Note 3.

Investment Securities

The following tables present the amortized cost and fair value of available-for-sale securities, including gross unrealized gains and losses, as of the dates indicated:


	December 31, 2013
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
U.S. Treasury securities	$	9,708	$	—	$	(695	)	$	9,013	$	—
Municipal securities		147,049		1,868		(4,637	)		144,280		—
Single issue trust preferred securities		55,764		—		(9,530	)		46,234		—
Corporate securities		5,000		—		(129	)		4,871		—
Mortgage-backed securities:
Agency		306,319		2,575		(8,508	)		300,386		—
Non-Agency Alt-A residential		12,543		—		(2,754	)		9,789		(2,754	)

Total mortgage-backed securities		318,862		2,575		(11,262	)		310,175		(2,754	)
Equity securities		5,259		24		(36	)		5,247		—

Total	$	541,642	$	4,467	$	(26,289	)	$	519,820	$	(2,754	)


	December 31, 2012
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI ⁽¹⁾
Municipal securities	$	151,119	$	8,195	$	(97	)	$	159,217	$	—
Single issue trust preferred securities		55,707		—		(11,061	)		44,646		—
Mortgage-backed securities:
Agency		310,323		6,023		(449	)		315,897		—
Non-Agency Alt-A residential		14,215		—		(3,148	)		11,067		(3,148	)

Total mortgage-backed securities		324,538		6,023		(3,597	)		326,964		(3,148	)
Equity securities		3,446		190		(105	)		3,531		—

Total	$	534,810	$	14,408	$	(14,860	)	$	534,358	$	(3,148	)

(1)	Other-than-temporary impairment in accumulated other comprehensive income

The following table presents the amortized cost, fair value, and weighted-average yield of available-for-sale securities, by contractual maturity, as of December 31, 2013. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


(Amounts in thousands)	U.S. Treasury Securities			Municipal Securities			Corporate Notes			Total			Tax Equivalent Purchase Yield⁽¹⁾
Amortized cost maturity:
Within one year	$	—		$	1,386		$	—		$	1,386			3.85	%
After one year through five years		—			14,227			—			14,227			5.69	%
After five years through ten years		9,708			131,436			55,762			196,906			3.63	%
After ten years		—			—			5,002			5,002			1.15	%

Amortized cost	$	9,708		$	147,049		$	60,764			217,521

Mortgage-backed securities											318,862			2.50	%
Equity securities											5,259			4.92	%

Total amortized cost										$	541,642

Tax equivalent purchase yield		2.09	%		4.76	%		1.34	%		3.01	%
Average contractual maturity (in years)		9.38			10.42			13.55			11.25

Fair value maturity:
Within one year	$	—		$	1,393		$	—		$	1,393
After one year through five years		—			14,557			—			14,557
After five years through ten years		9,013			128,330			47,131			184,474
After ten years		—			—			3,974			3,974

Fair value	$	9,013		$	144,280		$	51,105			204,398

Mortgage-backed securities											310,175
Equity securities											5,247

Total fair value										$	519,820

(1)	Fully taxable equivalent at the rate of 35%.

The following tables present the amortized cost and fair value of held-to-maturity securities, including gross unrealized gains and losses, as of the dates indicated:


	December 31, 2013
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Municipal securities	$	568	$	11	$	—	$	579

Total	$	568	$	11	$	—	$	579


	December 31, 2012
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Municipal securities	$	816	$	16	$	—	$	832

Total	$	816	$	16	$	—	$	832

The following table presents the amortized cost, fair value, and weighted-average yield of held-to-maturity securities, by contractual maturity, as of December 31, 2013. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


(Amounts in thousands)	Municipal Securities			Tax Equivalent Purchase Yield⁽¹⁾
Amortized cost maturity:
Within one year	$	190			8.05	%
After one year through five years		378			8.17	%
After five years through ten years		—			—
After ten years		—			—

Total amortized cost	$	568

Tax equivalent purchase yield		8.13	%
Average contractual maturity (in years)		1.33

Fair value maturity:
Within one year	$	193
After one year through five years		386
After five years through ten years		—
After ten years		—

Total fair value	$	579

(1)	Fully taxable equivalent at the rate of 35%.

