Note 3: Securities Available For Sale

A summary of the amortized cost and market values of securities available for sale follows:


December 31, 2013				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
Available for Sale:		Cost		Gains		Losses		Fair Value

Mortgage-backed securities:
US Government-sponsored enterprises	$	277,838	$	4,386	$	8,592	$	273,632
US Government agency		83,153		833		2,457		81,529
Private label		5,423		825		78		6,170
Obligations of states
and political subdivisions thereof		95,221		1,121		7,503		88,839
Total	$	461,635	$	7,165	$	18,630	$	450,170


December 31, 2012				Gross		Gross
		Amortized		Unrealized		Unrealized		Estimated
Available for Sale:		Cost		Gains		Losses		Fair Value

Mortgage-backed securities:
US Government-sponsored enterprises	$	238,974	$	7,913	$	1,064	$	245,823
US Government agency		82,397		2,080		216		84,261
Private label		8,063		571		521		8,113
Obligations of states
and political subdivisions thereof		76,335		4,040		532		79,843

Total	$	405,769	$	14,604	$	2,333	$	418,040

Securities Impairment: As a part of the Company's ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired.

For the year ended December 31, 2013, the Company recorded total OTTI losses of $359 (before taxes), related to three, available for sale, 1-4 family, private-label MBS, all of which the Company had previously determined was other-than-temporarily impaired. Of the $359 in total OTTI losses, $249 (before taxes) represented estimated credit losses on the collateral underlying the securities, while $110 (before taxes) represented unrealized losses for the same securities resulting from factors other than credit. The $249 in estimated credit losses were recorded in earnings (before taxes) with the $110 non-credit portion of the unrealized losses recorded within accumulated other comprehensive income (net of taxes). The additional credit losses principally reflected an increase in the future loss severity and constant default rate estimates resulting from still-recovering real estate markets, extended foreclosure and collateral liquidation timelines, and still-depressed economic conditions that affected the expected performance of the mortgage loans underlying these securities.

For the year ended December 31, 2012, the Company recorded total OTTI losses of $1,170 (before taxes), related to fourteen, available for sale, 1-4 family, private-label MBS, all but two of which the Company had previously determined was other-than-temporarily impaired. Of the $1,170 in total OTTI losses, $853 (before taxes) represented estimated credit losses on the collateral underlying the securities, while $317 (before taxes) represented unrealized losses for the same securities resulting from factors other than credit. The $853 in estimated credit losses were recorded in earnings (before taxes) with the $317 non-credit portion of the unrealized losses recorded within accumulated other comprehensive income (net of taxes). The additional credit losses principally reflected an increase in the future loss severity and constant default rate estimates resulting from depressed real estate markets, extended foreclosure and collateral liquidation timelines, and depressed economic conditions that affected the expected performance of the mortgage loans underlying these securities.

The OTTI losses recognized in earnings represented management's best estimate of credit losses inherent in the securities based on discounted, bond-specific future cash flow projections using assumptions about cash flows associated with the pools of loans underlying each security. In estimating those cash flows the Company considered loan level credit characteristics, current delinquency and non-performing loan rates, current levels of subordination and credit support, recent default rates and future constant default rate estimates, loan to collateral value ratios, recent collateral loss severities and future collateral loss severity estimates, recent prepayment rates and future prepayment rate assumptions, and other estimates of future collateral performance.

Despite elevated levels of delinquencies, defaults and losses in the underlying residential mortgage loan collateral, given credit enhancements resulting from the structures of the individual securities, the Company currently expects that as of December 31, 2013 it will recover the amortized cost basis of its private-label mortgage-backed securities and has therefore concluded that such securities were not other-than-temporarily impaired as of that date. Nevertheless, given future market conditions, it is possible that adverse changes in repayment performance and fair value could occur in future periods that could impact the Company's current best estimates.

The following table displays the beginning balance of OTTI related to historical credit losses on debt securities held by the Company at the beginning of the current reporting period as well as changes in estimated credit losses recognized in pre-tax earnings for the three years ended December 31, 2013.


