(4.) INVESTMENT SECURITIES

The amortized cost and fair value of investment securities are summarized below (in thousands):


		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
September 30, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	115,830	$	916	$	1,468	$	115,278
Mortgage-backed securities:
Federal National Mortgage Association		182,986		1,720		2,228		182,478
Federal Home Loan Mortgage Corporation		30,784		588		42		31,330
Government National Mortgage Association		51,449		1,912		-		53,361
Collateralized mortgage obligations:
Federal National Mortgage Association		78,874		367		1,358		77,883
Federal Home Loan Mortgage Corporation		93,063		211		3,418		89,856
Government National Mortgage Association		33,113		755		110		33,758
Privately issued		-		1,294		-		1,294
Total collateralized mortgage obligations		205,050		2,627		4,886		202,791
Total mortgage-backed securities		470,269		6,847		7,156		469,960
Asset-backed securities		-		241		-		241
Total available for sale securities	$	586,099	$	8,004	$	8,624	$	585,479
Securities held to maturity:
State and political subdivisions		268,708		5,356		58		274,006
Mortgage-backed securities:
Federal National Mortgage Association		3,300		-		37		3,263
Government National Mortgage Association		13,959		-		70		13,889
Total held to maturity securities	$	285,967	$	5,356	$	165	$	291,158


		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	135,840	$	1,414	$	2,802	$	134,452
Mortgage-backed securities:
Federal National Mortgage Association		173,507		1,511		4,810		170,208
Federal Home Loan Mortgage Corporation		36,737		562		205		37,094
Government National Mortgage Association		61,832		2,152		142		63,842
Collateralized mortgage obligations:
Federal National Mortgage Association		63,838		261		3,195		60,904
Federal Home Loan Mortgage Corporation		102,660		169		5,856		96,973
Government National Mortgage Association		43,734		913		586		44,061
Privately issued		-		1,467		-		1,467
Total collateralized mortgage obligations		210,232		2,810		9,637		203,405
Total mortgage-backed securities		482,308		7,035		14,794		474,549
Asset-backed securities		18		381		-		399
Total available for sale securities	$	618,166	$	8,830	$	17,596	$	609,400
Securities held to maturity:
State and political subdivisions	$	249,785	$	1,340	$	468	$	250,657

Investment securities with a total fair value of $785.9 million and $763.1 million at September 30, 2014 and December 31, 2013, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

During the third quarter of 2014, the Company transferred $12.8 million of available for sale mortgage backed securities to the held to maturity category, reflecting the Company's intent to hold those securities to maturity. Transfers of investment securities into the held to maturity category from the available for sale category are made at fair value at the date of transfer. The related $51 thousand of unrealized holding losses that were included in the transfer are retained in accumulated other comprehensive income and in the carrying value of the held to maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

The scheduled maturities of securities available for sale and securities held to maturity at September 30, 2014 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.


		Amortized		Fair
		Cost		Value
Debt securities available for sale:
Due in one year or less	$	186	$	189
Due from one to five years		93,032		93,453
Due after five years through ten years		237,569		237,720
Due after ten years		255,312		254,117
	$	586,099	$	585,479
Debt securities held to maturity:
Due in one year or less	$	23,898	$	23,993
Due from one to five years		133,714		136,201
Due after five years through ten years		111,096		113,812
Due after ten years		17,259		17,152
	$	285,967	$	291,158

Sales and calls of securities available for sale were as follows (in thousands):


		Three months ended				Nine months ended
		September 30,				September 30,
		2014		2013		2014		2013
Proceeds from sales and calls	$	14,672	$	-	$	76,100	$	1,327
Gross realized gains		515		-		1,777		1,224

Unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):


		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
September 30, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	44,780	$	299	$	40,918	$	1,169	$	85,698	$	1,468
Mortgage-backed securities:
Federal National Mortgage Association		44,078		208		64,400		2,020		108,478		2,228
Federal Home Loan Mortgage Corporation		-		-		3,478		42		3,478		42
Collateralized mortgage obligations:
Federal National Mortgage Association		18,649		121		29,146		1,237		47,795		1,358
Federal Home Loan Mortgage Corporation		-		-		77,992		3,418		77,992		3,418
Government National Mortgage Association		2,249		8		5,350		102		7,599		110
Total collateralized mortgage obligations		20,898		129		112,488		4,757		133,386		4,886
Total mortgage-backed securities		64,976		337		180,366		6,819		245,342		7,156
Total available for sale securities		109,756		636		221,284		7,988		331,040		8,624
Securities held to maturity:
State and political subdivisions		9,504		58		-		-		9,504		58
Mortgage-backed securities:
Federal National Mortgage Association		3,264		37		-		-		3,264		37
Government National Mortgage Association		13,889		70		-		-		13,889		70
Total held to maturity securities		26,657		165		-		-		26,657		165
Total	$	136,413	$	801	$	221,284	$	7,988	$	357,697	$	8,789

December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	86,177	$	2,788	$	2,717	$	14	$	88,894	$	2,802
Mortgage-backed securities:
Federal National Mortgage Association		103,778		3,491		20,689		1,319		124,467		4,810
Federal Home Loan Mortgage Corporation		14,166		205		-		-		14,166		205
Government National Mortgage Association		14,226		142		-		-		14,226		142
Collateralized mortgage obligations:
Federal National Mortgage Association		35,632		2,586		11,760		609		47,392		3,195
Federal Home Loan Mortgage Corporation		72,655		4,980		15,762		876		88,417		5,856
Government National Mortgage Association		8,396		586		-		-		8,396		586
Total collateralized mortgage obligations		116,683		8,152		27,522		1,485		144,205		9,637
Total mortgage-backed securities		248,853		11,990		48,211		2,804		297,064		14,794
Total available for sale securities		335,030		14,778		50,928		2,818		385,958		17,596
Securities held to maturity:
State and political subdivisions		72,269		468		-		-		72,269		468
Total	$	407,299	$	15,246	$	50,928	$	2,818	$	458,227	$	18,064

The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2014 was 122 compared to 331 at December 31, 2013. At September 30, 2014, the Company had positions in 55 investment securities with a fair value of $221.3 million and a total unrealized loss of $8.0 million that have been in a continuous unrealized loss position for more than 12 months. There were a total of 67 securities positions in the Companys investment portfolio, with a fair value of $136.4 million and a total unrealized loss of $801 thousand at September 30, 2014, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Companys portfolio fluctuates as market interest rates change.

The Company reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (OTTI) with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information then available to management.

Based on managements review and evaluation of the Companys debt securities as of September 30, 2014, the debt securities with unrealized losses were not considered to be other than temporarily impaired. As of September 30, 2014, the Company did not intend to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. Accordingly, as of September 30, 2014, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Companys consolidated statements of income.