Additionally, during the second quarter, the Company was able to sell some bonds with either lower yields or extension risk which also positively contributed to the improvement in the unrealized loss. In determining the Company’s intent not to sell and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, management considers the following factors: current liquidity and availability of other non-pledged assets that permits the investment to be held for an extended period of time but not necessarily until maturity, capital planning, and any specific asset liability committee goals or guidelines related to the disposition of specific investments. The Company did not record OTTI charges in the first and second quarters of 2014 or 2013.

Common stocks: As of June 30, 2014, the Company had two common stocks of financial institutions with a total fair value of $51,000 and an unrealized gain of $18,000.

For all debt security types discussed below the fair value is based on prices provided by brokers and safekeeping custodians.

U.S. government-sponsored agencies (“U.S. Agencies”): As of June 30, 2014, the Company had 13 U.S. Agencies with a fair value of $42.0 million and gross unrealized losses of $2.0 million. All 13 bonds had been in an unrealized loss position for twelve months or longer at June 30, 2014. Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at June 30, 2014.

Mortgage-backed securities issued by U.S. government agencies and U.S. government sponsored enterprises: As of June 30, 2014, the Company had five mortgage-backed securities with a fair value of $13.3 million and gross unrealized losses of $405,000. All five of the mortgage-backed securities had been in an unrealized loss position of twelve months or longer. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at June 30, 2014.

U.S. government issued or sponsored collateralized mortgage obligations (“Agency CMOs”): As of June 30, 2014, the Company had 25 Agency CMOs with a fair value of $78.6 million and gross unrealized losses of $1.2 million. Seven of the Agency CMOs had been in an unrealized loss position for twelve months or longer and the remaining 18 Agency CMOs have been in an unrealized loss position for less than twelve months. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at June 30, 2014.

Non-agency collateralized mortgage obligations (“Non-agency CMOs”): As of June 30, 2014, the Company had two non-agency CMOs with a fair value of $4.2 million and gross unrealized gains of $38,000.

Corporate bonds: As of June 30, 2014, the Company had four corporate bonds with a fair value of $5.0 million and gross unrealized losses of $33,000. One of the corporate bonds had been in an unrealized loss position for twelve months or longer and three bonds had been in an unrealized loss position for less than twelve months. These bonds are investment grade. The Company’s unrealized losses in investments in corporate bonds represent interest rate risk and not credit risk of the underlying issuers. As previously mentioned management also considered (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company’s intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts’ earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments. Management utilized discounted cash flow analysis based upon the credit ratings of the securities, liquidity risk premiums, and the recent corporate spreads for similar securities to arrive at the credit risk component as required under ASC Topic 320 to determine the credit risk component of the corporate bonds. Based on these analyses, there was no credit-related loss on the two bonds. Because the Company does not intend to sell the corporate bonds and it is not more likely than not that the Company will be required to sell the bonds before recovery of their amortized cost basis, which may be maturity, the Company does not consider the four bonds to be other-than-temporarily impaired at June 30, 2014.

Municipal bonds: As of June 30, 2014, the Company had five municipal bonds with a fair value $3.7 million and gross unrealized losses of $44,000. One of the municipal bonds had been in an unrealized loss position for less than twelve months and four municipal bonds had been in an unrealized loss position for more twelve months or longer. Because the Company does not intend to sell the bonds and it is not more likely than not that the Company will be required to sell the bond before recovery of its amortized cost basis, which may be maturity, the Company does not consider the bonds to be other-than-temporarily impaired at June 30, 2014.

Other securities: As of June 30, 2014, the Company had seven investments in private equity funds which were predominantly invested in real estate. In determining whether or not OTTI exists, the Company reviews the funds’ financials, asset values, and its near-term projections. At June 30, 2014, two of the private equity funds had a combined fair value of $342,000 and an unrealized loss of $96,000. OTTI charges were recorded in a prior period on these two funds. Management concluded that there was no additional impairment on these two funds as of June 30, 2014.

The Company will continue to monitor these investments to determine if the discounted cash flow analysis, continued negative trends, market valuations or credit defaults result in impairment that is other than temporary.