		2013		2012		2011

Estimated credit losses as of prior year-end,	$	5,131	$	4,697	$	3,373
Additions for credit losses for securities on which
OTTI has been previously recognized		249		682		1,757
Additions for credit losses for securities on which
OTTI has not been previously recognized		--		171		462
Reductions for securities paid off during the period		691		419		895
Estimated credit losses as of December 31,	$	4,689	$	5,131	$	4,697

Upon initial impairment of a security, total OTTI losses represent the excess of the amortized cost over the fair value. For subsequent impairments of the same security, total OTTI losses represent additional credit losses and or declines in fair value subsequent to the previously recorded OTTI losses, if applicable. Unrealized OTTI losses recognized in accumulated other comprehensive income ("OCI") represent the non-credit component of OTTI losses on debt securities. Net impairment losses recognized in earnings represent the credit component of OTTI losses on debt securities.

As of December 31, 2013, the Company held fourteen private-label MBS (debt securities) with a total amortized cost (i.e. carrying value) of $2,681 where OTTI losses have been historically recognized in pre-tax earnings (dating back to the fourth quarter of 2008). For twelve of these securities, the Company previously recognized credit losses in excess of the unrealized losses in accumulated OCI, creating an unrealized gain of $519, net of tax, as included in accumulated OCI as of December 31, 2013. For the remaining two securities, the total OTTI losses included in accumulated OCI amounted to $30 net of tax, as of December 31, 2013. As of December 31, 2013, the total net unrealized gains included in accumulated OCI for securities held where OTTI has been historically recognized in pre-tax earnings amounted to $488, net of tax, compared with net unrealized gains of $144, net of tax, at December 31, 2012.

As of December 31, 2013, based on a review of the remaining securities in the securities portfolio, the Company concluded that it expects to recover its amortized cost basis for such securities. This conclusion was based on the issuers' continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that they will continue to do so through the maturity of the security, the expectation that the Company will receive the entire amount of future contractual cash flows, as well as the evaluation of the fundamentals of the issuers' financial condition and other objective evidence. Accordingly, the Company concluded that the declines in the values of those securities were temporary and that any additional other-than-temporary impairment charges were not appropriate at December 31, 2013. As of that date, the Company did not intend to sell nor anticipated that it would more-likely-than-not that it would be required to sell any of its impaired securities, that is, where fair value is less than the cost basis of the security.

The following tables summarize the fair value of securities with continuous unrealized losses for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or longer as of December 31, 2013 and 2012. All securities referenced are debt securities. At December 31, 2013 and 2012, the Company did not hold any common stock or other equity securities in its securities portfolio.


	Less than 12 months					12 months or longer					Total
		Estimated					Estimated					Estimated
December 31, 2013		Fair	Number of		Unrealized		Fair	Number of		Unrealized		Fair	Number of		Unrealized
		Value	Investments		Losses		Value	Investments		Losses		Value	Investments		Losses
Description of Securities:

Mortgage-backed securities:
US Government-
sponsored enterprises	$	111,169	140	$	4,801	$	40,563	40	$	3,791	$	151,732	180	$	8,592
US Government agency		36,356	47		1,982		9,156	12		475		45,512	59		2,457
Private label		826	12		61		449	7		17		1,275	19		78
Obligations of states and
political subdivisions thereof		61,174	135		5,601		8,464	30		1,902		69,638	165		7,503
Total	$	209,525	334	$	12,445	$	58,632	89	$	6,185	$	268,157	423	$	18,630


	Less than 12 months					12 months or longer					Total
		Estimated					Estimated					Estimated
December 31, 2012		Fair	Number of		Unrealized		Fair	Number of		Unrealized		Fair	Number of		Unrealized
		Value	Investments		Losses		Value	Investments		Losses		Value	Investments		Losses
Description of Securities:

Mortgage-backed securities:
US Government-
sponsored enterprises	$	56,008	55	$	1,064	$	---	--	$	--	$	56,008	55	$	1,064
US Government agency		15,281	18		216		56	2		--		15,337	20		216
Private label		783	6		48		2,196	14		473		2,979	20		521
Obligations of states and
political subdivisions thereof		10,476	27		261		2,561	12		271		13,037	39		532
Total	$	82,548	106	$	1,589	$	4,813	28	$	744	$	87,361	134	$	2,333

For securities with unrealized losses, the following information was considered in determining that the impairments were not other-than-temporary:

Mortgage-backed securities issued by U.S. Government-sponsored enterprises: As of December 31, 2013, the total unrealized losses on these securities amounted to $8,592, compared with $1,064 at December 31, 2012. All of these securities were credit rated "AA+" by the major credit rating agencies. Company management believes these securities have minimal credit risk, as these enterprises play a vital role in the nation's financial markets. Management's analysis indicates that the unrealized losses at December 31, 2013 were attributed to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at December 31, 2013.

