Note 2. 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:


	March 31, 2014
	Amortized		Unrealized		Unrealized			Fair		OTTI in
(Amounts in thousands)	Cost		Gains		Losses			Value		AOCI⁽¹⁾
U.S. Treasury securities	$	9,715	$	—	$	(451	)	$	9,264	$	—
Municipal securities		144,438		3,075		(2,641	)		144,872		—
Single issue trust preferred securities		55,778		—		(9,649	)		46,129		—
Corporate securities		5,000		—		—			5,000		—
Mortgage-backed securities:
Agency		271,524		2,332		(6,567	)		267,289		—
Non-Agency Alt-A residential		12,110		—		(1,838	)		10,272		(1,838	)

Total mortgage-backed securities		283,634		2,332		(8,405	)		277,561		(1,838	)
Equity securities		733		318		(13	)		1,038		—

Total	$	499,298	$	5,725	$	(21,159	)	$	483,864	$	(1,838	)


	December 31, 2013
	Amortized		Unrealized		Unrealized			Fair		OTTI in
(Amounts in thousands)	Cost		Gains		Losses			Value		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	)

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

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:


	March 31, 2014
	Amortized		Unrealized		Unrealized			Fair
(Amounts in thousands)	Cost		Gains		Losses			Value
U.S. Agency securities	$	4,464	$	—	$	(16	)	$	4,448
Municipal securities		568		4		—			572
Corporate securities		3,129		—		(1	)		3,128

Total	$	8,161	$	4	$	(17	)	$	8,148


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

Total	$	568	$	11	$	—		$	579

The following table presents the amortized cost and fair value of available-for-sale securities and held-to-maturity securities, by contractual maturity, as of March 31, 2014. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


	Amortized
(Amounts in thousands)	Cost		Fair Value
Available-for-sale securities
Due within one year	$	2,030	$	2,041
Due after one year but within five years		11,245		11,522
Due after five years but within ten years		42,252		42,497
Due after ten years		159,404		149,205

		214,931		205,265
Mortgage-backed securities		283,634		277,561
Equity securities		733		1,038

Total	$	499,298	$	483,864

Held-to-maturity securities
Due within one year	$	—	$	—
Due after one year but within five years		8,161		8,148
Due after five years but within ten years		—		—
Due after ten years		—		—

Total	$	8,161	$	8,148

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:


	March 31, 2014
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury securities	$	9,264	$	(451	)	$	—	$	—		$	9,264	$	(451	)
Municipal securities		29,944		(1,629	)		8,840		(1,012	)		38,784		(2,641	)
Single issue trust preferred securities		—		—			46,129		(9,649	)		46,129		(9,649	)
Mortgage-backed securities:
Agency		98,271		(2,707	)		69,063		(3,860	)		167,334		(6,567	)
Non-Agency Alt-A residential		—		—			10,272		(1,838	)		10,272		(1,838	)

Total mortgage-backed securities		98,271		(2,707	)		79,335		(5,698	)		177,606		(8,405	)
Equity securities		143		(13	)		—		—			143		(13	)

Total	$	137,622	$	(4,800	)	$	134,304	$	(16,359	)	$	271,926	$	(21,159	)


	December 31, 2013
	Less than 12 Months					12 Months or longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury securities	$	9,013	$	(695	)	$	—	$	—		$	9,013	$	(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		4,871		(129	)		—		—			4,871		(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	)

The following table presents the fair values and unrealized losses for held-to-maturity 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.


	March 31, 2014
	Less than 12 Months					12 Months or longer				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses		Value		Losses
U.S. Agency securities	$	4,448	$	(16	)	$	—	$	—	$	4,448	$	(16	)
Corporate securities		3,128		(1	)		—		—		3,128		(1	)

Total	$	7,576	$	(17	)	$	—	$	—	$	7,576	$	(17	)

As of March 31, 2014, there were 149 individual securities in an unrealized loss position, and their combined depreciation in value represented 4.30% of the investment securities portfolio. 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.

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


	Three Months Ended
	March 31,
(Amounts in thousands)	2014			2013
Gross realized gains	$	223		$	155
Gross realized losses		(178	)		(38	)

Net gain on sale of securities	$	45		$	117

The carrying value of securities pledged to secure public deposits and for other purposes was $284.59 million as of March 31, 2014, and $284.77 million as of December 31, 2013.

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 the three months ended March 31, 2014, and March 31, 2013, 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. During the three months ended March 31, 2014, the Company incurred credit-related OTTI charges related to debt securities beneficially owned of $232 thousand. These charges were related to a non-Agency MBS. During the three months ended March 31, 2013, the Company incurred no credit-related OTTI charges.

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 2.5%, a customized constant default rate scenario that assumes approximately 15% 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 51% to 10% over the course of approximately 33 months. 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:


	Three Months Ended
	March 31,
(Amounts in thousands)	2014		2013
Beginning balance⁽¹⁾	$	7,798	$	7,478
Additions for credit losses on securities previously recognized		232		—

Ending balance	$	8,030	$	7,478

(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 the three months ended March 31, 2014, the Company incurred OTTI charges related to certain equity holdings of $32 thousand. During the three months ended March 31, 2013, the

Company recognized no OTTI charges related to equity securities.