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:


	June 30, 2014
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		OTTI in AOCI⁽¹⁾
U.S. Treasury securities	$	9,722	$	—	$	(250	)	$	9,472	$	—
Municipal securities		141,820		4,059		(1,744	)		144,135		—
Single issue trust preferred securities		55,792		—		(7,482	)		48,310		—
Corporate securities		5,000		58		—			5,058		—
Mortgage-backed securities:
Agency		182,775		1,053		(3,438	)		180,390		—
Non-Agency Alt-A residential		11,741		—		(1,733	)		10,008		(1,733	)

Total mortgage-backed securities		194,516		1,053		(5,171	)		190,398		(1,733	)
Equity securities		752		302		(2	)		1,052		—

Total	$	407,602	$	5,472	$	(14,649	)	$	398,425	$	(1,733	)


	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	)

(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:


	June 30, 2014
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Agency securities	$	15,894	$	1	$	(15	)	$	15,880
Municipal securities		378		7		—			385
Corporate securities		3,126		12		—			3,138

Total	$	19,398	$	20	$	(15	)	$	19,403


	December 31, 2013
(Amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair 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 June 30, 2014. 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)	Amortized Cost		Fair Value
Available-for-sale securities
Due within one year	$	1,689	$	1,697
Due after one year but within five years		9,397		9,640
Due after five years but within ten years		45,138		46,079
Due after ten years		156,110		149,559

		212,334		206,975
Mortgage-backed securities		194,516		190,398
Equity securities		752		1,052

Total	$	407,602	$	398,425

Held-to-maturity securities
Due within one year	$	190	$	192
Due after one year but within five years		19,208		19,211
Due after five years but within ten years		—		—
Due after ten years		—		—

Total	$	19,398	$	19,403

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:


	June 30, 2014
	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	$	—	$	—		$	9,472	$	(250	)	$	9,472	$	(250	)
Municipal securities		915		(3	)		29,615		(1,741	)		30,530		(1,744	)
Single issue trust preferred securities		—		—			48,310		(7,482	)		48,310		(7,482	)
Mortgage-backed securities:
Agency		180		(5	)		97,950		(3,433	)		98,130		(3,438	)
Non-Agency Alt-A residential		—		—			10,008		(1,733	)		10,008		(1,733	)

Total mortgage-backed securities		180		(5	)		107,958		(5,166	)		108,138		(5,171	)
Equity securities		154		(2	)		—		—			154		(2	)

Total	$	1,249	$	(10	)	$	195,355	$	(14,639	)	$	196,604	$	(14,649	)


	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	$	9,013	$	(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.


	June 30, 2014
	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. Agency securities	$	15,209	$	(15	)	$	—	$	—	$	15,209	$	(15	)

Total	$	15,209	$	(15	)	$	—	$	—	$	15,209	$	(15	)

As of June 30, 2014, there were 113 individual securities in an unrealized loss position, and their combined depreciation in value represented 3.51% 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 loss or gain from the sale of securities in the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2014			2013			2014			2013
Gross realized gains	$	1,288		$	152		$	1,511		$	307
Gross realized losses		(1,347	)		(39	)		(1,525	)		(77	)

Net (loss) gain on sale of securities	$	(59	)	$	113		$	(14	)	$	230

The carrying value of securities pledged to secure public deposits and for other purposes was $268.00 million as of June 30, 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 and six months ended June 30, 2014, and June 30, 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 June 30, 2014, the Company incurred credit-related OTTI charges related to debt securities beneficially owned of $254 thousand. During the six months ended June 30, 2014, the Company incurred credit-related OTTI charges related to debt securities beneficially owned of $486 thousand. These charges were related to a non-Agency MBS. During the three and six months ended June 30, 2013, the Company incurred no credit-related OTTI charges related to debt securities beneficially owned.

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 14% 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 48% to 10% over the course of approximately 30 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 June 30,				Six Months Ended June 30,
(Amounts in thousands)	2014		2013		2014		2013
Beginning balance⁽¹⁾	$	8,030	$	7,478	$	7,798	$	7,478
Additions for credit losses on securities previously recognized		254		—		486		—

Ending balance	$	8,284	$	7,478	$	8,284	$	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 June 30, 2014, the Company incurred no OTTI charges related to equity holdings. During the six months ended June 30, 2014, the Company incurred OTTI charges related to certain equity holdings of $32 thousand. During the three and six months ended June 30, 2013, the Company recognized no OTTI charges related to equity securities.