Mortgage-backed securities issued by U.S. Government agencies: As of December 31, 2013, the total unrealized losses on these securities amounted to $2,457, compared with $216 at December 31, 2012. All of these securities were credit rated "AA+" by the major credit rating agencies.
Management's analysis indicates that these securities bear little or no credit risk because they are backed by the full faith and credit of the United States. The Company attributes the unrealized losses at December 31, 2013 to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at December 31, 2013.
Private-label mortgage-backed securities: As of December 31, 2013, the total unrealized losses on the Bank's private-label mortgage-backed securities amounted to $78, compared with $521 at December 31 2012. The Company attributes the unrealized losses at December 31, 2013 to the current illiquid market for non-agency mortgage-backed securities, a still-recovering housing market, risk-related market pricing discounts for non-agency mortgage-backed securities and credit rating downgrades on certain private-label MBS owned by the Company. Based upon the foregoing considerations, and the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities at December 31, 2013.
Obligations of states of the U.S. and political subdivisions thereof: As of December 31, 2013, the total unrealized losses on the Bank's municipal securities amounted to $7,503, compared with $532 at December 31, 2012. The Bank's municipal securities primarily consist of general obligation bonds and to a lesser extent, revenue bonds. General obligation bonds carry less risk, as they are supported by the full faith, credit and taxing authority of the issuing government and in the cases of school districts, are additionally supported by state aid. Revenue bonds are generally backed by municipal revenue streams generated through user fees or lease payments associated with specific municipal projects that have been financed.
Municipal bonds are frequently supported with insurance, which guarantees that in the event the issuer experiences financial problems, the insurer will step in and assume payment of both principal and interest. Historically, insurance support has strengthened an issuer's underlying credit rating to AAA or AA status. Starting in 2008 and continuing through 2013, many of the insurance companies providing municipal bond insurance experienced financial difficulties and, accordingly, were downgraded by at least one of the major credit rating agencies. Consequently, since 2008 a portion of the Bank's municipal bond portfolio was downgraded by at least one of the major credit rating agencies. Notwithstanding the credit rating downgrades, at December 31, 2013, the Bank's municipal bond portfolio did not contain any below investment grade securities as reported by major credit rating agencies. In addition, at December 31, 2013 all municipal bond issuers were current on contractually obligated interest and principal payments.
The Company attributes the unrealized losses at December 31, 2013 to changes in credit ratings on certain securities and resulting changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased. The Company also attributes the unrealized losses to ongoing media attention and market concerns about the prolonged recovery from the national economic recession and the impact it might have on the future financial stability of municipalities throughout the country. Accordingly, the Company does not consider these municipal securities to be other-than-temporarily impaired at December 31, 2013.

At December 31, 2013, the Company had no intent to sell nor believed it is more-likely-than-not that it would be required to sell any of its impaired securities as identified and discussed immediately above, and therefore did not consider these securities to be other-than-temporarily impaired as of that date.

Maturity Distribution: The following table summarizes the maturity distribution of the amortized cost and estimated fair value of securities available for sale as of December 31, 2013.


		Amortized		Estimated
Securities Available for Sale		Cost		Fair Value

Due one year or less	$	--	$	--
Due after one year through five years		4,360		4,450
Due after five years through ten years		20,080		20,625
Due after ten years		437,195		425,095
Total	$	461,635	$	450,170

Actual maturities may differ from the final contractual maturities depicted above because of securities call or prepayment provisions with or without call or prepayment penalties. The contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time. Monthly pay downs on mortgage-backed securities cause the average lives of the securities to be much different than their stated lives. Mortgage-backed securities are allocated among the maturity groupings based on their final maturity dates.

Realized Securities Gains and Losses:

The following table summarizes realized gains and losses and other than temporary impairment losses on securities available for sale for the years ended December 31, 2013, 2012 and 2011.


		Proceeds from							Other Than
		Sale of Securities		Realized		Realized			Temporary
		Available for Sale		Gains		Losses			Impairment Losses		Net

2013	$	17,234	$	684	($	8	)	$	249	$	427
2012	$	39,304	$	1,963	($	25	)	$	853	$	1,085
2011	$	48,468	$	2,689	$	---		$	2,219	$	470