NOTE 3 – INVESTMENT SECURITIES

The Company’s investment policy blends the Company’s liquidity needs and interest rate risk management with its desire to increase income and provide funds for expected growth in loans. The investment securities portfolio consists primarily of U.S. government sponsored mortgage-backed securities and agencies, state, county and municipal securities and corporate debt securities. The Company’s portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For the small portion of the Company’s portfolio found to present credit risk, the Company has reviewed the investments and financial performance of the obligors and believes the credit risk to be acceptable.

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2014, December 31, 2013 and September 30, 2013 are presented below:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
September 30, 2014:
U. S. government agencies	$	14,951	$	—	$	(491	)	$	14,460
State, county and municipal securities		134,641		3,708		(714	)		137,635
Corporate debt securities		10,801		237		(73	)		10,965
Mortgage-backed securities		364,399		4,493		(2,443	)		366,449

Total securities	$	524,792	$	8,438	$	(3,721	)	$	529,509

December 31, 2013:
U. S. government agencies	$	14,947	$	—	$	(1,021	)	$	13,926
State, county and municipal securities		112,659		2,269		(2,174	)		112,754
Corporate debt securities		10,311		275		(261	)		10,325
Collateralized debt obligations		1,480		—		—			1,480
Mortgage-backed securities		349,441		2,347		(4,038	)		347,750

Total securities	$	488,838	$	4,891	$	(7,494	)	$	486,235

September 30, 2013:
U. S. government agencies	$	14,945	$	—	$	(1,028	)	$	13,917
State, county and municipal securities		112,643		2,331		(2,035	)		112,939
Corporate debt securities		10,314		280		(856	)		9,738
Mortgage-backed securities		176,818		2,714		(3,878	)		175,654

Total securities	$	314,720	$	5,325	$	(7,797	)	$	312,248

The amortized cost and fair value of available-for-sale securities at September 30, 2014 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. The weighted average life of these securities is less than 4.5 years and modeled not to extend beyond 6 years in an increasing rate scenario. Therefore, these securities are not included in the following maturity summary:


	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	10,647	$	10,844
Due from one year to five years		35,432		36,856
Due from five to ten years		66,554		67,094
Due after ten years		47,760		48,266
Mortgage-backed securities		364,399		366,449

	$	524,792	$	529,509

Securities with a carrying value of approximately $265.9 million serve as collateral to secure public deposits and for other purposes required or permitted by law at September 30, 2014, compared to $399.0 million and $217.3 million at December 31, 2013 and September 30, 2013, respectively.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2014, December 31, 2013 and September 30, 2013.


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
September 30, 2014:
U. S. government agencies	$	—	$	—		$	14,460	$	(491	)	$	14,460	$	(491	)
State, county and municipal securities		10,296		(98	)		22,696		(616	)		32,992		(714	)
Corporate debt securities		—		—			4,997		(73	)		4,997		(73	)
Mortgage-backed securities		71,050		(416	)		51,314		(2,027	)		122,364		(2,443	)

Total temporarily impaired securities	$	81,346	$	(514	)	$	93,467	$	(3,207	)	$	174,813	$	(3,721	)

December 31, 2013:
U. S. government agencies	$	13,926	$	(1,021	)	$	—	$	—		$	13,926	$	(1,021	)
State, county and municipal securities		47,401		(1,882	)		3,794		(292	)		51,195		(2,174	)
Corporate debt securities		—		—			4,826		(261	)		4,826		(261	)
Collateralized debt obligations		—		—			—		—			—		—
Mortgage-backed securities		94,989		(2,493	)		23,388		(1,545	)		118,377		(4,038	)

Total temporarily impaired securities	$	156,316	$	(5,396	)	$	32,008	$	(2,098	)	$	188,324	$	(7,494	)

September 30, 2013:
U. S. government agencies	$	13,917	$	(1,028	)	$	—	$	—		$	13,917	$	(1,028	)
State, county and municipal securities		46,516		(1,735	)		3,807		(300	)		50,323		(2,035	)
Corporate debt securities		—		—			4,235		(856	)		4,235		(856	)
Mortgage-backed securities		90,639		(3,878	)		—		—			90,639		(3,878	)

Total temporarily impaired securities	$	151,072	$	(6,641	)	$	8,042	$	(1,156	)	$	159,114	$	(7,797	)

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2014, these investments are not considered impaired on an other-than-temporary basis.

At September 30, 2014, December 31, 2013 and September 30, 2013, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

The following table is a summary of sales activities in the Company’s investment securities available for sale for the nine months ended September 30, 2014, year ended December 31, 2013 and nine months ended September 30, 2013:


	September 30, 2014			December 31, 2013			September 30, 2013
	(Dollars in Thousands)
Gross gains on sales of securities	$	141		$	353		$	353
Gross losses on sales of securities		(3	)		(182	)		(182	)

Net realized gains on sales of securities available for sale	$	138		$	171		$	171

Sales proceeds	$	92,975		$	36,669		$	36,669