The following table presents municipal securities, by state, for the states where the largest volume of these securities are held in the Company’s portfolio. The table also presents the amortized cost and fair value of the municipal securities, including gross unrealized gains and losses, as of the dates indicated.


	December 31, 2013
(Amounts in thousands)	Percent of Municipal Portfolio			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
New York		11.34	%	$	16,161	$	294	$	(28	)	$	16,427
Minnesota		8.56	%		12,504		174		(279	)		12,399
New Jersey		8.18	%		11,565		306		(25	)		11,846
Connecticut		7.86	%		11,406		91		(109	)		11,388
Wisconsin		7.83	%		11,815		118		(584	)		11,349
Ohio		7.45	%		11,299		135		(637	)		10,797
Massachusetts		6.85	%		10,102		119		(295	)		9,926
Texas		6.24	%		9,483		134		(576	)		9,041
Other		35.68	%		53,282		508		(2,104	)		51,686

Total		100.00	%	$	147,617	$	1,879	$	(4,637	)	$	144,859


	December 31, 2013
(Amounts in thousands)	Percent of Municipal Portfolio			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
New York		11.04	%	$	16,552	$	1,114	$	—		$	17,666
Wisconsin		8.66	%		13,266		602		—			13,868
Minnesota		8.61	%		12,990		798		(4	)		13,784
New Jersey		8.01	%		11,940		874		—			12,814
Connecticut		7.72	%		11,693		660		—			12,353
Texas		7.42	%		11,416		470		(16	)		11,870
Ohio		7.31	%		11,147		575		(21	)		11,701
Massachusetts		6.98	%		10,531		642		(3	)		11,170
Other		34.25	%		52,400		2,476		(53	)		54,823

Total		100.00	%	$	151,935	$	8,211	$	(97	)	$	160,049

The following tables present the fair values and unrealized losses for available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated. There were no held-to-maturity securities in a continuous unrealized loss position as of December 31, 2013 or 2012.


	December 31, 2013
	Less than 12 Months					12 Months or longer					Total
(Amounts in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	9,012	$	(695	)	$	—	$	—		$	9,012	$	(695	)
Municipal securities		57,950		(4,147	)		3,049		(490	)		60,999		(4,637	)
Single issue trust preferred securities		—		—			46,234		(9,530	)		46,234		(9,530	)
Corporate securities		4,872		(129	)		—		—			4,872		(129	)
Mortgage-backed securities:
Agency		114,047		(4,361	)		55,706		(4,147	)		169,753		(8,508	)
Non-Agency Alt-A residential		—		—			9,789		(2,754	)		9,789		(2,754	)

Total mortgage-backed securities		114,047		(4,361	)		65,495		(6,901	)		179,542		(11,262	)
Equity securities		4,976		(24	)		20		(12	)		4,996		(36	)

Total	$	190,857	$	(9,356	)	$	114,798	$	(16,933	)	$	305,655	$	(26,289	)


	December 31, 2012
	Less than 12 Months					12 Months or longer					Total
(Amounts in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Municipal securities	$	6,436	$	(97	)	$	—	$	—		$	6,436	$	(97	)
Single issue trust preferred securities		—		—			44,646		(11,061	)		44,646		(11,061	)
Mortgage-backed securities:
Agency		74,197		(449	)		15		—			74,212		(449	)
Non-Agency Alt-A residential		—		—			11,066		(3,148	)		11,066		(3,148	)

Total mortgage-backed securities		74,197		(449	)		11,081		(3,148	)		85,278		(3,597	)
Equity securities		3,106		(25	)		108		(80	)		3,214		(105	)

Total	$	83,739	$	(571	)	$	55,835	$	(14,289	)	$	139,574	$	(14,860	)

As of December 31, 2013, there were 219 individual securities in an unrealized loss position, and their combined depreciation in value represented 5.06% of the available-for-sale securities portfolio. Individual securities in an unrealized loss position as of December 31, 2013, included 32 securities in a continuous unrealized loss position for 12 months or longer that the Company does not intend to sell, and that it has determined is not more likely than not going to be required to sell, prior to the maturities or recoveries of the securities. As of December 31, 2012, there were 57 individual securities in an unrealized loss position, and their combined depreciation in value represented 2.78% of the available-for-sale securities portfolio.

