Note 3 - Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:


	(In Thousands)
	2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
Available-for-Sale:
U.S. Treasury	$	26,067	$	—	$	(795	)	$	25,272
U.S. Government agency		174,772		1,386		(3,186	)		172,972
Mortgage-backed securities		44,638		728		(574	)		44,792
State and local governments		79,023		2,909		(459	)		81,473

Total available-for-sale securities	$	324,500	$	5,023	$	(5,014	)	$	324,509


	(In Thousands)
	2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
Available-for-Sale:
U.S. Treasury	$	10,604	$	—	$	(36	)	$	10,568
U.S. Government agency		216,466		3,905		(171	)		220,200
Mortgage-backed securities		51,581		1,425		—			53,006
State and local governments		68,022		4,129		(20	)		72,131

Total available-for-sale securities	$	346,673	$	9,459	$	(227	)	$	355,905

Investment securities will at times depreciate to an unrealized loss position. The Bank utilizes the following criteria to assess whether impairment is other than temporary. No one item by itself will necessarily signal that a security should be recognized as an other than temporary impairment.

The fair value of the security has significantly declined from book value.

A downgrade has occurred that lowered the credit rating to below investment grade (below Baa3 by Moody and BBB – by Standard and Poors.)

Dividends have been reduced or eliminated or scheduled interest payments have not been made.

The underwater security has longer than 10 years to maturity and the loss position had existed for more than 3 years.

Management does not possess both the intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

If the impairment is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value, thereby establishing a new cost basis. The new cost basis shall not be changed for subsequent recoveries in fair value. The amount of the write down shall be included in current earnings as a realized loss. The recovery in fair value, if any, shall be recognized in earnings when the security is sold. The table below is presented by category of security and length of time in a continuous loss position. The Bank currently does not hold any securities with other than temporary impairment.

Information pertaining to securities with gross unrealized losses at December 31, 2013 and 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:


	2013
	(In Thousands) Less Than Twelve Months					(In Thousands) Twelve Months & Over
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	(795	)	$	25,272	$	—		$	—
U.S. Government agency		(2,783	)		96,241		(403	)		4,598
Mortgage-backed securities		(574	)		23,171		—			—
State and local governments		(459	)		19,594		—			—

Total available-for-sales securities	$	(4,611	)	$	164,278	$	(403	)	$	4,598


	2012
	(In Thousands) Less Than Twelve Months					(In Thousands) Twelve Months & Over
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
U.S. Treasury	$	(36	)	$	10,568	$	—		$	—
U.S. Government agency		(171	)		33,034		—			—
Mortgage-backed securities		—			—		—			—
State and local governments		(20	)		2,903		—			—

Total available-for-sales securities	$	(227	)	$	46,505	$	—		$	—

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality and the Bank has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

Sales of $91.0, $60.5, and $30.3 million for 2013, 2012 and 2011 respectively, generated gross realized gains and losses for the years ended December 31, as presented below:


	(In Thousands)
	2013			2012		2011
Gross realized gains	$	839		$	852	$	504
Gross realized losses		(64	)		—		—

Net realized gains	$	775		$	852	$	504

Tax expense related to net realized gains	$	264		$	290	$	171

The amortized cost and fair value of debt securities at December 31, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	(In Thousands)
	Amortized
	Cost		Fair Value

One year or less	$	8,774	$	8,892
After one year through five years		173,008		174,132
After five years through ten years		89,624		87,168
After ten years		8,456		9,525

Total	$	279,862	$	279,717
Mortgage-backed securities		44,638		44,792

Total	$	324,500	$	324,509

Investments with a carrying value and fair value of $205.2 million at December 31, 2013 and $196.9 million at December 31, 2012 were pledged to secure public deposits and securities sold under repurchase agreements.

Other securities include Federal Home Loan Bank of Cincinnati and Farmer Mac stock as of December 31, 2013. Federal Home Loan Bank of Indianapolis stock which was acquired in the Knisely acquisition, completely redeemed in early 2013. The stock acquired had a five-year redemption period. The stock is carried at cost, which approximates fair value.