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SECURITIES | 3 Months Ended
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Mar. 31, 2014
Investments Debt And Equity Securities [Abstract] |
SECURITIES | NOTE 3 SECURITIES The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:
|  | (In Thousands) |
|  | March 31, 2014 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Estimated Market Value |
Available-for-Sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 26,009 |  |  | $ | — |  |  | $ | (780 | ) |  | $ | 25,229 |
U.S. Government agency |  |  | 161,535 |  |  |  | 1,098 |  |  |  | (2,767 | ) |  |  | 159,866 |
Mortgage-backed securities |  |  | 42,478 |  |  |  | 661 |  |  |  | (324 | ) |  |  | 42,815 |
State and local governments |  |  | 78,717 |  |  |  | 1,745 |  |  |  | (647 | ) |  |  | 79,815 |
|  | $ | 308,739 |  |  | $ | 3,504 |  |  | $ | (4,518 | ) |  | $ | 307,725 |
|  | (In Thousands) |
|  | December 31, 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 |
|  | $ | 324,500 |  |  | $ | 5,023 |  |  | $ | (5,014 | ) |  | $ | 324,509 |
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.
1. | The fair value of the security has significantly declined from book value.
2. | A downgrade has occurred that lowered the credit rating to below investment grade (below Baa3 by Moody and BBB – by Standard and Poors.)
3. | Dividends have been reduced or eliminated or scheduled interest payments have not been made.
4. | The underwater security has longer than 10 years to maturity and the loss position had existed for more than 3 years.
5. | 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 March 31, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:
|  | (In Thousands) |
|  | March 31, 2014 |
|  | Less Than Twelve Months |  |  | Twelve Months & Over |
|  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |
U.S. Treasury |  | $ | (780 | ) |  | $ | 25,229 |  |  | $ | — |  |  | $ | — |
U.S. Government agency |  |  | (2,412 | ) |  |  | 92,561 |  |  |  | (355 | ) |  |  | 4,646 |
Mortgage-backed securities |  |  | (324 | ) |  |  | 20,008 |  |  |  | — |  |  |  | — |
State and local governments |  |  | (626 | ) |  |  | 22,847 |  |  |  | (21 | ) |  |  | 389 |
Total available-for-sale securities |  | $ | (4,142 | ) |  | $ | 160,645 |  |  | $ | (376 | ) |  | $ | 5,035 |
|  | (In Thousands) |
|  | December 31, 2013 |
|  | Less Than Twelve Months |  |  | 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-sale securities |  | $ | (4,611 | ) |  | $ | 164,278 |  |  | $ | (403 | ) |  | $ | 4,598 |
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. Below are the gross realized gains and losses as of March 31 for each of the years presented.
|  | (In Thousands) |
|  | 2014 |  |  | 2013 |
Gross realized gains |  | $ | 122 |  |  | $ | 224 |
Gross realized losses |  |  | — |  |  |  | (3 | )
Net realized gains |  | $ | 122 |  |  | $ | 221 |
Tax expense related to net realized gains |  | $ | 42 |  |  | $ | 75 |
The net realized gain on sales and related tax expense is a reclassification out of accumulated other comprehensive income. The net realized gain is included in net gain on sale of securities available for sale and the related tax expense is included in income tax expense in the condensed consolidated statements of income and comprehensive income. The amortized cost and fair value of debt securities at March 31, 2014, 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 |  | $ | 13,677 |  |  | $ | 13,924 |
After one year through five years |  |  | 169,784 |  |  |  | 170,039 |
After five years through ten years |  |  | 74,346 |  |  |  | 72,885 |
After ten years |  |  | 8,454 |  |  |  | 8,062 |
Total |  | $ | 266,261 |  |  | $ | 264,910 |
Mortgage-backed securities |  |  | 42,478 |  |  |  | 42,815 |
Total |  | $ | 308,739 |  |  | $ | 307,725 |
Investments with a carrying value and fair value of $216.1 million at March 31, 2014 and $205.2 million at December 31, 2013 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 March 31, 2014. 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.

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