The following table presents the components of the Company’s net gain from the sale of securities in the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2013			2012			2011
Gross realized gains	$	553		$	723		$	6,963
Gross realized losses		(154	)		(240	)		(1,699	)

Net gain on sale of securities	$	399		$	483		$	5,264

The carrying value of securities pledged to secure public deposits and other purposes was $284.77 million as of December 31, 2013, and $292.88 million as of December 31, 2012.

The Company reviews its investment portfolio on a quarterly basis for indications of OTTI. Debt securities not beneficially owned by the Company include securities issued from the U.S. Department of the Treasury (the “Treasury”), municipal securities, and single issue trust preferred securities. For debt securities not beneficially owned, the Company analyzes factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies, and other qualitative factors to determine if the impairment will be recovered. If the evaluation suggests that the impairment will not be recovered, the Company calculates the present value of the security to determine the amount of OTTI. The security is then written down to its current present value and the Company calculates and records the amount of the loss due to credit factors in earnings through noninterest income and the amount due to other factors in stockholders’ equity through OCI. During 2013 and 2012, the Company incurred no OTTI charges related to debt securities not beneficially owned. Temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, destabilization in the Eurozone, and other current economic factors.

Debt securities beneficially owned by the Company consist of corporate FDIC securities and mortgage-backed securities (“MBS”). For debt securities beneficially owned, the Company analyzes the cash flows for each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. If the projected value of cash flows at the current reporting date is less than the present value previously projected, and less than the current book value, an adverse change has occurred. The Company then compares the current present value of cash flows to the current net book value to determine the credit-related portion of the OTTI. The credit-related OTTI is recorded in earnings through noninterest income and any remaining noncredit-related OTTI is recorded in stockholders’ equity through OCI. The Company incurred credit-related OTTI charges related to debt securities beneficially owned of $320 thousand in 2013 and $942 thousand in 2012. These charges were related to a non-Agency MBS.

The Company uses a discounted cash flow model for the non-Agency Alt-A residential MBS with the following assumptions: constant voluntary prepayment rate of 2%, a customized constant default rate scenario that assumes approximately 16% of the remaining underlying mortgages will default over the life of the security, and a customized loss severity rate scenario that ramps the loss rate down from 55% to 10% over the course of approximately three years. The following table presents the activity for credit-related losses recognized in earnings on debt securities where a portion of an OTTI was recognized in OCI for the periods indicated:


	Year Ended December 31,
(Amounts in thousands)	2013		2012		2011
Beginning balance ⁽¹⁾	$	7,478	$	6,536	$	4,251
Additions for credit losses on securities not previously recognized		—		—		—
Additions for credit losses on securities previously recognized		320		942		2,285
Reduction for increases in cash flows		—		—		—
Reduction for securities management no longer intends to hold to recovery		—		—		—
Reduction for securities sold/realized losses		—		—		—

Ending balance	$	7,798	$	7,478	$	6,536

(1)	The beginning balance includes credit related losses included in OTTI charges recognized on debt securities in prior periods.

For equity securities, the Company considers its intent to hold or sell the security before recovery, the severity and duration of the decline in fair value of the security below its cost, the financial condition and near-term prospects of the issuer, and whether the decline appears to be related to issuer, general market, or industry conditions to determine if the impairment will be recovered. If the Company deems the impairment other-than-temporary in nature, the security is written down to its current present value and the OTTI loss is charged to earnings. During 2013 and 2012, the Company recognized no OTTI charges related to equity securities.